by John Darer® CLU ChFC MSSC RSP CLTC
The favorable tax treatment of index linked structured settlement payments, was affirmed by the IRS in Private Letter Ruling 201435006, published on August 29, 2014.
As I reported here on April 16, 2014, the Private Letter Ruling was requested by Pacific Life Insurance Company and received in April 2014 just prior to the release of its Index Linked Annuity Payment Adjustment Rider (ILAPA).
The IRS ruling's specific findings on the Pacific Life ILAPA Rider were:
1. The periodic payments of damages that Claimant will receive are fixed and determinable as to amount and time of payment within the meaning of § 130(c)(2)(A) even though they are calculated pursuant to an objective formula based on the performance of the S&P 500 Index.
2. The Structured Settlement Indexed Annuity which Assignee will acquire from
either Issuer 1 or Issuer 2 will not fail to qualify as a qualified funding asset under
§ 130(d) solely by reason of annuity’s variable payments.
3. The possibility of a commutation by Claimant pursuant to the Notice of Hardship
Conversion will not affect whether the structured settlement assignment satisfies
the requirements of a qualified assignment under § 130(c).
4. The annuity purchased by Assignee will not fail to be a qualified funding asset
under § 130(d) by reason of the Notice of Hardship Conversion.
Copy of PLR 201435006 Download PLR 201435006 Index Linked Structured Settlement
The Notice of Hardship Conversion is not currently offered by Pacific Life but this appears to be a stage setter for its future introduction in the near future.