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Non-Qualified Assignments
For many years, some life insurance companies have offered specialized annuity products, commonly referred to as structured settlements, for use primarily in the resolution of physical tort cases.
Several of these companies, such as Allstate, Liberty and Prudential, have developed new applications for their structured annuity concept for use in resolving certain business disputes or facilitating the sale of a business or property on an installment sale basis.
If either the annuitant (the person receiving the periodic payments) or the annuity purchaser owned the annuity contract, certain adverse income tax or accounting consequences may have occurred. Given this challenge, a method has been developed that eliminates these undesirable consequences. This method, referred to as a non-qualified assignment, permits the assignment company, to own the annuity in a manner similar to the assignment process used in physical injury cases.
For Non-Qualified Assignments (NQA), an assignment company receives financial consideration from the original responsible party and subsequently purchases an annuity to fund the future payment obligations.
The use of this NQA can be considered in any transaction wherein the parties would benefit by receiving an annuity stream instead of up-front cash.
NQA’s can offer significant tax benefits, enhanced rates of return, and flexibility of timing of the periodic payments, among other benefits for a wide variety of disputes and transactions, such as:
Structured Installment Sales - capital gain deferred on business and property sales
- Employment claims
- Wrongful terminations,
- Gender, age and racial discrimination cases
- E&O, D&O and related claims
- Attorney Fees
- Construction Defect
- Environmental Litigation
- Punitive Damage
- Sexual Torts
- Non-Physical Injuries
- False Arrest/Imprisonment
- Pre & Post August 5, 1997 Worker’s Comp Claims
- Disability Policy Buy-outs
- Property Disputes
- Breach of Contract
- Lottery/Contest Winners
- Fraud Claims
- Psychological Damage Claims
- Divorce Settlements
NQA’s can defer income into future years thus avoiding paying potentially higher taxes in the current tax year. Tax issues can be very important in designing a financial resolution that satisfies all parties. Since NQA’s use corporate assignments to transfer the responsibility of future payments to a financially strong assignment company risk of future payments can be addressed.
Competitive rates of return are achieved by selecting among several highly rated insurers. Returns are fully guaranteed since once agreed upon, the future periodic payments are not subject to either interest rate risks or market fluctuations.
NQA payments can be customized to match the specific requirements of the parties to the transaction. This flexibility is a significant benefit as it provides assurances necessary to conclude the transaction. Periodic payments can be guaranteed for a certain period of years or can be made for the life of the recipient. Lump sum payments can also be arranged to coincide with the future economic needs of the recipient. In some cases, annuitants can be medically underwritten which can potentially increase payment amounts for the same costs.
IFS, through a new initiative called Special Markets, has established a network of consultants experienced in NQA’s and can provide more detailed information for your financial and/or tax advisors, as well as, provide sample illustrations for your review. For more information on this initiative, please see the Special Markets section of our website.
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