The process of setting up a structured settlement annuity is different than when your clients take a simple cash settlement. There are a few things you need to keep in mind to avoid a situation where it’s either too late to do a structured annuity or you’ve done something that now prohibits the client from having that option. So, here are all the steps on how to properly set up a structured settlement annuity:

Step 1: Contact Your Settlement Planner

To effectuate a structured settlement annuity on behalf of an injured client, it needs to be part of the settlement agreement with the defendant. The first step is to contact your structured settlement planner and come up with the right annuity design. Your settlement planner will work with you and the client to develop a plan with payout dates and amounts that fits the client’s needs. This step also involves choosing the right annuity company that will handle future payments to the client (Pacific Life, USAA, AIG, MetLife, etc.).

Step 2: Additional Language in the Settlement Documents

The next step is to add language to the settlement documents about the details of the annuity. We (or your settlement planner) will provide you with the language you need to add to the settlement documents.

If your client is a minor or is legally incompetent, the settlement will need to be court-approved. There is particular additional language that needs to be in the court approval documents. The annuity companies require that the court be aware of and approve of the structured settlement annuity in these types of cases.

In the court approval documents, there are several paragraphs that outline the annuity details, payment information, the annuity company, and other information.

Step 3: Additional Language in the Defendant Release Agreement

There is also some language that will be added to the release agreement with the defendant. There are several paragraphs that should outline the payments, funding, the payees, and the process of paying out the settlement to the client. Once again, your settlement planner will provide you with the necessary language to include in these agreements.

Step 4: Signing the Qualified Assignment Document

Additionally, there’s another document called the Qualified Assignment document (in some cases there are slightly different forms used, including the Qualified Assignment and Release).

The Qualified Assignment formally memorializes the transfer of the obligation to make the future payments from the original defendant to the annuity company. This is signed by the defendant or the defendant’s insurer. They will be the assignor of those future payments and their liability for those future payments. The annuity company also signs it as the assignee. By doing so, they are accepting the responsibility to make those future payments in exchange for a lump-sum payment from the original defendant to the annuity company.

Conclusion

Setting up a structured settlement annuity for your client is a little bit more complicated than settling for cash. There are more procedures involved, but it is not hard to do. Your settlement planner will provide you with all of the language and documents you need — but these steps must be followed correctly in order for your client to not lose out of that tax-free nature of structured settlement annuities.

If you have any questions about the mechanics and process of how to set up a structured settlement annuity for your client, please feel free to give us a call.