Most structured settlements involve use of a Qualified Settlement Funds or QSFs as defined in US Treas. Reg. 8 1.468B-1 (c). QSFs are used to ensure that the annuities used to fund the periodic payments to a claimant are and will remain safe, secure and viable.

Congress’ intent in enacting the section 130 (1988 statutory amendment) and the policy underlying Rev. Proc. 93-34, 1993-2 C.B. 470, was to provide procedures under which qualified settlement funds (QSF) can be used to facilitate a qualified assignment under section 130.

However, there have been a small number of structured settlements that use a Designated Settlement Fund as defined in section 468B(d)(2) of the Code (DSF), rather than a QSF.

The term Designated Settlement Fund or DSF means any fund which is (A) established pursuant to a court order and which extinguishes completely the taxpayer’s tort liability with respect to claims described in subparagraph (D); (B) with respect to which no amounts may be transferred other than in the form of qualified payments; (C) which is administered by persons a majority of whom are independent of the taxpayer; (D) which is established for the principal purpose of resolving and satisfying present and future claims against the taxpayer (or any related person or formerly related person) arising out of personal injury, death, or property damage; (E) under the terms of which the taxpayer (or any related person) may not hold any beneficial interest in the income or corpus of the fund, and (F) with respect to which an election is made under this section by the taxpayer.

For more information on taxation issues involving designated settlement funds see Sec. 468B. Special rules for designated settlement funds.

Considering that the QSF regulations provide more complete guidance for taxpayers than does the statute providing for DSFs, QSFs are generally preferred over DSFs. However, even though most structured settlement related discussions mention use of a QSF, it must be noted that there are no material differences as far as the underlying issues and legal principles that apply to both -the DSFs and QSFs.