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.

Structured settlements or Structured Payments are an innovative way of compensating injury victims over time. Even though the current Federal tax laws fully exempt all monies received by victim in the form of Structured Payments, it is still a completely voluntary payment arrangement between the injury victim and the defendant.

When a victim agrees to be compensated under a "structured settlement," he/she does not receive the entire compensation for his/her injuries in the form of one lump sum amount. In stead, he/she receives it in the form of a predetermined stream of tax-free periodic payments -the amounts, and various terms are usually mutually agreed upon by both the claimant and the defendant after taking into consideration the living needs and desires of the Injured party.