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.

A Qualified Funding Asset -as far as matters involving Structured Settlements are concerned- means an annuity contract issued by an insurance company licensed in the United States of America, or any obligation of the United States of America -provided that the aforementioned annuity contract or obligation meets certain statutory requirements.

A Qualified Funding Asset (also sometimes known as a qualified annuity) is usually not subject to the rule requiring inclusion of the income on the contract -which almost always applies to annuity contract holder entities (e.g. corporate entities) and not natural persons.

Simply put, the term Qualified Funding Asset usually means any annuity contract issued by a company licensed to do business as an insurance company under the laws of any State, or any obligation of the United States of America -provided that: