Workers Compensation Settlements
Pursuant to IRC Section 104(a)(1)payment amounts received under workmen's compensation acts as compensation for personal injuries or sickness may be excluded from gross income as well. Additionally, claims filed after August 5, 1997 are eligible for qualified assignment under IRC Section 130(c)allowing the transfer of risk from the employer to the annuity company in states where assignments are not prohibited by law.
The advantages of structuring workers compensation benefits to the Injured Worker are:
- guaranteed benefits backed by larger company
- continuation of tax-exempt payments
- provides flexibility to seek other employment
- provides flexibility to seek medical providers of choice
The advantages of structuring workers compensation benefits to the Employer/Insurer are:
- transfer of mortality risk to annuity company
- transfer of investment risk to annuity company
- reduction in liability reserves on the books
- reduction in claims administration costs
In summary, the process of structuring a a workers compensation claim is as follows:
- Choose the appropriate claim to structure (i.e. indemnity and/or medical, widow's benefits)
- Design payment proposals to meet claimant's needs
- Negotiate settlement to conclusion
- Prepare Compromise & Release documents
- Seek appropriate Board/Commission approval in your State
- Annuity or Reinsurance contract issued subsequent to approval
Warning! Each case with Social Security benefits and/or Medicare involvement should be closely reviewed and analyzed to determine the effects of the proposed settlement on the continuing or future eligibility of such benefits. Please refer to Medicare Set-Aside arrangements in Medical Trusts.