patrick_farber_structuring_nonpersonal_injury_settlements_with_liberty_lifeAs you’re aware, structured settlements are commonly utilized to help resolve physical injury tort and workers compensation claims. Claimants are often better served by receiving a guarantee of future periodic payments to meet their planned and unplanned needs than by receiving a lump sum cash payment, which may be dissipated prematurely.

When the parties agree to a structured settlement, the insurer or defendant assigns its obligation to make future periodic payments to a third party assignment company in exchange for consideration. In doing so, the insurer or defendant is released of any liability for future payments.

In cases of personal injury and workmen’s compensation, the IRS facilitates this transaction by allowing the assignment company to exclude the consideration paid to it from gross income. In cases other than workmen’s compensation or personal injury, however, e.g., employment disputes, breach of contract, etc., a U.S. assignee faces tax liability in connection with the consideration paid to it for the assignment. The assignee would be required to pay income tax on the consideration received, which makes the transaction financially impractical.

In June 1999, Liberty Life Assurance Company of Boston (Liberty Life), based in Boston MA, developed its program to begin working with BARCO Assignments, Ltd. (BARCO). BARCO is a Foreign Financial Institution domiciled in St. Michael, Barbados. This exclusive partnership was formed when it was recognized that there are claimants with damages seeking to utilize structured settlements in disputes involving damages other than personal injury and workmen’s compensation. BARCO is not subject to the U.S. tax code and, pursuant to the U.S./Barbados tax treaty, may accept consideration for the assignment of taxable settlements without facing U.S. tax liability.

To fund the obligation assigned to it by the defendant or insurer, BARCO purchases an annuity from Liberty Life. Liberty Life provides a financial commitment in support of BARCO’s obligations. Liberty Life’s financial strength backs all of its obligations to pay claims under the policies it issues, and in addition, Liberty Life’s ability to pay those claims is backed by a written guarantee from Liberty Mutual Insurance Company.

The program has grown consistently since 1999 and has successfully supported nearly 10,000 non-qualified structured settlements totaling more than $1 billion. Further, it has provided a settlement solution for more than 20 Fortune 500 companies across various industry sectors.

Additional information regarding BARCO can be found at www.barco.bb. Here is a letter from BARCO outlining its history, business activities, exclusive partnership with Liberty Life, annual auditing procedures and registration with the Internal Revenue Service.

Thank you to Liberty Life for providing the above information. Remember, payments from annuities for non-personal injury claimants are tax deferred, not tax-free.

Please contact us if you have any questions.

-Pat

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