Five Alternatives to Annuities in Funding a Structured Settlement

While annuities are the most common method for funding structured settlements, there are alternative approaches that can be used to achieve similar financial security and tax benefits. Here are a few options:

1. Treasury Funded Structured Settlements

One alternative is to use Treasury obligations as the funding mechanism for structured settlements. Under this approach, the settlement funds are invested in U.S. government securities, such as Treasury bonds or Treasury bills. These securities are considered highly secure and provide a steady stream of income. The payments from these securities can be structured to meet the claimant's needs, and the funds remain tax-exempt.

2. Qualified Settlement Funds (QSFs)

Qualified Settlement Funds are another option. A QSF is a trust account established to hold settlement funds until they are distributed to the claimant. The funds in a QSF can be invested in various financial instruments, including annuities, Treasury securities, or other qualified funding assets. The QSF provides flexibility in managing the settlement funds while maintaining tax benefits1.

3. Structured Assignments

Structured assignments involve transferring the obligation to make periodic payments to a third-party assignee, such as a financial institution or trust company. The assignee then funds the structured settlement using qualified funding assets, such as annuities or Treasury securities. This approach allows for diversification and can provide additional security for the claimant.

4. Settlement Preservation Trusts

Settlement preservation trusts are designed to hold and manage settlement funds to ensure long-term financial security. These trusts can invest in a variety of financial instruments, including annuities, Treasury securities, and other qualified funding assets. The trust structure provides a layer of protection and can help manage the funds more effectively.

5. Combination Approaches

In some cases, a combination of funding methods can be used to achieve the desired financial outcome. For example, a structured settlement might include both an annuity and Treasury securities to provide a balanced and secure investment strategy. This approach can offer flexibility and diversification while maintaining the tax benefits of a structured settlement.

Each of these alternatives has its own advantages and considerations, and the best approach will depend on the specific needs and circumstances of the claimant. Consulting with financial and legal advisors can help determine the most suitable funding method for a structured settlement.