Tip #7 - Sending Structure Funds

December 2, 2014

Yes, structure funds can flow through plaintiff counsel's trust account without impacting the tax-free status of the structured settlement.

We are often asked whether it is appropriate for structure funds to be sent first to the plaintiff firm's trust account, while the parties await a decision as to how much of the total settlement will be structured.

At one time, the commonly-held view was that the funds HAD to flow directly to the issuing life insurer from the funding casualty company (either directly or through the structure broker). 

That is not the case. Payment of funds into plaintiff counsel's trust account does not constitute "constructive receipt" of the settlement funds by the plaintiff. Such receipt would negate the ability to establish a tax-free structured settlement for the benefit of the injured party.

The key issue is that the plaintiff must not have "dominion or control" over the structure funding at any time.

Having the funds flow into plaintiff counsel's trust account is not a problem. Counsel is simply holding the funds on behalf of the casualty insurer, until a determination has been made as to the appropriate amount and form of the structured settlement to be purchased. Once that has been confirmed, plaintiff counsel then forwards the structure funding to the structure broker for placement.

Sometimes, sending funds through plaintiff counsel's trust account can delay the funding of the structured settlement. For this reason, it is usually preferable to have the structure funds forwarded directly to McKellar, in trust. The funds would be held in an interest-bearing account pending a decision as to the amount and form of structure. That way, when the decision has been made, we can fund the chosen option, right away.