Can a claimant purchase their own annuity after a cash settlement and still receive payments tax-free?
No! A claimant may purchase an annuity policy with their settlement dollars after the closing documents have been signed, but without the income tax free advantages afforded by IRC Sections 104(a)(2). Generally speaking, in order to take full advantage of Section 104 the defense must cooperate in purchasing, guaranteeing and owning the annuity contract. Claimants may not exert any “control” over the annuity contract in order to be assured of tax-free payments. (Except in the case of a Qualified Settlement Fund under Treasury Reg. 1.
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