Settlement Services

Custodial Bond Account

The foregoing discussion touched briefly upon the two qualified means by which structured payments may be made so as to provide the plaintiff with tax-free payments and allow the defendant to assign its liability.  The most common method is through the purchase of an annuity or annuities which in turn are designed to meet the payment needs of the plaintiff or plaintiff’s family.  The other qualified method allows for the establishment of an account or trust funded with United States Treasury Bonds.  IBAR Settlement Company first developed and refined to provide the plaintiff with optimum security.  As a result of ongoing development this funding vehicle evolved from a trust format to that of a custodial account which we refer to as a Custodial Bond Account or CBA.

The CBA is funded through the purchase of United States Treasury Bills, Notes, or Bonds. The interest generated by the bonds is paid semi-annually with the corpus paid upon maturity.  The interest payments are paid by the Untied States Treasury into the CBA held by a legally qualified custodial entity.  In the case of CBA’s established through IBAR, either City Nation Bank or Merrill Lynch acts as the custodian.  All payments to the plaintiff are made directly by the custodian.

While the CBA has many attractive features, its most important attribute is that it affords the plaintiff a SECURED CREDITORS INTEREST in the assets held in the CBA.  It is this feature which provides the plaintiff with the greatest safety allowed under Internal Revenue Services Code Section 130.  The settlement documents developed by IBAR perfect the plaintiff’s secured interest in the bonds thus protecting those assets from any and all claims of the assignee’s (i.e., IBAR) creditors should the assignee fail.  A BOND PLEDGE AGREEMENT is entered into by the plaintiff, the assignee (i.e., IBAR) and the custodian (i.e., either City National Bank or Merrill Lynch).  The Bond Pledge Agreement which becomes part of the complete settlement documentation, identifies the specific United States Treasury Bonds by their CUSIP number.  To perfect the plaintiff’s secured interest in the bonds, a U.C.C. Form 1 is filed by IBAR with the appropriate regulatory offices in both California and New York.  This filing must be renewed every five years.  The additional documents needed to establish the CBA are the SETTLEMENT AGREEMENT; CUSTODIAL AGREEMENT; ASSIGNMENT AND ASSUMPTION (this is combined with the Bond Pledge Agreement as one document) and the ACKNOWLEDGEMENT OF LIEN.  All of these documents are prepared by IBAR.

Settlement Agreement:  This document lists the terms of the settlement and provides for the release for the defendant through an assignment of its liability.  This document is signed by the plaintiff and the defendant.  The terms of the periodic payments are included in the agreement.

Custodial Agreement:  This document sets forth the terms under which the custodian operates the CBA.

Assignment and Assumption and Bond Pledge Agreement:  This document provides for the transfer from the defendant to the assignee (IBAR).  As was discussed earlier, this document also identifies the specific bonds and sets them aside from any and all claims of the assignee’s creditors.  To perfect this document as U.C.C. Form 1 is filed in California and New York.

Acknowledgement of Lien:  This document is executed by the custodian and recognizes the secured creditors interest held by the plaintiff.

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