Structured Settlement

2010-06-30T13:35:00.000-07:00

Structured Settlement 2009 Strategic Analysis

2009-07-24T06:15:00.000-07:00

BLOG has begun a mid-year 2009 strategic analysis of the structured settlement industry. This analysis includes attending and reporting about 2009 structured settlement professional stakeholder meetings plus continuing conversations with structured settlement industry leaders.

To organize and publish findings and analysis, S2KM is developing, and plans to publish and update, a related public wiki titled "Structured Settlements 2009". Here is a preview of this public wiki home page.

Purposes of Structured Settlements 2009 wiki

Provide S2KM with a dedicated online resource to identify, capture, organize and publish 2009 structured settlement strategic analysis.
Demonstrate how blogs and wikis can interact to improve strategic analysis and learning.
Encourage structured settlement knowledge leaders and professional associations to endorse, encourage and participate in strategic industry analysis.
Help all structured settlement stakeholders to better understand, improve and grow structured settlements.

Table of Contents - includes references to related 2009 conference presentations; subject to continuing wiki updates:

primary analytic resources - blog reporting for:
- 2009 structured settlement stakeholder meetings - the Table of Contents incorporates and features educational discussions from the following conferences:
- Structured settlement professional stakeholder association prior year meetings
- Related topics and knowledge leaders:
  - Settlement consulting;
  - Tim Nay Interview.
transitional perspective - structured settlements are undergoing two primary transitions:
- From claim management to settlement consulting:
  - NSSTA: Settlement Consulting - Joseph DiGangi
  - SSP: Settlement Planning Industry Update - Patrick Hindert.
  - SSP - State of the Art Settlement Planning - Joseph Tombs
  - NSSTA: Looking Forward - Chris Diamantis and Dan Durbin.
- From historic communication, learning and work processing to Internet-based models:
  - NSSTA:Web 2.0 - Patrick Hindert.
Public policy - no 2009 stakeholder association discussions.
Legislation and regulations
- Existing
  - Federal
    - SSP: Tax Panel - Richard Risk; Sylvius von Saucken; Peter Wayne.
  - State
    - SSP: Judicial Approval of Minors Settlements - Phillip McCrury.
    - NSSTA: Exemptions for Structured Settlement Payments - Craig Ulman.
- Proposed - no 2009 stakeholder association discussions.
  - Federal
  - State
- Political strategy
  - NSSTA: Federal Entitlement Programs - Andrew Imparato.
  - NSSTA: Washington Reports - Eric Vaughn.
  - SSP: AAJ Strategy - John Bowman.
  - NSSTA: Federal and State Issues - Len Blonder.
  - NSSTA political speakers:
    - Senator Richard Durbin (D) from Illinois;
    - Senator Charles Grassley (R) from Iowa;
    - Congressman Charles Rangle (D) from New York;
    - Congressman Kendrick Meek (D) from Florida;
    - Congressman James Langevin (D) from Rhode Island;
    - Congressman Joseph Crowley (D) from New York;
    - Congressman Dave Camp (R) from Michigan;
    - Congressman Brian Higgins (D) from New York;
    - Congresswoman Allyson Schwartz (D) from Pennsylvania;
    - Congressman Joseph Courtney (D) from Connecticut;
    - Plus the Chiefs of Staff for four congressmen.
Case law
- SSP: Litigation and Legislative Update - Anthony Alfieri.
- NSSTA: Spencer v. Hartford - Michael Miller.
- NSSTA: Fresno County Factoring Cases - Illana Hanau.
Primary and secondary markets
- NSSTA: Secondary Market Update - Michael Miller and Illana Hanau.
Government benefits
- NSSTA: Federal Entitlement Programs - Andrew Imparato.
- ASNP: Medicare Secondary Payer Compliance - Mark Popolizio.
- ASNP:Lien Resolution Strategies - William Browning; Mark Popolizio; Sylvius von Saucken.
- SSP: MMSEA Section 111 - Mark Popolizio.
- NSSTA: Medicare Panel - Roy Franco; Mark Popolizio; David Korch; Rafael Gonzoles.
- NSSTA: Medicaid Panel - John McCulloch; Timothy O'Driscoll; Dennis McAndrews
Structured settlement economics
- ASNP: Structured Settlement Annuities - Jack Meligan and Michele Whitmore.
- SSP: Life Insurance Insolvencies - Eric Nordman.
- NSSTA: Financial Strength Ratings - William Pargeans.
Structured settlement funding products
- NSSTA: 468B QSFs - Henry Strong, William Winslow, James Klapps.
- ASNP: Structured Settlement Annuities - Jack Meligan and Michele Whitmore.
- ASNP: 468B QSFs - Richard Risk and Jason Lazurus.
- SSP: Settlement Trusts - Christi Fried.
- SSP: Settlement Trust Software - David Eichenbaum.
Transactional analysis
- ASNP: Anatomy of a SNSP Case - Frank Johns, Kevin Urbatsch, Patrick Hindert.
Stakeholder associations
- NSSTA (2), SSP and ASNP 2009 meetings.
Ethics
- NSSTA: Business Ethics - Father Oliver Williams.
- NSSTA: Business Ethics - Mike Jones.
Standards
- SSP: Registered Settlement Planner - Joseph Tombs.
Business models
- Claim management
  - NSSTA: Plaintiff and Defense Brokers - Ronald Sullivan, James Early, Roger Bernstein, Bruce DeBacher, Michael Goodman.
  - SSP:Structured Settlement Insolvencies - Randy Dyer.
  - SSP: Growing Structured Settlements - Randy Dyer.
  - SSP: In-House Structured Settlement Programs - Kevin Mack.
  - NSSTA: Minnesota Bridge Collapse - Jerry Lothrop.
- Settlement consulting
  - NSSTA: Settlement Consulting - Joseph DiGangi.
  - ASNP: Integrating SNSP with an Elder law Practice - Tim Nay and Sandy Conley.
  - ASNP: Marketing to the Trial Bar - Frank Johns, Jason Lazurus, Kevin Urbatsch.
  - SSP: State of the Art Settlement Planning - Joseph Tombs.

Structured Settlement Surveys

2009-07-05T13:09:00.001-07:00

A prior ME blog post (J.G. Wentworth Structured Settlement Survey) introduces the J.G. Wentworth structured settlement survey and highlights other market reports and surveys important for "Growing the Structured Settlement Market".
These prior reports and surveys include:
• Market analysis by Towers Perrin titled "2007 Update on U.S. Tort Cost Trends"
• NSSTA 2006 Survey - as summarized by Joseph Costello at the NSSTA 2007 Winter Meeting and the NSSTA 2007 Annual Meeting;
• AIG 2007 Survey - as reported by AIG on the AIG website.
ME's summary of these three structured settlement marketing reports follows. The purpose of this ME summary is to provide context and perspective for ME's summary of J.G. Wentworth's more recent structured settlement survey. ME's review and analysis of the J.G. Wentworth survey will appear in subsequent ME blog posts.
Towers Perrin Study
• Reports $247 billion of 2006 U.S. tort costs.
• Does not address structured settlements or any other settlement planning products;
• Does not address the secondary structured settlement market;
• Consists of three components: 1) losses paid to third parties; 2) defense costs; and 3) administrative expenses.
• Calculates tort costs resulting from five insured plus uninsured business lines: 1) commercial multi-peril; 2) medical malpractice; 3) product liability; 4) other liability; and 5) commercial auto;
• Study excludes: 1) no-fault auto insurance; 2) property coverages; 3) workers compensation; 4) certain extraordinary (one time) costs - example: tobacco litigation.
• ME Note 1: a 2002 Towers Perrin study translated overall tort costs in 2001 into these additional cost categories and percentages: 1) administrative costs - 21%; 2) defense costs - 14%; 3) plaintiff attorneys -19%; 4) econcomic loss - 22%; and 5) non-economic loss - 24%.
• ME Note 2: Towers Perrin discontinued this portion of its analysis in 2002. It was "devilishly difficult" according to Russ Sutter, a Tillinghast principal and actuary who directs the Towers Perrin study, "primarily because we lack reliable information from plaintiff attorneys". The percentages represented Tillinghast's "best estimate" in 2002.
• ME assumption: for lack of more reliable estimates of tort cost payment categories and percentages, ME will use Tillinghast's "best estimate" in 2002 for 2001. The results for 2006 would be approximately: 1) $161 billion (65%) of 2006 U.S. tort costs represented payments to injury victims and their attorneys; and 2) $86 billion (35%) represented defense and administrative costs.
The NSSTA Survey
• Was never published online and never distributed to NSSTA members.
• ME is a NSSTA member. This ME summary is based upon ME's typewritten notes from the NSSTA 2007 Winter Meeting and the NSSTA 2007 Annual Meeting.
• The NSSTA-sponsored survey is titled: "A Study of the Structured Settlement Process Conducted on behalf of the National Structured Settlement Trade Association".
• The NSSTA survey was directed by Robert E. Hoyt, the Dudley L. Moore, Jr. Chair of Insurance at the Terry College of Business at the University of Georgia.
• The NSSTA survey consisted of attorneys involved in structured settlements (43 telephone surveys) and structured settlement recipients (1275 telephone and Internet surveys).
• As reported by Joseph Costello at NSSTA's 2007 Winter Meeting and 2007 Annual Meeting, only 7% of personal injury settlements between $75,000 and $100,000 include structured settlements; and only 30% of personal injury settlements above $1 million include structured settlements.
• The NSSTA attorney survey results include the following responses to the question: "Whom do you prefer to use for purposes of financial planning for your clients?" The results: Trust company/department - 30%; Financial planner - 28%; Structured settlement consultant - 23%; No response - 19%.
• Additional attorney responses: 95% of the attorneys surveyed said they are proponents of structured settlements; 70% of the attorneys said they retain a structured settlement consultant at least for some cases; 93% of the attorneys are satisfied with their structured settlement consultant; 50% want to learn more about structured settlements; 75% said financial strength was the most important consideration in recommending annuity providers; 88% said they were aware they could structure their fees.
• Injury victim responses: 65% said they had not heard about structured settlements prior to settlement; most injury victim respondents were uncertain whether a structured settlement consultant was involved with their case; 34% recalled receiving educational information; 75% of this 34% who recalled receiving structured settlement educational information said the information was helpful; 66% of the injury victim respondents first learned about structured settlements from their trial attorney; 75% said they were very happy their settlement included structured settlement annuities; 75% of the injury victim respondents said they would recommend a structured settlement.
• The NSSTA survey did not include any questions about the secondary structured settlement annuity market.
The AIG Survey
• The AIG survey was sponsored by AIG American General Structured Settlements and conducted by Esearch.com, Inc. in September 2007.
• The AIG survey included 1000 U.S. participants - 80% had no connection with any personal injury case; 20% had previously been involved directly or indirectly through a family member in a personal injury case.
• Accuracy: AIG claims its survey has a margin of error of plus or minus 3.10 percent at a 95% level of confidence.
• AIG's conclusion: the structured settlement industry needs to educate Americans about structured settlements.
• AIG survey procedure: respondents who had no connection to a personal injury case were asked to read two hypothetical scenarios and answer questions on how they would react.Those with a direct connection to a personal injury case were not only asked to read the hypothetical scenarios, but also to answer questions based upon their real life experience.
• In AIG's first survey hypothetical, AIG provides no information about structured settlements. Results: 65% of respondents said they would elect a lump sum of which 49% said they believed they could make their own long term decisions and 26% said the lump sum was more appropriate to pay bills and pay off debt.
• In AIG's second survey hypothetical, AIG provided survey respondents with information about structured settlements - presumably this "AIG Backgrounder" which AIG features on its website. Results: 73% of respondents said they would elect a structured settlement.
• 206 of 1000 participants said they or their family had been involved with a personal injury case. Of the 206, 86% had elected lump sum; 57% said they were unaware of structured settlements; 64% said their attorneys did not inform them about structured settlements; 57% of those that elected a lump sum said their settlement funds were already depleted; 71% of respondents who said they favored a structured settlement did so "to provide a regimented stream of income designed to cover expenses".
• The AIG structured settlement survey did not include any questions or information about the secondary structured settlement market.

J.G. Wentworth Survey - 5

2009-07-05T13:09:00.000-07:00

Four prior ME blog posts:
• Introduced the J.G. Wentworth (JGW) 2008 structured settlement survey;
• Summarized other related and recent structured settlement reports and surveys; and
• Identified the nine (9) JGW survey questions JGW has given ME permission to publish.
• Published responses to five JGW survey questions directly related to the primary structured settlement market.
This ME blog post publishes responses to four JGW survey questions about the secondary structured settlement market. In reporting these questions and responses, ME has altered both the numbering system and the related response sequence (but not the questions or response results) to better present the survey results to structured settlement stakeholders.
ME's blog posts about the JGW survey are also featured on ME's structured settlement wiki.
JGW Secondary Market Survey Questions
• Question 6: Why did you sell all or part of your structured settlement?
• Question 7: Did selling your structured settlement help solve your financial problem?
• Question 8: Would you sell payments again?
• Question 9: If you sold only part of your settlement, do you plan to keep the rest of your payments as a structured settlement?
Question 6: Why did you sell all or part of your structured settlement?
Responses:
• Pay bills - 60.2%
• Start a business - 8.3%
• Home improvement - 8.3%
• Pay for education - 5.6%
• Cash made more sense than waiting - 5.6%
• Buy a house - 4.6%
ME comments
• Both the AIG survey and the JGW survey highlight paying bills as the primary reasons for structured settlement decisions.
• In the AIG survey, 71% of respondents who said they favored a structured settlement did so "to provide a regimented stream of income designed to cover expenses".
• In the JGW survey, 60.2% of the respondents stated paying bills was the reason they sold all or part of their structured settlement.
• Questions: what happened? How and when do settlement plans featuring structured settlements fail? What is more fundemental and periodic than paying bills? Were the original settlement plans flawed? What were the settlement planning objectives and alternatives? What financial education did these structured settlement recipients receive? What educational services, if any, did the structured settlement agent provide? Why and when did the respondents whose structured settlements originated when they were minors (approximately 25% of the survey respondents) sell their structured settlement payment rights?
• NSSTA's survey of injury victims determined that most respondents were uncertain whether a structured settlement consultant was involved with their case.
• NSSTA attorney survey results include the following responses to the question: "Whom do you prefer to use for purposes of financial planning for your clients?" The results: Trust company/department - 30%; Financial planner - 28%; Structured settlement consultant - 23%; No response - 19%.
Question 7: Did selling your structured settlement help solve your financial problem?
Responses:
• Mostly - 40.7%
• Yes - 32.4%
• Only helped a little - 21.3%
• No, it did not help - 5.6%

ME comments
• 94.4% of the respondents to JGW's survey said selling their structured settlement helped to solve their financial problem - 32.4% without qualification; 40.7% "mostly"; and 21.3% "a little".
• If the 21.3% "helped a little" response is interpreted as "no", then 73.1% of the respondents said selling their structured settlement helped to solve their financial problem.
Question 8: Would you sell payments again?
Responses:
• Maybe - 36.3%
• No - 30.1%
• Yes - 18.6%
• Probably - 8.0%
• I have already sold all of my payments - 7.1%
ME comments
• 62.9% of JGW's survey respondents appear to be candidates for future sales of structured settlement payment rights (18.6% + 8.0% + 36.3%)
• The 30.1% who said they would not sell payments again could change their minds. Alternatively, they could also be saying: 1) they are satisfied with their remaining structured settlement payments; and/or 2) their prior sale(s) of structured settlement payment rights accomplished its intended financial purpose.
Question 9: If you sold only part of your settlement, do you plan to keep the rest of your payments as a structured settlement?
Responses:
• Yes - 42.3%
• I don't know - 35.1%
• No, I plan on selling all of my payments - 9.0%
• I already sold all of my payments - 8.1%
• No, I plan on selling some of my payments - 5.4%
ME comments
• The 42.3% "yes" response represents a strong endorsement for structured settlements.
• Responses from the other 57.7% of JGW survey respondents raise questions and issues that settlement planners should identify and address. These questions and issues include how best to integrate

Structured Settlement 2009 Mid-Year Update - 1

2009-07-05T13:05:00.000-07:00

ME's blog has reported developments within and interactions between "structured settlement" and "knowledge management" since 2004. This blog post begins a new ME series titled "Structured Settlement 2009 Mid-Year Update" the purpose of which is to analyze the transitional status of the structured settlement industry primarily based upon information disseminated at four 2009 meetings:
• NSSTA 2009 Winter Meeting
• ASNP 2009 Annual Meeting
• SSP 2009 Annual Meeting
• NSSTA 2009 Annual Meeting
Analytic framework for ME's analysis:
• Structured settlement industry transition:
o From claim management to settlement consulting (which is different than, but related to, "settlement planning" and "special needs settlement planning");
o From hardcopy, digital documents, f2f meetings, telephone calls, webinars, listserves and web 1.0 generally to interactive web 2.0;
o Analyzing historic and growing future structured settlement annuity sales.
• Primary and secondary structured settlement markets;
• Structured settlements and government benefits;
• Settlement planning stakeholder associations;
• Structured settlement transactional analysis;
• Structured settlement laws;
• Structured settlement standards;
• Structured settlement annuities and settlement trusts;
• Structured settlement and settlement planning industry health;
• Structured settlement and settlement planning business models.

Structured Settlement 2009 Strategic Analysis

2009-07-05T13:02:00.002-07:00

ME has begun a mid-year 2009 strategic analysis of the structured settlement industry. This analysis includes attending and reporting about 2009 structured settlement professional stakeholder meetings plus continuing conversations with structured settlement industry leaders.

To organize and publish ME's findings and analysis, ME is developing, and plans to publish and update, a related public wiki titled "Structured Settlements 2009". Here is a preview of this ME public wiki home page.

Purposes of ME's Structured Settlements 2009 wiki

Provide ME with a dedicated online resource to identify, capture, organize and publish 2009 structured settlement strategic analysis.
Demonstrate how blogs and wikis can interact to improve strategic analysis and learning.
Encourage structured settlement knowledge leaders and professional associations to endorse, encourage and participate in strategic industry analysis.
Help all structured settlement stakeholders to better understand, improve and grow structured settlements.

Table of Contents - includes references to related 2009 conference presentations; subject to continuing wiki updates:

ME primary analytic resources - ME blog reporting for:

2009 structured settlement stakeholder meetings - the Table of Contents incorporates and features educational discussions from the following conferences:

Structured settlement professional stakeholder association prior year meetings
Related topics and knowledge leaders:

ME's transitional perspective - structured settlements are undergoing two primary transitions:

From claim management to settlement consulting:

NSSTA: Settlement Consulting - Joseph DiGangi
SSP: Settlement Planning Industry Update - Patrick Hindert.
SSP - State of the Art Settlement Planning - Joseph Tombs
NSSTA: Looking Forward - Chris Diamantis and Dan Durbin.

From historic communication, learning and work processing to Internet-based models:

NSSTA:Web 2.0 - Patrick Hindert.

Public policy - no 2009 stakeholder association discussions.
Legislation and regulations

Existing

Federal

SSP: Tax Panel - Richard Risk; Sylvius von Saucken; Peter Wayne.

State

SSP: Judicial Approval of Minors Settlements - Phillip McCrury.
NSSTA: Exemptions for Structured Settlement Payments - Craig Ulman.

Proposed - no 2009 stakeholder association discussions.

Federal
State

Political strategy

NSSTA: Federal Entitlement Programs - Andrew Imparato.
NSSTA: Washington Reports - Eric Vaughn.
SSP: AAJ Strategy - John Bowman.
NSSTA: Federal and State Issues - Len Blonder.
NSSTA political speakers:

Senator Richard Durbin (D) from Illinois;
Senator Charles Grassley (R) from Iowa;
Congressman Charles Rangle (D) from New York;
Congressman Kendrick Meek (D) from Florida;
Congressman James Langevin (D) from Rhode Island;
Congressman Joseph Crowley (D) from New York;
Congressman Dave Camp (R) from Michigan;
Congressman Brian Higgins (D) from New York;
Congresswoman Allyson Schwartz (D) from Pennsylvania;
Congressman Joseph Courtney (D) from Connecticut;
Plus the Chiefs of Staff for four congressmen.

Case law

SSP: Litigation and Legislative Update - Anthony Alfieri.
NSSTA: Spencer v. Hartford - Michael Miller.
NSSTA: Fresno County Factoring Cases - Illana Hanau.

Primary and secondary markets

NSSTA: Secondary Market Update - Michael Miller and Illana Hanau.

Government benefits

NSSTA: Federal Entitlement Programs - Andrew Imparato.
ASNP: Medicare Secondary Payer Compliance - Mark Popolizio.
ASNP:Lien Resolution Strategies - William Browning; Mark Popolizio; Sylvius von Saucken.
SSP: MMSEA Section 111 - Mark Popolizio.
NSSTA: Medicare Panel - Roy Franco; Mark Popolizio; David Korch; Rafael Gonzoles.
NSSTA: Medicaid Panel - John McCulloch; Timothy O'Driscoll; Dennis McAndrews

Structured settlement economics

ASNP: Structured Settlement Annuities - Jack Meligan and Michele Whitmore.
SSP: Life Insurance Insolvencies - Eric Nordman.
NSSTA: Financial Strength Ratings - William Pargeans.

Structured settlement funding products

NSSTA: 468B QSFs - Henry Strong, William Winslow, James Klapps.
ASNP: Structured Settlement Annuities - Jack Meligan and Michele Whitmore.
ASNP: 468B QSFs - Richard Risk and Jason Lazurus.
SSP: Settlement Trusts - Christi Fried.
SSP: Settlement Trust Software - David Eichenbaum.

Transactional analysis

ASNP: Anatomy of a SNSP Case - Frank Johns, Kevin Urbatsch, Patrick Hindert.

Stakeholder associations

NSSTA (2), SSP and ASNP 2009 meetings.

Ethics

NSSTA: Business Ethics - Father Oliver Williams.
NSSTA: Business Ethics - Mike Jones.

Standards

SSP: Registered Settlement Planner - Joseph Tombs.

Business models

Claim management

NSSTA: Plaintiff and Defense Brokers - Ronald Sullivan, James Early, Roger Bernstein, Bruce DeBacher, Michael Goodman.
SSP:Structured Settlement Insolvencies - Randy Dyer.
SSP: Growing Structured Settlements - Randy Dyer.
SSP: In-House Structured Settlement Programs - Kevin Mack.
NSSTA: Minnesota Bridge Collapse - Jerry Lothrop.

Settlement consulting

NSSTA: Settlement Consulting - Joseph DiGangi.
ASNP: Integrating SNSP with an Elder law Practice - Tim Nay and Sandy Conley.
ASNP: Marketing to the Trial Bar - Frank Johns, Jason Lazurus, Kevin Urbatsch.

Dissipation Studies

2009-07-05T13:02:00.001-07:00

The United States structured settlement industry has drifted into an era of unprecedented transition and change with stagnant annuity growth and without any articulated industry strategic plan or strategic planning process.

Forces causing structured settlement transition and change:

Financial service regulatory reform - with consumer protections;
Tax reform - with reviews of existing subsidies plus potential new tax-subsidized products for disabled persons;
Health care reform - with expected new rules for Medicaid (special needs trusts) and Medicare (set-aside arrangements);
Internet-based business models - with improved performance standards and metrics for communication; planning; marketing; learning; product development and work processes;
Class action lawsuits - exposing bad structured settlement business practices regardless of whether these practices are illegal under current laws;
Growth of affiliated business markets - special needs planning; lien resolution; the secondary market; Medicare secondary payer practice; life care planning; settlement trusts; and money management of settlement proceeds;
Retirement and/or death of first generation structured settlement industry leaders.

To recognize strategic change and successfully transition to settlement planning, a larger, more complex business, the structured settlement industry needs new focus, new vision, new leaders, and new "claimant centric" business models.

To better understand and grow their market, the new structured settlement leaders should begin by re-examining industry myths about their customers (injury victims). Where the myths are wrong and misguided, these new industry leaders should reject the historical myths and re-invent structured settlements based upon truth not fiction.

Among structured settlement industry myths, two are especially pernicious, long-standing and related:

Myth #1: injury victims squander lump sums. Nine out of 10 lump sum recipients dissipate the entire amount within five years.
Myth #2: structured settlements enable injury victims to live free of reliance on government assistance.

What have been the consequences of these industry myths for the structured settlements?

Inefficient and anti-claimant business models;
Product sales instead of settlement solutions;
Bad business practices - whether or not illegal;
Lack of market research and product development;
Selectively incomplete education;
Defensive and anti-growth political strategies;
Abandonment of injury victim customers to the secondary market;
Stagnant structured settlement annuity growth.

What if both myths are false?

Expert commentators have already challenged both myths:

Adam Scales - When Professor Adam Scales first questioned the myth of squandering injury victims in his remarkable 2002 University of Wisconsin Law Review article titled: "Against Settlement Factoring? The Market in Tort Claims has Arrived", he was reviled by leaders of the primary structured settlement market. Seven years following the publication of Professor Scales' article, structured settlement and settlement planning leaders continue to quote false dissipation statistics and mis-characterize existing dissipation studies to promote a negative and false psychological and financial profile of injury victims.
David Lillesand - David Lillesand, a leading social security and special needs attorney, has spoken and written about the critical need for serious injury victims to qualify for Medicaid. According to Lillesand, Medicaid is a "life or death" matter for such individuals. Structured settlements do not enable serious injury victims to live free of reliance on government assistance. To the contrary, unless the annuities are paid into a special needs trust, structured settlement annuity payments disqualify injury victims from receiving Medicaid. Even when structured settlement annuities are paid into a special needs trust, the legal rules for structured settlements are either unaddressed by current legislation and regulations and/or uncertain in their application and requirements.

Meet Jeremy Babener , part of a new generation of structured settlement knowledge leaders, and a third year law student at New York University. Babener has accomplished something no one in the structured settlement industry has attempted - a comprehensive review of historic dissipation studies involving injury victims. Babener's new legal research paper, titled "Justifying the Structured Settlement Tax Subsidy: The Use of Lump Sum Settlements," includes extensive Appendices with detailed analysis of 12 dissipation studies relevant to U.S structured settlements.

Babener's paper, which examines and challenges the myth of the squandering injury victim:

Refutes the existence of any published study supporting the statistic that "90% of lump sum recipients dissipate their recoveries within five years".
Identifies existing dissipation studies that reach a contradictory conclusion: injury victims have no greater propensity to dissipate money than non-injury victims.
Incorporates interviews from a cross-section of structured settlement industry practitioners who support the assertion of common lump sum dissipation based on personal and anecdotal experience.
Calls for a modern study to ground the structured settlement subsidy in proven data.

ME begins its public 2009 strategic re-evaluation of structured settlements with a blog series about dissipation studies featuring Jeremy Babener's research. In subsequent posts, ME will summarize and review Babener's new

Jeremy Babener's Dissipation Paper

2009-07-05T13:02:00.000-07:00

Jeremy Babener, a third year Juris Doctor candidate at New York University School of Law, has completed a seminal research paper titled "Justifying the Structured Settlement Tax Subsidy: The Use of Lump Sum Settlements" which identifies and analyzes 12 historical dissipation studies plus two law commission dissipation reports.

This ME blog post summarizes and reviews Babener's dissipation paper. A prior ME post introduced dissipation studies and "claimant centric" business models as strategically important for structured settlements and settlement planning. A subsequent post will feature an interview with Jeremy Babener about his dissipation paper.

Babener's conclusions about injury victim dissipation studies:

No existing published dissipation study supports either of two structured settlement industry claims:

Injury victims "squander" lump sum awards;
Nine out of 10 lump sum injury victim recipients dissipate their awards within five years - the "90% - five year" statistic.

Dissipation studies exist which reach the opposite conclusion - injury victims have no more propensity to dissipate lump sums than non-injury victims.

Scope: Although Babener's dissipation paper is comprehensive, it focuses on a specific topic - the 90% - five year statistic.

Babener's dissipation paper does not:

Contend that claimants spend money responsibly. Instead, it "exposes as industry allegory the frequently stated belief that studies have proven [injury victim squandering] to be true." Babener recommends a new United States study to develop "empirical and substantiated" dissipation statistics for injury victims because the United States tax subsidy for structured settlements is premised on this belief.
Address possible explanations for injury victim dissipation besides "squandering". Other commentators, however, have identified two explanations which deserve greater consideration and analysis:

Alternative # 1 - Asset and income qualification requirements for certain government benefits (including Medicaid and SSI) which:

Force and re-enforce recipients into poverty; and,
For many persons, require asset spend down strategies (dissipation) to qualify.

Alternative # 2 - Inadequate funds - where the proposed settlement plans:

Don't exist; or
Make inaccurate or unrealistic assumptions; or they are:
Under-funded; or
Improperly implemented; or
Badly administered.

Characterize the secondary market as either proving or disproving claimant dissipation characteristics.

Babener's paper contains six sections - each of which ME separately summarizes below.

Section I - Introduction. Babener focuses on the linkage between the structured settlement tax subsidy and dissipation studies.
Section II - An Empty Statistic? Babener attempts, but fails, to locate any source supporting the 90%- five year statistic.
Section III - Other Evidence of Lump Sum Use. Babener reviews other studies casting light on claimants' financial responsibility.
Section IV - The Informed Conclusions of Others. Babener examines why the unproven 90%-five year assertion endures.
Section V - Rhetoric of the Dissipating Claimant. Babener addresses the rhetoric of the enduring assertion, calling for a modern American study to answer the question long thought answered.
Section VI - Conclusion:

Appendices (the surveys);
The lack of evidence for the 90%-5 year statistic;
Other evidence of lump sum dissipation;
Evidence of responsible lump sum usage.

Section 1 - Introduction

Babener's paper does not contend that personal injury claimants responsibly expend lump sum settlement monies. Instead, the paper exposes as industry allegory the frequently stated (but unsubstantiated and largely unanalyzed) belief that studies prove injury victims prematurely dissipate lump sums. Babener's paper highlights the federal income tax subsidy for structured settlements and estimates the annual subsidy to total between $360 and $840 million per year assuming $6 billion of annual structured settlement annuity sales. Babener's paper incorporates and builds upon the findings of two other authors who have studied dissipation, Ellen S. Pryor and Adam F. Scales. Babener's paper also reviews and relies upon 12 studies and two law commission reports - most of which are from non-United States countries. Babener also conducted extensive interviews with structured settlement practitioners.

Section 2 - An Empty Statistic?

Babener identifies and traces historic references from 1978 to 2009 citing "insurance studies" which allegedly support the 90% - five year statistic. In every case, Babener finds the reference either lacks any citation or cites to a study that does not support the 90%-5 year statistic. Although articles, treatises and practitioners continue to cite the statistic as proven, Babener's research does not discover any study that supports the 90%-5 year statistic. That statistic, which Professor Scales characterized as "the most consistently repeated 'fact'" in structured settlement law and lore, appears to be a mythical falsehood. Babener does not explore the consequences of this industry myth which extend beyond the scope of his paper.

Section 3 - Other Evidence

Babener summarizes his findings after reviewing 12 dissipation studies plus two law commission reports and references his more detailed analyses of these sources in his paper's Appendices. None of the dissipation studies or reports support the 90% - five year statistic. According to Babener's analysis, seven of these studies, plus two law commission reports support an opposite conclusion: lump sum recipients do not spend their recoveries unwisely.

The law commission reports Babener analyzes are by the Law Reform Commission in Ireland in 1996 and the Canadian Manitoba Law Commission in 1987. The Law Reform Commission of Ireland found "studies recently conducted by the Law Commission and the Disability Management Group of the University of Edinburgh have shown that the risk of dissipation is less than was widely believed and that those awarded very high damages are least likely to fritter away their compensation".

The 12 dissipation studies Babener reviews in his paper are listed here chronologically:

1947 U.S. Retirement Railroad Board Compensation study;
1959 University of Michigan study;
1973 British Personal Injury study;
1983 Australian Accident Compensation study;
1983 Canadian Auto Accident Compensation study;
1984 British Personal Injury study;
1984 Australian Traffic Accident study;
1987 Canadian Manitoba Law Commission study;
1992 Australian Auto Accident study;
1993 Scottish PersonaI Injury Compensation study;
1994 British Personal Injury Compensation study;
1996 Law Reform Commission of Ireland study.

Section 4 - Informed Conclusions of Others

Babener acknowledges that none of the studies he cites and analyzes is directly analogous to 21st century United States injury victims. Babener calls for a modern American study of injury victim dissipation to support the structured settlement tax subsidy.

Section 5 - Rhetoric of the Dissipating Claimant

In discussing and analyzing the continuing rhetoric within the structured settlement industry, especially the pejorative and unproven characterization of injury victims as "squanderers", Babener quotes from Adam Scales' 2002 paper. Scales argues that the image of the dissipating claimant has "intuitive appeal". According to Scales, “What is objectionable in the rhetoric of structured settlement enthusiasts is the unsubtle attribution to tort claimants of characteristics, values, and habits that are generally held in contempt in American political discourse: a lack of self-control, and the concomitant propensity to wind up on welfare." Scales continues, “An essential element of the discussion has been the assumption that successful tort claimants simply cannot be trusted with large sums of money."

Section 6 - Conclusion and Appendices - Babener concludes his paper by calling for a modern American dissipation study. In his paper's Appendices, Babener analyzes existing dissipation studies under three categories:

Appendix A - frequently cited dissipation studies which do not support the 90%-five year statistic;
Appendix B - other studies suggesting lump sum settlement recipients dissipate;
Appendix C - studies offering evidence of responsible money management by injury victims.

Jeremy Babener Interview

2009-07-05T13:01:00.000-07:00

Jeremy Babener , a third year Juris Doctor candidate at New York University has completed a seminal structured settlement paper a copy of which is available for download online in pdf format.

ME introduced, summarized and reviewed Jeremy Babener's paper, titled "Justifying the Structured Settlement Tax Subsidy: The Use of Lump Sum Settlements", in two prior ME blog posts:

This ME post features an exclusive interview with Jeremy Babener about his dissipation paper.

ME: Jeremy, what are the principle conclusions of your paper?

Jeremy Babener: The structured settlement subsidy, or tax exclusion, is premised upon the belief that claimants prematurely dissipate lump sum settlements. This belief has long been held within the structured settlement industry, and is frequently cited as a proven fact. Anecdotal evidence from industry practitioners, representing a broad cross-section of interests, certainly suggests the belief to be true. However, the article explores the available empirical data. It concludes that the frequency of the dissipating claimant has yet to be proven, and that citations relied upon as evidence lack applicability, or sometimes any substance at all.

ME: What surprised you the most about your findings?

Jeremy Babener: The thesis itself is surprising. The use and citation of an unproven statistic by so many in an industry exposes how reliant we are on others’ accurate reporting. It also exemplifies how assertions consistent with one’s previous experiences can bypass criticism.

ME: How did you become aware of, and interested in, structured settlements?

Jeremy Babener: I clerked for the U.S. Department of Justice, in the Federal Tort Claims Act Section during the Summer of 2008. As some of the cases moved toward settlement, I was introduced to the concept of the structured settlement. Some commentators call it “a benefit to both sides.” I wanted to learn more.

ME: Why did you focus your first structured settlement paper on dissipation studies?

Jeremy Babener: Writing this paper was not planned. In my research for a different article on the single claimant qualified settlement fund issue, I repeatedly read that “90% of lump sum claimants squander their award within five years.” Though I attempted to track down the source of the statistic, I was most surprised to find that I could not. I thought it important for the structured settlement industry to know. Of course, nearly all those I spoke to in the industry believe that most lump sum claimants do prematurely dissipate their settlement, based on personal and anecdotal experience.

ME: Did you write the paper for a specific class or seminar?

Jeremy Babener: I wrote the paper during my year in the NYU Journal of Law & Business’ note-writing program, and also for a law course entitled “Tax and Social Policy.”

ME: Where and when do you expect to publish your paper and who is your intended audience?

Jeremy Babener: I will be submitting my article to an array of journals and law reviews in August. I wrote the article with those in the structured settlement and factoring industries in mind. However, I think it pertains to many areas where long-term care and financial stability are important, including Medicare.

ME: How can interested persons obtain a copy of your paper?

Jeremy Babener: The abstract and draft of the article are available on SSRN. I will also be launching a website with Patrick Hindert. It will provide ongoing posts addressing structured settlement issues, including those introduced by this article.

ME: How many dissipation studies did you review as part of this project?

Jeremy Babener: The article reviews twelve studies. Four are American, published between 1936 and 1971. The eight others come from Britain, Canada, Australia, and Scotland, between 1973 and 1994. The article also reviews reports by the Canadian Manitoba Law Commission (1987) and the Law Reform Commission of Ireland (1996).

ME: What additional sources did you utilize in your research?

Jeremy Babener: I learned the most about the industry by speaking with those that populate it, including settlement planners, attorneys, and insurance company representatives. The treatises and articles on structured settlements provided an invaluable list of references. I was also fortunate that inquiries to foreign libraries and governments resulted in the requested reports, enabling me to track down nearly every citation I came across.

ME: How does the secondary market for structured settlements impact your paper and your view of structured settlement dissipation?

Jeremy Babener: The ability of structured settlement payees to sell their future stream of income for a lump sum amount undermines the purpose of the tax subsidy (i.e. preventing premature dissipation of settlement monies). On the other hand, the flexibility inherent in the ability to factor encourages personal injury claimants to structure their settlements in the first place, which may decrease total settlement dissipation. The factoring industry has produced statistics suggesting that those payees who factor do so responsibly. The sources of such statistics should be analyzed. A modern study on structured settlement factoring may be needed to appreciate the nuances of the issue.

ME: What are the earliest and most recent references you located for the statistic that 90% of lump sum injury recipients dissipate their recoveries in 5 years?

Jeremy Babener: The Journal of Commerce reported the 90%-5-year statistic in 1978, quoting T.V. Mangelsdorf, a life insurance underwriter. Today, some commentators, like Paul Lesti, discuss the statistic without reporting it as fact. However, the statistic is cited as proven in articles, on broker websites, and even in Negotiating and Settling Tort Cases, a treatise available on Westlaw.

ME: Based upon your research, is the term "squander" an accurate or fair characterization of injury victims?

Jeremy Babener; Where lump sum recipients exhaust their settlement monies in a shorter time than the monies are meant to last, I believe a more accurate characterization would be "premature dissipation". the term "squander" carries a particularly derogatory tone. Though I am not sure I would put it in such strong terms, Washington & Lee School of Law Professor Adam Scales argues quite convincingly, "What is objectionable in the rhetoric of structured settlement enthusiasts is the unsubtle attribution to tort claimants of characteristics, values and habits that are generally held in contempt in American political discourse: a lack of self-control, and the concomitent propensity to wind up om welfare."

ME: Did you locate any evidence that injury victims have a greater propensity than other persons to spend money wastefully or foolishly?

Jeremy Babener: The strongest evidence of lump sum recipients’ propensity to prematurely dissipate their settlement comes from anecdotal evidence throughout the industry. A few studies make conclusions that lump sum recipients spend money irresponsibly. However, such studies often have substantial flaws, lack applicability, or provide conclusions based on subjective judgments. For example, some studies criticize the use of lump sum settlement monies on ordinary living expenses.

ME: Assuming injury victims do dissipate lump sums, what other explanations, besides a propensity to squander, might explain this occurrence?

Jeremy Babener: The “propensity to squander” addresses the post-settlement decisions of lump sum claimants. However, the settlement amount itself cannot be overlooked. It is important to note the fact that where claimants accept settlements they receive less than the value of their original claim. Once legal and other fees are subtracted, the leftover sum may simply be inadequate. Thus, the money will not last as long as originally intended. For example, a 1984 Australian study of 86 accident claimants found many examples of inadequate settlements, but only seven examples of mismanagement.

ME: Did you find any evidence that injury victims manage lump sums responsibly?

Jeremy Babener: Yes, though the studies are either old or foreign. The famed 1971 American “Widows Study,” which some cite to as the source of the 90%-5-year statistic, actually found unwise spending “very much the exception.” Foreign studies also suggest that lump sum recipients can and often do act responsibly, including studies from Scotland (1993), Australia (1992), and Canada (1983). Foreign law commission reports have made similar conclusions.

ME: In your opinion, why haven't there been any recent and relevant dissipation studies in the U.S.?

Jeremy Babener: The industry considered performing such a study in the mid-1990s. Then, a few years ago, at least one insurance company was contemplating the idea. Some believe the study would be very difficult to perform; others believe the industry is concerned that the results might not be entirely favorable. I think that there has been little need to prove the contention because so many in the industry, based on personal and anecdotal experience, believe it to be true.

ME: Are you planning to write any additional papers related to structured settlements?

Jeremy Babener: I have drafted an article on the use of qualified settlement funds by single party claimants. I will be sharing it with those in the industry prior to submitting it to the NYU Journal of Law and Business this Fall.

Thank you, Jeremy for this interview and for sharing your dissipation paper which has been long overdue in the structured settlement industry. Good luck and future success with your studies, your writing and your professional career.

SSP 2009 Annual Meeting - 1

2009-06-24T06:16:00.000-07:00

The Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA) hosted sequential annual meetings the week of April 26 in Washington, D.C. This blog post begins reporting about those meetings.

SSP's meeting (titled "Securing the Financial Needs of Injury Victims and their Families") was notable for the diversity of attendees, topics and viewpoints. Several NSSTA members were among the attendees as well as settlement planning and secondary market attorneys, annuity and trust providers, primary and secondary market intermediaries, authors, bloggers and law students.

Former NSSTA Executive Director Randy Dyer was a featured SSP speaker. Dyer spoke twice and provided:

A definitive history of structured settlement insolvencies - annuities and bond trusts.
An allegorical lesson about how to jump start structured settlement annuity sales.

Kevin Mack, former Director of Travelers' structured settlement program and former Chairman of NSSTA's legal committee, offered insights to "in-house" structured settlement programs. Mack made several recommendations for growing and improving the structured settlement industry including: more plaintiff intermediaries; improved education for judges and plaintiff attorneys; plus mandatory "disclosure" of structured settlement compensation and conflicts of interest.

Joseph Tombs, SSP's new President and Chairman of the Registry of Settlement Planners (RSP) Board of Directors spoke about three topics. Tombs:

Reported on the status of the RSP program;
Honored the first 10 RSP graduates;
Outlined current "state of the art" for settlement planning.

Richard Risk moderated SSP's settlement planning tax panel headlined by Sylvius von Saucken and Peter Wayne. von Saucken and Wayne responded to a series of Risk's questions addressing qualified settlement funds (QSFs), commutations, estate taxes, punitive damages, non-qualified assignments and sexual battery tax requirements among other issues.

Texas attorney Phillip McCrury surveyed state laws for judicial approval of minors' settlements. Common features in many states: "best interest" test; prohibitions against conflicts of interest; segregated accounts; guardian ad litems; and "reasonableness" of attorney fees.

Mark Popolizio reported on Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA). Popolizio summarized the new CMS NHGP User Guide and addressed reporting triggers, deadlines and issues for "responsible reporting entities" (RREs).

Eric Nordman, Research Director for the NAIC, discussed "life insurance insolvencies". Nordman summarized historic data and warned about future issues including systemic risks and the challenge of defining "transparency".

Christi Fried and David Eichenbaum spoke about settlement trusts and settlement planning software respectively. Tim Nay's presentation about "special needs trusts" outlined relevant laws and added practical advice and perspective.

Anthony Alfieri's "Litigation and Legislative Update" summarized Spencer v. Hartford; the PLR for non-qualified assignments; plus the Fresno County and Rapid Settlement factoring cases among other topics.

John Bowman, Director of Federal Relations for the American Association for Justice (AAJ), discussed how the 2008 elections have impacted AAJ's political priorities. One primary AAJ objective: keep medical malpractice out of anticipated health care reform.

Patrick Hindert, Managing Director of S2KM Limited, offered strategic analysis about the current settlement planning industry.

Congratulations to SSP, a

Web 2.0 Update

2009-06-24T06:14:00.000-07:00

Blog encourages collaborative thinking and commentary about the impact of the Internet on four overlapping markets:

Structured settlements;
Personal injury settlement planning;
Special needs planning; and
The secondary insurance markets.

includes information and observations about industry leaders and trade associations as they transition to the Internet - especially their use of web 2.0 tools to communicate, learn and collaborate.

Several notable web 2.0 developments have occurred in 2008 within the vertical markets and topics S2KM follows.

Special Needs Blogs - From a web 2.0 perspective, S2KM views elder law and special needs attorneys as advanced knowledge workers using outdated tools. Their traditional knowledge training (examples: law schools; CELA); values (example: sharing knowledge) and tools (examples: hardcopy textbooks; F2F conferences; digital publishing; listservs) are strong and positive for web 2.0. To date, however, these lawyers and their associations have created almost no web 2.0 imprint or impact. Transition indicators exist - especially web 2.0 conference discussions and industry leaders emerging as bloggers. The special needs bloggers are important for several markets because they address issues and laws for disabled persons. S2KM subscribes to four special needs legal blogs (as of July 7, 2008) each of which is new and/or revised in 2008:

David Lillesand - Lillesand was a featured speaker at the SSP and ASNP 2008 Annual Meetings where he addressed structured settlement Medicaid issues. Recent Lillesand blog posts:
- New POMS for special needs trusts - Atlanta
- Relationship of SSDI, SSI, Medicare and Medicaid
- How SSA decides and processes a disability claim
- Lillesand's ASNP presentation
- Special needs trust Q and A booklet
Patti Dudek - Dudek is member and frequent speaker at NAELA and ASNP. Dudek participates in NAELA's member-only listserv. From a web 2.0 perspective, a listserv is a good tool to pre-launch and link wikis, blogs, podcasts and concept maps. Recent Dudek blog posts:
- The Case for Inclusion 2008 community rankings
- Proposed changes to the Social Security appeals process
- The ADA Amendments Act
- Long-term care case
Diedre Wachbrit - With Harry Margolis and Vincent Russo, Wachbrit is a founder of, and featured speaker at, the Academy of Special Needs Planners (ASNP). Recent Wachbrit blog posts:
- New special needs treatise
- Government services harder to get
- Autism studies
- MetLife survey - assisted living costs

Frank Johns (added July 7, 2008) - Johns is a leading writer and speaker about elder law, special needs and settlement planning issues. Johns also serves as the current editor of the NAELA Journal. Recent Johns' blog posts:
- Freedom and independence with a twist
- New Medicaid restrictions
- Divorce among the elderly
- Four core values

John Campbell (added July 14, 2008) - John Campbell, a leading special needs attorney who writes about structured settlement and settlement planning issues, has published a new blog. John has also added valuable commentary to other blogs. See, for example, John's comments about S2KM's January 16, 2008 blog post titled "Medicare, Medicaid and SCHIP Extension Act of 2007". Congratulations and good luck to John and other special needs bloggers.

LBN Developments

The Legal Broadcast Network (LBN) has introduced Tim Butler as its new CEO and announced a successful LBN venture capital funding.
According to LBN Chairman Mark Wahlstrom: "You are going to see a major expansion in our shows, channels, commentators and offerings, not the least of which is going to be a substantial build out of The Settlement Channel and it's content and sponsors".
Wahlstrom also announced LBN's formation of Speaking of Settlements, which Wahlstrom characterizes as "a complete professional network in which any settlement professional, lawyer or legal professional can fill out a profile for free, start a blog, post video or audio content or create discussion boards and rooms".

Luis Suarez' Article

Luis Suarez, a Knowledge Management (KM) consultant in the IBM Global Business Services division, is a leading KM blogger and commentator. In 2006, S2KM reported on Suarez' visit to Cincinnati and the resulting KM discussions with Denham Grey.
Earlier this week, a Suarez article, titled "I Freed Myself from Email's Grip", was featured in the New York Times.
Suarez' blog provides commentary and links to the article.
- Suarez' conclusion: "As a communication tool e-mail can be a good thing; however, as a collaboration tool it lacks some of the most significant elements from any kind of collaboration: openness, transparency, taking responsibility & ownership, co-authorship, co-llaborate ..." (Suarez' emphasis).
- Suarez' alternative: Instead of individual email responses, Suarez has substituted instant messages, blogs, wikis - and telephones including skype.

Review of "Structured Settlements: Factor vs. Commute?"

2009-06-24T06:13:00.001-07:00

Robert W. Wood, an expert tax attorney whose specialties include structured settlements, has written a provocative new article titled "Structured Settlements: Factor vs. Commute?" for the December 25, 2006 edition of "Tax Notes". The article is also accessible on the Wood & Porter website.

Wood's article addresses the strategic question of "whether an insurance company can commute periodic payments due under its own annuity policy (or that of an affiliate) and still comply with the federal income tax law."

Note: quotations and italics are from Wood's article.

Summary of Wood's Conclusions

There is "no clear answer" - which, in and of itself, Wood characterizes as "unnerving";
"Factoring someone else's annuity is clearly okay" (meaning in the context of Wood's article, the transaction does not violate section 130's prohibition against acceleration) - provided the parties obtain a court order pursuant to IRC Section 5891 and meet the requirements of the appropriate state structured settlement protection statute.
But a commutation (see analysis below) "appears to accelerate payments" - in violation of IRC section 130's prohibition against acceleration.
Wood also differentiates "automatic commutations" (see analysis below) whose features, according to Wood, do not appear (based upon LTR 9812027) to cause an acceleration in violation of IRC section 130;
Because commutations and third party factoring produce different results for the qualified assignee and annuity issuer, Wood argues they should be treated differently for tax purposes.
"Issuers risk violating section 130 when they commute their own annuities (with or without a qualified order under section 5891)" and whether directly or using an affiliate company.
"Given the preponderance of authorities discounting the value of court orders as controlling (or even bearing on) federal income tax consequences, a court order .... cannot prevent (or cure) a violation of section 130."
Based upon his "serious concerns" about potential adverse and unexpected tax results from commutations used as a substitute for third party factoring, Wood concludes such commutations "should not be recommended by prudent tax practioners."

Summary of Wood's analysis:

Key terminology
- Insurance companies - for Wood's article, insurance companies also specifically include "companies that do not actually issue structured settlement annuities but are wholly owned by companies that do. That may include a qualified assignee."
- Third Party Factoring - For Woods, IRC section 5891 creates a safe harbor for third party factoring. Although commutations and third party factoring produce the same result for the payee (a lump sum), Woods differentiates the results for the qualified assignee and annuity issuer.
- Commutations
  - One difference between a commutation and third party factoring "is that in a commutation, the payee receives payment from the payer of the periodic payments, not from a third party."
  - A second difference: "in factoring the payments continue (without alteration of amounts or payment frequency) - not so with commutation (which effectively ends the payment stream)"
- Automatic Commutations -Terminology Wood uses to differentiate commutations meeting the following requirements set forth by the IRS in LTR 9812027 which was issued in 1997:
  - Contemplated in the original structured settlement documents and funding annuity;
  - Caused by events outside the payee's control;
  - The payee has no ability to affect whether a commutation might occur; and
  - The commutation is made to the payee's beneficiaries and not to the payee.
- Acceleration
  - Both IRC sections 130 and 5891 include prohibitions against acceleration of payments;
  - Acceleration can occur for one party to a structured settlement (payee) and not others (qualified assignee or annuity provider);
    - For the payee, both factoring and commuting represent acceleration;
    - For the annuity issuer and qualified assignee, acceleration only occurs with a commutation. With a factoring transaction, annuity payments continue but to a new person or entity or as part of a new financial security.
LTR 9812027
- In which the IRS ruled favorably for a commutation meeting the "automatic commutation" requirements identified above:
  - Structured settlement payments subject to the commutation clause were "fixed and determinable" under IRC section 130(c) (2)(a);
  - The commutation provisions did not cause the assignment to fail to comply with IRC section 130(c);
- Although a private letter ruling cannot be cited as precedent and LTR 9812027 was issued prior to enactment of IRC section 5891, Wood views LTR 9812027 as important because:
  - No specific IRC section addresses commutations;
  - Besides LTR 9812027, the IRS has not provided any guidance for commutations.
- Because IRC Section 130(c) prohibits acceleration, Wood characterizes LTR 9812027 as support for his conclusion that automatic commutation features do not cause an acceleration in violation of IRC section 130;
- As Wood points out, however, in LTR 9812027, the IRS did not expressly address whether an automatic commutation (or any type of commutation) causes an acceleration for 130 purposes.
Relationship between IRC Sections 130 and 5891:
- Wood's analysis begins with some fundementals: IRC section 130 provides an exclusion from gross income for the qualified assignee;
- Without this exclusion, a US-based qualified assignee has a potential tax mismatch - recognizing income immediately, then deducting each periodic payment as paid;
- If IRC section 130 is satisfied originally, IRC section 5891 provides that any subsequent transfer does not affect the application of IRC section 130 in any year;
- Third party factoring (pursuant to IRC Section 5891) does not impact the income taxation of any party to the structured settlement including the qualified assignee;
- IRC section 5891 provides a safe harbor for satisfying the section 130 prohibition against acceleration;
- There are no statutory pronouncements as to whether a commutation contravenes IRC section 5891;
- Wood's analysis concludes: whether or not a commutation triggers an IRC section 5891 excise tax, it may still violate IRC section 130's acceleration requirement.
Significance of a court order
- To avoid a confiscatory forty (40 per cent) federal income tax, IRC section 5891 requires an acquiring company to obtain a final order, judgment or decree of a state court or responsible administrative authority (court order);
- Pursuant to IRC section 5891(b)(5), a court order is "dispositive" for avoiding the excise tax;
- This court order must find that the transfer does not contravene any state or federal statute or the order of any court or responsible administrative authority; accordingly, any such order implicitly states that IRC section 130 (acceleration) is not contravened;
- Under traditional tax principles, a ruling by a federal or state court is not binding on the IRS or the courts.
- Therefore, Wood questions why a state court ruling that no statute is violated for IRC Section 5891 purposes should be "dispositive" that the transaction satisfies IRC section 130.
- Conversely, the state court order required to satisfy IRC section 5891 begs the question: does that proposed transfer violate IRC section 130?

Impact of Wood's Article

Wood's article represents valuable strategic thinking for three related and overlapping markets: structured settlements; structured settlement transfers (factoring); and personal injury settlement planning.
His article calls into question the appropriate tax treatment for commutation programs as competitive substitutes for third party factoring. Wood's analysis should have special interest for companies such as Symetra, All State and National Indemnity who already participate in the secondary market.
His article helps to explain why most annuity providers have not offered factoring or commutation products and services.
Wood's analysis makes it less likely that annuity providers will compete directly with factoring companies - at least until further tax authority or guidance becomes available.
Nevertheless, Wood's article implicitly challenges structured settlement annuity providers (as well as their distributors and advisors - especially settlement planners) to re-think current structured settlements products, programs and processes in the context of both IRC sections 130 and 5891.
For astute annuity providers, Wood's analysis offers insights to improve their structured settlement products and simultaneously facilitate the efficient operation of federal and state settlement transfer legislation.
Wood's article further highlights:
- The need for additional tax authority and education about factoring and commutations - particularly for state judges; and
- The important linkage between IRC section 130 and the court orders under state protection statutes required by IRC section 5891.
Wood's article improves upon and completes Structured Settlements in 2006 - a year in which some of the most important industry developments and some of the best expert commentary have focused on factoring and factoring's impact on structured settlements and personal injury settlement planning.

S2P2J Release 45

2009-06-24T06:12:00.000-07:00

Release 45 of "Structured Settlements and Periodic Payment Judgments" (S2P2J) is now available from publisher Incisive Media. Incisive Media purchased ALM (American Lawyer Media) in 2008 including publishing rights to S2P2J.

Co-authored by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert, S2P2J was first published in 1986 with 45 semi-annual updates. NSSTA and SSP both utilize S2P2J in their certification programs.

New S2P2J chapters since 2001:

Chapter 15: "Government Benefits and Structured Settlements"
Chapter 16: "Transfers of Structured Settlement Payment Rights"

Recently expanded S2P2J sections:

Section 3.06A: "Non-Qualified Assignments"
Section 3.07A: "Settlement Trusts"
Section 6.02: "Structured Settlement Consultants"

S2P2J Release 45 features a new and expanded Section 3.08B discussion of Section 468B settlement funds. This up-to-date analysis includes:

A practical explanation of Section 468B settlement funds;
When and how to use them;
Statutory and regulatory background for designated settlement funds (DSFs) and qualified settlement funds (QSFs);
Discussion of the Tenth Circuit decision in United States v. Brown validating the settlement QSF regulations;
Mechanics of settling up, operating and winding down Section 468B settlement funds;
Summary of how Section 468B settlement funds are taxed under federal and state income tax laws;
Sample terms of fund administration;
Recommendations when evaluating the proposed terms of settlement fund administration;
Practice pointers for courts, litigators, and fund administrators as they define their 468B duties and responsibilities.

Concurrent with the recent publication of Robert W. Wood's legal treatise, "Qualified Settlement Funds and Section 468B", S2P2J Release 45 underscores how important 468B funds are for structured settlements and settlement planning. Both professional communities need more and improved education about 468B funds. So do judges, trial attorneys, mediators, trustees and guardians.

Robert Wood's book and S2P2J Release 45 substantially upgrade the available learning resources.

Structured Settlements in 2008

2009-06-24T06:10:00.000-07:00

This blog post, the second of three analyzing structured settlements in 2008, summarizes conferences attended throughout the year. A prior post evaluated 2008 from an historical structured settlement perspective. A subsequent post will discuss challenges facing the structured settlement industry in 2009. Conferences and associations are listed alphabetically. For more detailed reports about these conferences, check the parenthetical links for related blog posts. For complete historical review of professional associations and conferences, see structured settlement wiki.

Academy of Special Needs Planners (ASNP) - The second annual ASNP conference underscored the strategic nexus that exists between special needs planning, settlement planning and structured settlements. ASNP's "extra-curricular" program featured a social service project where 30 ASNP conference attendees assisted Families Helping Families of Southeast Louisiana repair and improve its office headquarters. The ASNP conference confirmed for this author why special needs attorneys and financial planners, as opposed to former life insurance salesmen and claim managers, represent the future of structured settlements and settlement planning. Although several NSSTA and SSP members attended and/or participated as speakers, most of the structured settlement industry missed this valuable conference.

American Association for Persons with Disabilities (AAPD) - Structured settlement leaders from both NSSTA and SSP attended the 2008 AAPD Leadership Gala dinner in Washington, D.C. - in addition to many Congressional and Disability leaders. NSSTA was one of the event sponsors and had earlier featured Andrew J. Imparato, AAPD President and CEO, as a speaker at NSSTA's 2007 Fall Meeting. Imparato, a visionary and inspirational leader, is dedicated to transitioning disabled persons from poverty to economic self-sufficiency. AAPD's strategy includes uniting disabled persons as a political block and business market. AAPD's political priorities include changing the social security statutory definition of "disability" from "unable to work" to address "barriers to work" for disabled persons. Imparato's message for structured settlement professionals: involve yourselves at the local level with independent living centers.

National Academy of Elder Law Attorneys (NAELA) - NAELA's Mission is "is to establish NAELA members as the premier providers of legal advocacy, guidance and services to enhance the lives of seniors and people with disabilities". NAELA's membership consists of 4400 attorneys in the United States, Canada, Australia and the United Kingdom. Most of the members of ASNP and the Special Needs Alliance (SNA) are members of NAELA including many NAELA founders and former Presidents and Directors. S2KM developed a "Web 2.0 for Lawyers" wiki for the NAELA 2008 Symposium which was also featured in a Legal Broadcast Network (LBN) podcast interview by Scott Drake with S2KM's Managing Director, Patrick Hindert. S2KM also published a 2008 blog post analyzing NAELA and NAELA's CELA certification program from a knowledge management and web 2.0 perspective.

National Alliance of Medicare Set-Aside Professionals (NAMSAP) - Founded in 2005, NAMSAP is a non-profit organization devoted to improving Medicare set-aside arrangements (MSAs) and to facilitating compliance with Medicare conditional payment recovery.

Background - MSAs are administrative and funding mechanisms utilized in certain categories of settlements to protect Medicare's interests as "secondary payer" under the Medicare Secondary Payer (MSP) statute. Although the MSP rules were enacted by Congress in 1980, CMS did not begin to enforce the MSP statute until 2001 based upon a series of CMS policy memoranda for workers compensation cases, several of which address structured settlement issues.
MMSEA - On December 29, 2007, President George W. Bush signed into law the "Medicare, Medicaid and SCHIP Extension Act of 2007" (MMSEA). Beginning July 1, 2009, MMSEA requires liability insurers (including self-insurers, no-fault insurers and workers compensation insurers) to determine Medicare status for all claimants and report all claims involving a Medicare beneficiary to CMS when those claims are resolved. If the reporting for any claimant is not done in a timely manner, MMSEA authorizes CMS to enforce a civil penalty against liability insurers of $1000 per day per claimant. These information requirements and penalty provisions provide the basis for expanded enforcement by CMS of the MSP statute.
MARC - One of the featured presenters at the NAMSAP 2008 Annual meeting was Roy Franco, Director of Safeway's Risk Management Strategies and Chairman of the Medicare Advocacy Recovery Coalition (MARC).
- In discussing the MMSEA requirements for liability cases, Franco said "the issue is not just about reporting" and predicted a "claim freeze" as liability insurers and self-insureds wait for resolution and approval before they pay claims.
- Franco characterized the MMSEA MSP rules as an attack on traditional best practices for liability claim management. He predicted legal challenges and criticized MMSEA rules.
- Franco outlined MARC's priorities for MMSEA which include changing the law or, alternatively, obtaining an injunction to stop its July 1, 2009 implementation.
S2KM reporting - S2KM published seven blog posts in 2008 highlighting recent MSA and MMSEA developments that impact structured settlements including several developments that have occured during 2008.
S2P2J analysis - S2P2J Release 44 features an extensive update of MSA rules for structured settlements as well as a summary of MMSEA.

National Association of Settlement Purchasers (NASP) - At the NASP 2008 Annual Meeting, Patrick Hindert, S2KM's blog author, moderated a panel discussion titled "How to Improve and Grow the Structured Settlement Market". Participants included: Jack Meligan, Michael Upchurch and Matthew Bracy. As settlement planners, both Meligan and Upchurch described their view of the secondary market as a "mixed-bag" of bad and good. The "bad" part of factoring results from non-professional ("cash now") advertisements promoted by many factoring companies.

Not only do plaintiff attorneys dislike "cash now" advertisements, according to Meligan and Upchurch, they are also less likely to recommend structured settlements if they believe their clients will eventually sell their payment rights.

The potential liquidity provided by settlement transfers improves the structured settlement annuity product. Lives change. Unexpected events occur. Even the best personal injury settlement plans need to be reviewed post-settlement and sometimes adjusted. Settlement transfers, which must be reviewed and approved by state judges, are appropriate in some cases.

Bracy emphasized the need for well-educated plaintiffs and plaintiff attorneys - as well as judges. He noted that many primary market participants have ignored the settlement transfer business. Bracy acknowledged that good and bad business practices exist in the secondary market as well as the primary market. According to Bracy, the potential secondary structured settlement represents between 5% and 7% of the total primary market. Most structured settlement cases, according to Bracy, neither require nor qualify for a settlement transfer.

National Settlement Consultants (NSC) - Patrick Hindert, S2KM's Managing Director and blog author, was privileged to speak at the NSC 2008 Annual Meeting and also to attend NSC presentations and social functions. In addition to Michael and William Goodman, NSC founders and principals, the NSC presenters included representatives from ten (10) structured settlement annuity providers as well as several national settlement planning experts. In retrospect, the "not-for-publication" May 2008 NSC presentations by some of the annuity providers now seem especially interesting and important. Among other topics, these presentations addressed investment exposure to real estate mortgages plus one annuity provider's study of settlement transfers by its own structured settlement recipients. Randy Snow's NSC keynote presentation about change and growth was humorous and thought-provoking. Randy subsequently participated in a series of S2KM blog interviews about change and growth in the structured settlement industry. Hindert provided a structured settlement Medicaid update as part of the NSC educational program.

National Structured Settlement Trade Association (NSSTA) - Founded in 1985, NSSTA is the oldest and largest structured settlement professional trade association. NSSTA's members are primarily structured settlement consultants and annuity providers. In addition to providing education and certification, NSSTA historically has served as the legislative and lobbying voice of the primary structured settlement market. NSSTA's committees, especially NSSTA's legal committee, are among the most valuable sources of information about the structured settlement industry.

Winter Meeting - Prominent educational themes and presentations at the NSSTA 2008 Winter Meeting included: trial attorneys; disabled persons and disability associations; government benefits; structured settlement legal documentation; legislative and regulatory developments; Internet marketing; and professionalism.
Annual Meeting - Chris Diamantis, NSSTA's 2008 President, introduced Joseph Ricci as NSSTA's new Executive Director, and identified NSSTA's strategic priorities for 2008: factoring; advocacy and marketing; professionalism; and governance and communication. J.P. Steele announced the results of a Structured Settlement Survey Report sponsored by AIG which S2KM summarized in a November 23, 2008 blog post. Eric Vaughn, NSSTA's lobbyist, provided a "Washington Report" analyzing the then-upcoming federal election from a structured settlement perspective. Legal committee co-chairman, Michael Miller, summarized results from 100 factoring cases in which his law firm, Drinker Biddle, had participated since January 2008. Craig Ulman, NSSTA's General Legal Counsel, provided a State Guarantee Funds primer. Bradley Frigon spoke about special needs trusts. Among other topics, two actuarial presentations discussed structured settlement pricing.
Fall Meeting - Although S2KM participated in four committee meetings at NSSTA's 2008 Fall Meeting, S2KM did not attend NSSTA's educational program because of a scheduling conflict. S2KM's blog coverage of this meeting therefore was limited to editorial commentary.

Society of Settlement Planners (SSP) - Founded in 2001, SSP is a national nonprofit educational and public policy association of professional structured settlement producers and others who assist injured claimants in the settlement process. At its 2008 Annual meeting, the SSP adopted its "Standards of Professional Conduct for Settlement Planners", a multi-year SSP project initiated and managed by SSP Director and attorney Richard Risk.

Carl A. Pierce, distinguished professor of law at the University of Tennessee, assisted SSP with this ethics project. Pierce served as a reporter for the latest revision of the American Bar Association's Model Rules of Professional Conduct.

Frank Johns, a leading special needs attorney and settlement planning ethicist, also advised SSP on its Standards of Professional Conduct. Johns' 2008 SSP presentation introduced a proposed Request for Proposal (RFP) for settlement planners.

Risk organized and moderated SSP's tax panel that featured Jody Brewster, Glenn Mackies and Michael Montemurro.

SSP devoted three presentations to government benefits, the highlight being David Lillesand, a national leader among social security and special needs trust attorneys. Based upon his discussions with the Social Security Administration (SSA), Lillesand stated that Nancy Veillon's January 31, 2006 letters to attorneys Roger Bernstein and Jay Sangerman representing NSSTA are "inoperative" - a statement Lillesand repeated during his presentation with SSA executive attorney Ken Brown at the ASNP 2008 Annual Meeting.

SSP's panel discussion about the secondary markets included NASP Executive Earl Nesbitt, Stephen Harris and Rhonda Bentzen. Other SSP educational presentations included a legislation and litigation update, settlement planning case studies, and advice about Internet marketing.

Stetson Special Needs Trust X (SSNTX) - Throughout its 10 year history, the Stetson Conference has been recognized as the leading special needs trust (SNT) knowledge forum in the United States. Most of the speakers are members of either the Academy of Special Needs Planners (ASNP) or the Special Needs Alliance (SNA). For structured settlement professionals, the 2008 Stetson program titled "The Basics of Special Needs Trusts" offered analyses of several important settlement planning topics and included two presentations specifically focusing on structured settlements:

Texas Attorney Pi-Yi Mayo spoke about the January 31, 2006 Social Security Administration (SSA) letters to attorneys Roger Bernstein and Jay Sangerman as well as the application of the Deficit Reduction Act of 2005 (DRA) to structured settlements used to fund special needs trusts; and
Leo Govoni provided "An Economic Analysis of Structured Settlements".

Structured Settlement Knowledge Leadership Conference (SSKLC) - Focusing on the "needs and best interests of consumers", the first Structured Settlement Thought Leadership Conference, sponsored by J.G. Wentworth, was designed to bring together knowledge leaders who are "redefining structured settlement roles and processes". The Leadership Conference objective was to provide an educational platform and open forum dedicated to growing and improving the structured settlement market. In addition to four panel discussions and two individual presentations, the Leadership Conference featured a brainstorming session to improve the structured settlement process for plaintiffs based upon the subjects discussed in prior sessions. The panel discussions addressed the economic life cycle of a personal injury claim identified by Adam Scales in his 2002 Wisconsin Law Review article titled "Against Settlement Factoring? The Market in Tort Claims has Arrived". One result of the Leadership Conference was the subsequent 2008 structured settlement survey conducted by J.G. Wentworth.

Spencer v. Hartford

2009-06-24T06:06:00.000-07:00

Spencer v. Hartford is a class action civil lawsuit potentially involving more than 9000 plaintiffs who received structured settlement annuities from Hartford insurance subsidiaries. The plaintiffs allege:

Hartford has conducted a structured settlement program called "Secured Benefit Services" (SBS) since 1992 that violates the federal Racketeer Influenced and Corrupt Organizations Act (RICO) as well as state laws prohibiting fraud.
Hartford began a "Broker Assistance Program" (BAP) in 1997 using structured settlement brokers selected by Hartford, who are not named as defendants in the civil class action, to further the mission of the SBS program.

The case is currently on appeal to the U.S. Second Circuit Court of Appeals following a March 10, 2009 decision by the U.S. District Court in Bridgeport, Connecticut granting plaintiffs' Motion for Class Certification and Appointment of Class Counsel .

Spencer v. Hartford - 1 summarizes the case to date including chronology, participants, plaintiffs' allegations, District Court decision and defendants' Petition for Appeal.
Spencer v. Hartford - 2 provides S2KM commentary about the plaintiffs' allegations, potential damages, the NSSTA Code of Ethics, and selected educational discussions from the NSSTA 2009 Winter Meeting.

This blog identifies and recommends:

Questions;
Lessons;
A proposed solution.

Questions:

Will the plaintiffs' RICO and state fraud allegations in Spencer v. Hartford be adjudicated or settled?
How does Hartford, recognized as "one of the World's Most Ethical Companies" and honored for "its products, services, research, philanthropy, and programs supporting individuals with disabilities" justify its SBS and BAP structured settlement programs?
Did any Hartford employees or participating structured settlement intermediaries (incorrectly called "brokers') question the legality of the SBS and BAP programs?
Has any structured settlement intermediary, defendant or plaintiff, in any Hartford case ever refused to share or receive annuity commissions from Hartford on account of the SBS and BAP programs?
Will federal authorities initiate criminal RICO charges against Hartford and the structured settlement intermediaries who participated in Hartford's SBS and BAP programs?
Should federal officials consider Spencer v. Hartford if and when Hartford applies for TARP funds?
Should trial attorneys who originally represented Spencer v. Hartford plaintiffs in structured settlements with Hartford be held accountable for their incompetency, lack of due diligence, or poor advice?
How widespread among insurance companies and structured settlement intermediaries are Hartford's allegedly illegal structured settlement business practices?
Does Spencer v. Hartford reveal a continuing pattern of industry business behavior consistent with allegations in prior lawsuits such as Weil v. Manufacturers and Macomber v. Travelers?
Regardless of case outcome:
- What lessons, if any, will the structured settlement industry learn from Spencer v. Hartford?
- What, if anything, about Spencer v. Hartford causes "shocked disbelief" among structured settlement stakeholders - to borrow a term and line of inquiry from Father Oliver Williams' Ethics Course at the NSSTA 2009 Winter Meeting.
- Will Spencer v. Hartford promote the structured settlement industry "wake-up call" Joseph DiGangi recommended when he criticized the traditional business model during his "settlement consulting" discussion at the NSSTA 2009 Winter Meeting?

Lessons

Structured settlements are complex and involve many federal and state laws and potential long-tail legal and financial liabilities.
If you are a structured settlement participant and/or stakeholder, you should understand, obey and help improve the laws.
The traditional structured settlement business model ("claim management") is inherently flawed and promotes conflicts of interests which are rarely identified, discussed or disclosed.
Structured settlement compensation arrangements and relationships generally are not disclosed.
Most plaintiff trial attorneys lack professional competence to advise their clients about settlement issues.
Structured settlement stakeholders are not capable of self-regulation.
The NAIC and state insurance regulators are not capable of regulating structured settlements or settlement planning under current laws, regulatory authority and budgets.

Proposed Solution

Controlling criteria:
- Judicial approval of structured settlements;
- Standards and requirements:
  - Best interest test;
  - Due diligence;
  - Disclosure - compensation and conflicts of interest;
  - Informed consent;
  - Licensing;
  - Certification.
Laws and regulations
- Identify, preserve and promote existing structured settlement laws;
- Improve state structured settlement protection statutes;
- Apply the state protection statutes to the primary market;
- Better integrate structured settlement laws with Social Security, Medicare, Medicaid, Veterans' benefits; and Federal housing laws.
New business models
- Re-define the "claim management" structured settlement business model:
  - Defendants' first priority in structured settlement cases should be to obtain a full legal release.
  - If defendants want to participate in settlement planning, they should:
    - Study settlement planning;
    - Understand the laws, products, documentation and participants;
    - Re-organize and re-focus their structured settlement business models, objectives, procedures and partners.
- Grow the "settlement planning" business model featuring:
  - Qualified settlement funds (QSFs);
  - Structured settlement annuities - qualified and non-qualified under IRC 130;
  - Settlement trusts;
  - MSAs;
  - SNTs;
  - New products such as tax-free disability funds;
  - Secondary life and annuity markets.
Re-learn and re-market structured settlements
- Re-study structured settlements from a settlement planning perspective;
- Feature and promote structured settlements as a strategic component for settlement planning learning, certification, products and business standards.
- Identify settlement planning knowledge experts and learn about their expertise, work product, professional associations, online communities, networks and learning resources.
- Design new business models utilizing, and compatible with, existing and emerging Internet technologies as well as new settlement planning laws and products.
- Schedule and require ethics classes focused on structured settlement and settlement planning business conduct;
- Organize, promote and participate in community service activities with and for disability associations.

Structured Settlement

2009-05-10T06:25:00.000-07:00

A structured settlement is a financial or insurance arrangement, including periodic payments, that a claimant accepts to resolve a personal injury tort claim or to compromise a statutory periodic payment obligation. Structured settlements were first utilized in Canada and the United States during the 1970s as an alternative to lump sum settlements. Structured settlements are now part of the statutory tort law of several common law countries including Australia, Canada, England and the United States. Although some uniformity exists, each of these countries has its own definitions, rules and standards for structured settlements. Structured settlements may include income tax and spendthrift requirements as well as benefits. Structured settlement payments are sometimes called “periodic payments.” A structured settlement incorporated into a trial judgment is called a “periodic payment judgment."

Structured Settlements in the United States

The United States has enacted structured settlement laws and regulations at both the federal and state levels. Federal structured settlement laws include sections of the (federal) Internal Revenue Code^[1]. State structured settlement laws include structured settlement protection statutes and periodic payment of judgment statutes. Medicaid and Medicare laws and regulations affect structured settlements. To preserve a claimant’s Medicare and Medicaid benefits, structured settlement payments may be incorporated into “Medicare Set Aside Arrangements” “Special Needs Trusts."

Structured settlements have been endorsed by many of the nation's largest disability rights organizations, including the American Association of People with Disabilities and the National Organization on Disability .

In April 2009, financial writer Suze Orman wrote in a column that structured settlements "provide ongoing income and reduce the risk of blowing a lump sum through poor financial choices." In response to a reader's question, she added that financial security can be improved "if you use the structured payouts wisely."

Definitions

The United States definition of “structured settlement” for federal income taxation purposes, found in Internal Revenue Code Section 5891(c)(1) (26 U.S.C. § 5891(c)(1)), is an "arrangement" that meets the following requirements:

A structured settlement must be established by:
- A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue Code Section 104(a)(2) (26 U.S.C. § 104(a)(2)); or
- An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Internal Revenue Code Section 104(a)(1) (26 U.S.C. § 104(a)(1)); and
The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal Revenue Code Section 130(c)(2) (26 U.S.C. § 130(c)(2))) and must be payable by a person who:
- Is a party to the suit or agreement or to a workers' compensation claim; or
- By a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with Internal Revenue Code Section 130 (26 U.S.C. § 130).

Legal Structure

The typical structured settlement arises and is structured as follows: An injured party (the claimant) settles a tort suit with the defendant (or its insurance carrier) pursuant to a settlement agreement that provides that, in exchange for the claimant's securing the dismissal of the lawsuit, the defendant (or, more commonly, its insurer) agrees to make a series of periodic payments over time. The insurer, a property/casualty insurance company, thus finds itself with a long-term payment obligation to the claimant. To fund this obligation, the property/casualty insurer generally takes one of two typical approaches: It either purchases an annuity from a life insurance company (an arrangement called a "buy and hold" case) or it assigns (or, more properly, delegates) its periodic payment obligation to a third party which in turn purchases an annuity (which arrangement is called an "assigned case").

In an unassigned case, the property/casualty insurer retains the periodic payment obligation and funds it by purchasing an annuity from a life insurance company, thereby offsetting its obligation with a matching asset. The payment stream purchased under the annuity matches exactly, in timing and amounts, the periodic payments agreed to in the settlement agreement. The property/casualty company owns the annuity and names the claimant as the payee under the annuity, thereby directing the annuity issuer to send payments directly to the claimant. If any of the periodic payments are life-contingent (i.e., the obligation to make a payment is contingent on someone continuing to be alive), then the claimant (or whoever is determined to be the measuring life) is named as the annuitant or measuring life under the annuity.

In an assigned case, the property/casualty company does not wish to retain the long-term periodic payment obligation on its books. Accordingly, the property/casualty insurer transfers the obligation, through a legal device called a qualified assignment, to a third party. The third party, called an assignment company, will require the property/casualty company to pay it an amount sufficient to enable it to buy an annuity that will fund its newly accepted periodic payment obligation. If the claimant consents to the transfer of the periodic payment obligation (either in the settlement agreement or, failing that, in a special form of qualified assignment known as a qualified assignment and release), the defendant and/or its property/casualty company has no further liability to make the periodic payments. This method of substituting the obligor is desirable for property/casualty companies that do not want to retain the periodic payment obligation on their books. Typically, an assignment company is an affiliate of the life insurance company from which the annuity is purchased.

An assignment is said to be "qualified" if it satisfies the criteria set forth in Internal Revenue Code Section 130 . Qualification of the assignment is important to assignment companies because without it the amount they receive to induce them to accept periodic payment obligations would be considered income for federal income tax purposes. If an assignment qualifies under Section 130, however, the amount received is excluded from the income of the assignment company. This provision of the tax code was enacted to encourage assigned cases; without it, assignment companies would owe federal income taxes but would typically have no source from which to make the payments.

Another meaning of Structured Settlement

2009-05-09T06:27:00.000-07:00

A structured settlement is a monetary obligation paid to a victim in case of injury. These payouts are a result of a lawsuit and the offenders make payments through insurance companies. This is a legal payment that has to be made regularly for the period it is structured for. In most cases, the victim is incapacitated, has endured loss in earnings due to absence at work or is rendered incompetent as a result of the injury. In such cases, the lawyers of both parties negotiate this payment and the amount of reimbursement decided upon, is documented in a contract.

The amount of reimbursement decided upon is largely dependant on the victim's lawyer. It is important to hire a reputed lawyer, who is able to make accurate estimates of long-term monetary losses incurred. He bargains with the defendant, to acquire a rightfully structured settlement. There are a number of details that need to be considered when calculating structured settlements. These include the degree of disability, severity of the accident, estimated future income of the injured person and approximate medical expenses. Structured settlements are designed to provide an adequate cash flow for an injured person.

Structured settlements, also known as annuity settlements, are considered to be a secured long-term and tax-free income. These payouts safeguard the interest of the beneficiary. The structured settlement should remain tax-free and protected during the tenure. The receiver cannot demand payment augmentation or advances. This proves to be a disadvantage in case people need quick cash or a large sum of money instead of a regular monthly payment. In such situations, people can contact a funding company. These specialized institutions purchase structured settlements at a reduced rate. When in need, people can sell a part of the settlement or the entire contract, to meet their needs.

Structured Settlements and Government Benefits - 1

2009-05-08T07:21:00.000-07:00

One of the challenges for growing the structured settlement market is to successfully integrate existing structured settlement laws and documentation with government benefits including Medicare and Medicaid. Unlike more divisive (but equally important) issues impacting industry growth, such as IRC 468B and 5891, integrating structured settlements with government benefits provides an important and timely opportunity for collaboration and consensus building among all structured settlement stakeholders.

Both SSP (April 26 - 28) and NSSTA (April 28 - May 1) have scheduled their 2009 Annual Meetings in Washington, D.C. Anticipating legislative and regulatory discussions during both meetings, blog post summarizes the status of existing Medicare rules for structured settlements. A subsequent blog post will summarize the status of Medicaid rules. For more detailed information, see Chapter 15 ("Government Benefits and Structured Settlements") in "Structured Settlements and Periodic Payment Judgments" (S2P2J) as well as prior Me online reporting links at the end of each blog post.

The Medicare Secondary Payer (MSP) statute enacted in 1980 applies to liability cases as well as workers compensation cases. CMS (the responsible Federal administrative agency) has heretofore limited its Medicare-set aside (MSA) rules and enforcement to workers compensation. Workers compensation cases represent a small fraction of the current structured settlement annuity market.

CMS provides information requirements for structured settlement annuities in its Proposal Requirements Checklist for workers compensation MSAs (WCMSA) plus rules for structured settlements in several WCMSA policy memoranda issued since 2001. Although CMS must approve structured settlements used to fund WCMSAs, CMS has not specifically defined "structured settlement" or linked its structured settlement rules to the tax definition for "structured settlement" in IRC 5891(c)(1).

The good news for structured settlements: existing CMS funding rules for WCMSAs are generally favorable for structured settlement annuities. Because CMS utilizes a "set-off" method for calculating WCMSA present value, annuities currently have an inherent cost advantage compared with lump sum funding alternatives. Arguably, this cost advantage also results in underfunding MSAs because the CMS annuity rules do not require annual increases for inflation. An additional reason favoring structured settlement annuities to fund MSAs is the high percentage of self-administered MSAs and/or MSAs administered by family members.

Structured settlement annuities create additional WCMSA administrative and accounting responsibilities. The responsible CMS contractor must monitor annuity payments annually and make accounting adjustments based upon actual Medicare-related costs incurred and paid. Whenever an annual annuity payment is exhausted prematurely, CMS will provide payments for the remainder of that year. Conversely, if an annuity payment in any year is not exhausted for Medicare services, the remaining amount is carried forward to the following year. Although CMS changed its rules for calculating life expectancy in 2008, structured settlement annuity providers continue to be inundated with requests for rated ages for WCMSA claimants.

Beginning July 1, 2009, Section 111 ("Medicare Secondary Payer") of the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) requires liability insurers (including self-insurers, no-fault insurers and workers compensation insurers) to:

Determine Medicare status for all claimants; and
Report all claims involving a Medicare beneficiary to CMS when those claims are resolved.

If the reporting for any claimant is not done in a timely manner, MMSEA authorizes CMS to enforce a civil penalty of $1000 per day.

These MMSEA information requirements and penalty provisions could provide the basis for expanded enforcement by CMS of the MSP statute. Liability cases present legal complications for MSAs which do not occur in workers compensation cases such as multiple defendants and contributory negligence. Nevertheless, with Medicare facing increased financial and political pressure, structured settlement stakeholders should anticipate additional Medicare legislation and regulations, including MSAs for liability cases, and develop a unified and favorable political strategy.

Prior Me blog posts about the MSP statute, MSAs, and MMSEA:

MSA Update - 1: Historical Background and Recent Developments
MSA Update - 2: CMS MSA Rules for Structured Settlements
MSA Update - 3A&B: Interview with Thomas Spratt
MSA Update - 3C: CMS MSA Life Expectancy Rules
Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA)
NAMSAP 2008 Annual Meeting

Tim Nay Interview

2009-05-08T07:18:00.000-07:00

Tim Nay, a partner in the law offices of Nay & Friedenberg, is one of the leading special needs and elder law attorneys in the United States. As an adjunct to his legal career, Nay was also educated as a clinical social worker and practiced in that profession for many years.

Among his professional contributions, Nay is the founding President and a Fellow of the National Academy of Elder Law Attorneys (NAELA) and continues to participate on NAELA committees, task forces and educational programs. Nay is a Director of the Society of Settlement Planners (SSP) as well as a founding member, former Director and officer of the National Association of Medicare Set-Aside Professionals (NAMSAP). Nay is a member of the Academy of Special Needs Planners (ASNP) and serves on ASNP's Advisory Board.

On the state level, Nay is a member of the Oregon and Washington Bar Associations. He is a past President of the Oregon Gerontological Association, past Chairman and founding member of the Elder Law Section of the Oregon State Bar and past President of the Oregon Chapter of the Alzheimer’s Association.

Earlier this month, at the ASNP 2009 Annual Meeting, Nay participated as Chairman and presenter for the ASNP educational program titled "Special Needs Settlement Planning" (SNSP) following which he provided Me with this exclusive interview.

Me: Greetings, Tim. In addition to your legal practice, how do you find time for, and what motivates, your many professional association activities?

Nay: Planning educational conferences has evolved into a small passion of my practice. My role as CEO of Nay & Friendberg, as well as our practice model, allows me to commit time to plan and present at conferences related to our practice. I always learn something.

Me: What do you consider your most important professional accomplishments?

Nay: Helping people and touching lives positively have been the most rewarding aspects of my career. When a client sends a handwritten "thank you" note to me or a member of our team, it means a lot. I am proud of my educational accomplishments including graduate degrees in counseling psychology and clinical social work prior to law school. My professional association work is a continuing source of many friendships and shared accomplishments.

Me: What connections do you see among elder law, special needs law and settlement planning?

Nay: Elder law practitioners champion special needs trusts, initially in the context of estate planning. Bringing special needs trusts to settlement planning is a logical extension of what elder law attorneys have been doing for more than 20 years. To contribute to the settlement process at the highest level, however, special needs attorneys must understand, or at least be aware of, other substantive legal issues important to the settlement process.

Me: How do you define "special needs settlement planning"?

Nay: Our firm views settlement planning as a process. We use a team approach which I supervise. Sandy Conley, senior legal assistant in our probate department, coordinates our special needs planning cases. She also drafts the settlement documents and papers in the state court proceedings to establish any guardianship and/or conservatorship. Jackie Appleton, senior legal assistant in our Legal/Financial department, is a third party special needs expert. Whenever third party planning is appropriate for the family of an injury victim, she drafts the documents and supervises their execution. Other members of our probate and estate planning staffs frequently assist our settlement planning process. Whenever difficult legal issues appear in settlement planning cases, we triage the case with our attorney staff as well as Sandy and Jackie.

Me: In addition to special needs trusts and estate planning, what potential roles exist in settlement planning for special needs attorneys?

Nay: Some special needs attorneys also serve as judges; mediators; trustees; conservators; and guardians for minors or incapacitated adults. All of these roles help prepare special needs attorneys to best serve injury victims and their families.

Me: In your experience, what impact do 468B Qualified Settlement Funds (QSFs) have on settlement planning?

Nay: Use of 468B QSF trusts allow defendants to conclude their settlement liabilities and responsibilities so other planning priorities such as liens, allocations, government benefits and funding options can be addressed by plaintiffs and their advisors in a less-adversarial context.

Me: What do you like and dislike about structured settlements and structured settlement consultants?

Nay: I like the product. In most of our catastrophic injury cases, structured settlement annuities are part of the settlement package. What many special needs attorneys, including myself, do not like are the business practices of some structured settlement consultants: over-structuring; single product focus; limited product comparisons.

S2P2J Release 45

2009-05-08T07:17:00.001-07:00

Release 45 of "Structured Settlements and Periodic Payment Judgments" (S2P2J) is now available from publisher Incisive Media. Incisive Media purchased ALM (American Lawyer Media) in 2008 including publishing rights to S2P2J.

New S2P2J chapters since 2001:

Chapter 15: "Government Benefits and Structured Settlements"
Chapter 16: "Transfers of Structured Settlement Payment Rights"

Recently expanded S2P2J sections:

Section 3.06A: "Non-Qualified Assignments"
Section 3.07A: "Settlement Trusts"
Section 6.02: "Structured Settlement Consultants"

S2P2J Release 45 features a new and expanded Section 3.08B discussion of Section 468B settlement funds. This up-to-date analysis includes:

A practical explanation of Section 468B settlement funds;
When and how to use them;
Statutory and regulatory background for designated settlement funds (DSFs) and qualified settlement funds (QSFs);
Discussion of the Tenth Circuit decision in United States v. Brown validating the settlement QSF regulations;
Mechanics of settling up, operating and winding down Section 468B settlement funds;
Summary of how Section 468B settlement funds are taxed under federal and state income tax laws;
Sample terms of fund administration;
Recommendations when evaluating the proposed terms of settlement fund administration;
Practice pointers for courts, litigators, and fund administrators as they define their 468B duties and responsibilities.

Robert Wood's book and S2P2J Release 45 substantially upgrade the available learning resources

S & P Withdraws J.G. Wentworth Credit Ratings

2009-05-08T07:15:00.000-07:00

Standard & Poor's Rating Services has announced it will no longer rate J.G. Wentworth's counterparty credit and senior secured debt at Wentworth's request. S&P's announcement occurred on March 31, 2009 after Wentworth announced Deutsche Bank had extended a "standstill" agreement but before Wentworth's March 31 deadline to pay $6 million of quarterly interest on separate corporate debt.

The standstill agreement relates to an earlier unpaid $16.9 million margin call on Wentworth's warehouse credit line with Deutsch Bank which Wentworth uses to purchase structured settlements.

Industry sources have informed Me:

Wentworth subsequently missed its March 31 midnight deadline to pay the $6 million of interest on its general corporate debt although a 30 day grace period apparently exists;
By removing itself from the S&P ratings, Wentworth prevented a probable additional credit downgrade;
Wentworth's $325 million of general corporate bonds are "almost worthless" and are trading, if at all, for pennies on the dollar.
Although David Miller remains Chief Executive, Wentworth has hired an outside consultant for advice on debt restructuring.
Structured settlement asset-backed securities already issued by Wentworth are legally separate from Wentworth and therefore not directly impacted by Wentworth's corporate financial problems.

Standard & Poor's Announcement

"On March 31, 2009, Standard & Poor’s Ratings Services removed its ratings on J.G. Wentworth LLC from CreditWatch, where they were placed with negative implications on March 17, 2009. At the same time, we affirmed Wentworth’s ‘CC’ counterparty credit and senior secured ratings and assigned a negative outlook. Subsequently, the ratings on Wentworth were withdrawn at the company’s request.

"This rating action follows Wentworth’s announcement that it had obtained an extension from Deutsche Bank of the waiver related to its $16.9 million margin call. The extension of this “standstill” agreement allows Wentworth to fund its business until April 22 without further margin calls. However, subsequent to the expiration of the waiver, the warehouse lender could provide a notice of default, which we believe could lead to a cross-default on Wentworth’s other debt, including the senior secured bank loan. In addition, we believe Wentworth’s ability to continue operating is limited without further financial assistance from private equity owners JLL partners."

SSP 2009 Annual Meeting - 1

2009-05-08T07:14:00.001-07:00

The Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA) hosted sequential annual meetings the week of April 26 in Washington, D.C.

Former NSSTA Executive Director Randy Dyer was a featured SSP speaker. Dyer spoke twice and provided:

A definitive history of structured settlement insolvencies - annuities and bond trusts.
An allegorical lesson about how to jump start structured settlement annuity sales.

Joseph Tombs, SSP's new President and Chairman of the Registry of Settlement Planners (RSP) Board of Directors spoke about three topics. Tombs:

Reported on the status of the RSP program;
Honored the first 10 RSP graduates;
Outlined current "state of the art" for settlement planning.

Patrick Hindert, Managing Director of S2KM Limited, offered strategic analysis about the current settlement planning industry.

Congratulations to SSP, and especially Greg Maxwell, Joseph Tombs, Richard Risk and Rhonda Bentzen, for their continuing high education and annual meeting standards.

Case 3

2009-05-08T07:13:00.003-07:00

In Henderson v. Scioteco, the California appellate court:

Reversed the entire consolidated order from the superior court because:
- "...the superior court has committed multiple prejudicial errors in making its factual findings and in reaching legal conclusions" and
- "because these errors cannot be separated from valid findings and legal conclusion..."
Granted Henderson the right to "amend the SSTA petitions at issue to correct any errors prior to any new hearing on the petitions".

Case 3

2009-05-08T07:13:00.001-07:00

In Henderson v. Scioteco, the California appellate court:

Reversed the entire consolidated order from the superior court because:
- "...the superior court has committed multiple prejudicial errors in making its factual findings and in reaching legal conclusions" and
- "because these errors cannot be separated from valid findings and legal conclusion..."
Granted Henderson the right to "amend the SSTA petitions at issue to correct any errors prior to any new hearing on the petitions".

Case 2

2009-05-08T07:11:00.001-07:00

Case issues:

The Superior Court decisions raise many issues which are identified in Last post.
The California Appellate Court addressed two issues:
- In Tomahawk and Ramos - Should a structured settlement transfer petitioner in California be permitted to withdraw a transfer petition prior to a final transfer order? The California Appellate Court said "yes".
- In Ramos - Are settlement transfer orders final? Restated: can one California Superior Court Judge review and overrule a transfer order approved by another California Superior Court Judge? The California Appellate Court said "yes" to the first question and "no" to the second.

Case results:

Judicially-approved transfers are now "final" in California - and probably not even an issue in other states!
J.G. Wentworth won important legal victories in Tomahawk and Ramos for:
- J.G. Wentworth - appeals in Tomahawk and Ramos are possible but not likely. The California Appellate Court has agreed to accelerate Wentworth's 11 related case appeals which are scheduled to be argued in mid-April.
- The secondary annuity market - a different result in Tomahawk and Ramos could have closed the Fresno County secondary structured settlement market and perhaps the entire California market.
- The structured settlement industry - all stakeholders depend upon the finality of judicial orders.
In retrospect, industry experts say the Tomahawk decision was "positive" and "expected".
The Ramos decision, by comparison, was "positive" but "somewhat unexpected".
In Ramos, the California Appellate Court:
- Did more than simply reverse and remand on the narrow basis that Henderson should be allowed to dismiss its own transfer petition;
- Exercised its discretion to rule on an issue it did not have to decide: the finality of settlement transfer orders.
- Ruled the Fresno County Superior (trial) Court did not have the right to re-open or overturn prior transfer orders.
- Ordered the Fresno County Superior Court to publish the appellate opinion (reversing the Superior Court rulings) on its website for at least as long as the widely reported Superior Court rulings were posted.

Bigger Picture

Final results for the Fresno County factoring cases are still to be determined.
The primary and secondary structured settlement markets both face unprecedented challenges.
Primary market challenges:
- IRC section 468B Qualified Settlement Funds (QSFs);
- The secondary market defined by IRC section 5891 and the state protection statutes;
- Successfully integrating structured settlement laws, processes and documentation with Social Security, Medicare and Medicaid;
- Surviving the current financial crisis without annuity provider insolvencies and/or payment defaults.
Secondary market challenges:
- Successfully implementing state structured settlement protection statutes - examples of challenges: the Fresno County cases and the Rapid Settlements cases;
- Surviving the current financial crisis without annuity provider insolvencies and/or payment defaults.
  - Other bloggers (John Darer and Mark Wahlstrom) have previously reported Standard & Poor's recent downgrade of J.G. Wentworth's:
    - Corporate credit rating from CCC to CC; and
    - Bondholder's recovery rating from 4 to 6.
  - DZ Bank, the financing conduit for several mid-sized structured settlement transfer companies, recently announced closure of its U.S. commercial-paper conduit operation.

Amid these challenges, the Tomahawk and Ramos cases represent important and timely industry victories. As for the future of structured settlements, other commentators have asked the pertinent question more generally: why waste a crisis?

2009-05-08T07:11:00.000-07:00

Case issues:

The Superior Court decisions raise many issues which are identified in Last post.
The California Appellate Court addressed two issues:
- In Tomahawk and Ramos - Should a structured settlement transfer petitioner in California be permitted to withdraw a transfer petition prior to a final transfer order? The California Appellate Court said "yes".
- In Ramos - Are settlement transfer orders final? Restated: can one California Superior Court Judge review and overrule a transfer order approved by another California Superior Court Judge? The California Appellate Court said "yes" to the first question and "no" to the second.

Case results:

Judicially-approved transfers are now "final" in California - and probably not even an issue in other states!
J.G. Wentworth won important legal victories in Tomahawk and Ramos for:
- J.G. Wentworth - appeals in Tomahawk and Ramos are possible but not likely. The California Appellate Court has agreed to accelerate Wentworth's 11 related case appeals which are scheduled to be argued in mid-April.
- The secondary annuity market - a different result in Tomahawk and Ramos could have closed the Fresno County secondary structured settlement market and perhaps the entire California market.
- The structured settlement industry - all stakeholders depend upon the finality of judicial orders.
In retrospect, industry experts say the Tomahawk decision was "positive" and "expected".
The Ramos decision, by comparison, was "positive" but "somewhat unexpected".
In Ramos, the California Appellate Court:
- Did more than simply reverse and remand on the narrow basis that Henderson should be allowed to dismiss its own transfer petition;
- Exercised its discretion to rule on an issue it did not have to decide: the finality of settlement transfer orders.
- Ruled the Fresno County Superior (trial) Court did not have the right to re-open or overturn prior transfer orders.
- Ordered the Fresno County Superior Court to publish the appellate opinion (reversing the Superior Court rulings) on its website for at least as long as the widely reported Superior Court rulings were posted.

Bigger Picture

Final results for the Fresno County factoring cases are still to be determined.
The primary and secondary structured settlement markets both face unprecedented challenges.
Primary market challenges:
- IRC section 468B Qualified Settlement Funds (QSFs);
- The secondary market defined by IRC section 5891 and the state protection statutes;
- Successfully integrating structured settlement laws, processes and documentation with Social Security, Medicare and Medicaid;
- Surviving the current financial crisis without annuity provider insolvencies and/or payment defaults.
Secondary market challenges:
- Successfully implementing state structured settlement protection statutes - examples of challenges: the Fresno County cases and the Rapid Settlements cases;
- Surviving the current financial crisis without annuity provider insolvencies and/or payment defaults.
  - Other bloggers (John Darer and Mark Wahlstrom) have previously reported Standard & Poor's recent downgrade of J.G. Wentworth's:
    - Corporate credit rating from CCC to CC; and
    - Bondholder's recovery rating from 4 to 6.
  - DZ Bank, the financing conduit for several mid-sized structured settlement transfer companies, recently announced closure of its U.S. commercial-paper conduit operation.

Case 1

2009-05-08T07:09:00.000-07:00

The California Fifth Appellate District Court of Appeal has reversed highly publicized decisions by two Superior Court judges in Fresno County, California involving 321 Henderson Receivables, an affiliate of J.G. Wentworth, and the California Structured Settlement Transfer Act (SSTA).

The California Appellate Court decided both cases (Henderson v. Tomahawk and Henderson v. Ramos) on narrow grounds.

This S2KM blog post summarizes the appellate decisions. A subsequent S2KM blog post will provide commentary.

Henderson v. Tomahawk

In Tomahawk, Fresno Superior Court Judge Donald Black had earlier:

Rejected Henderson's request for a voluntary dismissal of its transfer petition;
Denied Henderson's transfer petition;
Concluded:
- The annuity contract barred transfers and assignments;
- UCC Article 9 did not apply;
- Henderson's transfer violated California's usury laws because the transfer was a loan and not a sale;
- Henderson failed to meet SSTA disclosure requirements;
- Henderson had referred the structured settlement transferor to a conflicted attorney for advice;
- California Insurance Code section 10137 bars approval of petitions without independent counsel and therefore rendered "void" Henderson's earlier purchase;
- Henderson could not recover the funds it had previously expended because of "unclean hands" based upon Henderson's hiring of conflicted counsel;
- Henderson's lack of candor and the Superior Court's affirmative duties supported Judge Black's independent investigations of other Henderson petitions in prior transfer cases.
Ordered Henderson to:
- Attach a copy of the order to any future transfer petitions filed in Fresno County for the next 5 years; and
- Serve notice to other Fresno County transferors and their insurers;
Sent a copy of his order to the California State Attorney General and State Bar Association.

On appeal, the California Appellate Court:

Reversed Judge Black;
Agreed with Henderson's argument that Judge Black erred when he concluded that Henderson could not voluntarily dismiss its petition;
Declared Judge Black's prior order void in its entirety;
Ordered Fresno County's Superior Court to post the appellate decision on its website;
Declined to address Henderson's arguments addressing the merits of Judge Black's order stating:
- Any related decision would be advisory; and
- The Appellate Court had already established an expedited schedule to hear Henderson's other appeals.

Remanded the case to the Fresno County Superior Court.

Henderson v. Ramos

In Ramos, Fresno County Superior Court Judge Adolfo Corona had earlier:

Denied a request for dismissal of a structured settlement transfer petition filed by parties named Cerroblanco;
Dismissed their petition with prejudice;
Voided a prior approved transfer to Henderson based upon Henderson's purported breach of annuity anti-assignment provisions plus violations of California's SSTA and usury law.

On appeal, Henderson argued Judge Corona erred when he:

Concluded the Cerroblancos could not voluntarily dismiss their SSTA petition without prejudice;
Voided Henderson's earlier transfer.

The California Appellate Court agreed with Henderson's first argument without determining whether Judge Corona was correct in his findings and rulings about the petition.

The California Appellate Court also agreed with Henderson's second argument and concluded:

No authority exists in California to permit one Superior Court Judge to overrule another Superior Court Judge;
Transfers of structured settlement payment rights with court approval will be enforced by California courts and cannot be attacked as void absent a finding of fraud;
Disagreement over prior judicial findings does not provide sufficient grounds for any judge to void a final order of another judge.

NSSTA 2009 Annual Meeting - 1

2009-05-08T07:08:00.000-07:00

To borrow a baseball analogy from Len Blonder, the National Structured Settlement Trade Association (NSSTA) "hit a home run" (or rather a series of home runs) during its 2009 Annual Meeting in Washington, D.C. April 28-May 1.

Blonder's comments to NSSTA attendees about "federal and state issues", which occurred near the end of an exceptional NSSTA program, served as a belated key note address for the entire NSSTA program.

Blonder was one of three NSSTA past-Presidents, along with Henry Strong and Chris Diamantis, whom NSSTA, and new NSSTA President Daniel Durbin, honored during its meeting.

Blonder, a two-time NSSTA President who continues to co-chair NSSTA's Legislation and Regulation Committee, spoke passionately about baseball and structured settlements. Blonder traced his involvement in structured settlements to the late 1970s when he helped organize a pre-NSSTA political coalition which formulated, and eventually helped to enact, the original structured settlement tax legislation in 1982.

With support from Blonder and its Legislation and Regulation Committee, NSSTA announced and introduced a new "D.C. two-step" political strategy: move one-step backward before moving two or more steps forward.

NSSTA's backward step:

Re-focus on "protecting, preserving and promoting" structured settlement laws already enacted in the United States Internal Revenue Code and 47 state structured settlement protection statutes;
Consolidate and transition NSSTA's administrative, financial and political strengths.

NSSTA's forward steps:

Continue enhanced education about Medicaid and Medicare as cornerstones for growing the structured settlement market;
Continue to define NSSTA's Internet strategy and online voice.

NSSTA's strengths were displayed during the 2009 Annual Meeting.

Joseph Ricci, NSSTA's new Executive Director, summarized improvements in NSSTA governance.
NSSTA announced:
- New NSSTA voting bylaws;
- Election of new Directors Betty Gregware and Daniel Finn; plus
- A new NSSTA Channel on YouTube.
NSSTA's program featured presentations from:
- NSSTA lobbyist Eric Vaughn;
- NSSTA marketing consultant Peter Arnold; and
- NSSTA General Counsel Hogan & Hartson partner Craig Ulman.
In addition to his "Washington Report" Vaughn organized an impressive delegation of congressional speakers for NSSTA:
- Senator Richard Durbin (D) from Illinois;
- Senator Charles Grassley (R) from Iowa;
- Congressman Charles Rangle (D) from New York;
- Congressman James Langevin (D) from Rhode Island;
- Congressman Joseph Crowley (D) from New York;
- Congressman Dave Camp (R) from Michigan;
- Congressman Brian Higgins (D) from New York;
- Congresswoman Allyson Schwartz (D) from Pennsylvania;
- Congressman Joseph Courtney (D) from Connecticut;
- Plus the Chiefs of Staff for four congressmen.

Among the political speakers, Senator Durbin, uncle of NSSTA President Daniel Durbin, was the most focused on structured settlement issues. Senator Durbin promised to:

Support IRC sections 104(a)(2) and 130;
Address structured settlement secondary market advertising as part of his proposed Financial Product Safety Commission.

Ricci, Vaughn and NSSTAPAC Chairman Brad Cantwell complemented NSSTA congressional presentations with a NSSTAPAC status report.

In addition to the congressional speakers, NSSTA's educational program featured exceptional structured settlement and settlement planning presentations:

Industry Update and Looking Forward - Transitioning NSSTA Presidents Chris Diamantis and Dan Durbin offered their strategic analyses;
"All Things Considered" - NSSTA's legal committee has upgraded the quality and scope of its educational contributions:
- Michael Miller summarized Spencer v. Hartford;
- Ilana Hanau spoke about the Fresno County factoring cases;
- Craig Ulman re-introduced "Exemption of Structured Settlement Payments" as a sales and marketing enhancement to help grow structured settlements.
Medicare and Medicaid - NSSTA's government benefits committee sponsored two panel discussions.
- Roy Franco, Mark Popolizio, David Korch and Rafael Gonzalez spoke about Medicare and structured settlements;
- John McCulloch, Timothy O'Driscoll and Dennis Mc Andrews spoke about Medicaid and structured settlements.

35W Bridge Collapse - Jerry Lothrop summarized structured settlement results and lessons learned from the Minnesota August 1, 2007 bridge collapse.
Financial Strength Ratings - William Pargeans of A.M. Best emphasized strong fixed annuity sales trends despite low interest rates;
Ethics - Mike Jones continued a revitalized NSSTA priority:
- Asking the NSSTA audience: "why be ethical?" and
- Challenging the NSSTA audience to identify and support ethical leaders within the structured settlement industry.

Congratulations to NSSTA for an outstanding 2009 annual meeting in Washington, D.C. Future S2KM blog posts will offer commentary.

Cyprus Increases Its Investor Appeal

2009-05-08T06:58:00.000-07:00

An island easy in antique novel and with nearly unparalleled beauty, Cyprus has drawn out proven public with holidaymakers from all over the world. Averaging bounteous than 300 days of sunshine everyone year, and offering a numeral of superb beaches scattered along its coastline, it is unceremoniously to scrutinize why so multiplied individuals hold fallen in ardency with Cyprus.
As with so various capable belongings investment markets, the benefits of investing in Cyprus are climactically centered environing the growing mart for tourism on the island. With estimated increases of sorrounding 4-5% per year over the later ten years, this revenue stream seems by oneself establish to forge ahead for the foreseeable future.
Whilst Cyprus has been accepted with property investors for a figure of years, the akin of keeping in developments on the island get increased in fresh times. Attracted by a incongruity of contrastive factors including favorable tribute conditions, grand standards of living and a able tourism industry, property investors are not lone looking on Cyprus favourably, they are seeing it as one of Europe"s premier investment opportunities at present.
As husky as the conspicuous attraction of the increasing need for tourism on the island, there are a amount of other factors which obtain aligned in new duration to indicate a deeper favourable investment opportunity. In particular, Cyprus" accession to complete membership of the European Union (and the increased trading opportunities associated with this) has produced a sensitive and thriving economy, which coupled with the great standards of living and favourable impost conditions exhibit a able-bodied fiscal situation for investing property in Cyprus.
As fit as the money reasons for investing, the viable reunification of the island testament attempt appreciable investment opportunities, remarkably in the Turkish controlled north where property is even substantially cheaper than in the Greek controlled south. Talks are at even now on-going regarding practicable re-unification, and whilst they are yet at an early stage, it has resulted in a keener meeting place on political events in Cyprus.
Already there are an increasing digit of high rise excellence projects growth developed throughout the north of the island, and destinations including Catalkoy and Bogaz are already proving regular investment choices. Should re-unification be confirmed, this course formation is doable to corral walk considerably, with prices in the north increasing to identical levels currently fashion throughout the south of the island.
With the more and more challenging global financial climate causing investors to redefine objectives and returns, Cyprus is fitting an increasingly general preference for investors seeking a elongate term, expanded steady property investment.

The Benefits of Social Trading

2009-05-08T06:57:00.000-07:00

Trading on the Forex or in stocks can be one of the loneliest careers you can choose. Some crowd are chirpy living a hermit according to existence, however studies own shown that social interplay is considerable allotment of the habitual workplace and contributes to a happier life.
Trading has a digit of issues that you'll committal to be aware of. For instance, provided you sit at the personal computer all day, you may gem yourself compulsively snacking and again not enchanting exercise. You compulsion to be firm that the physical side of your heart is in balance by manufacture an deed to grindstone out, and by feeding yourself healthier foods, such as carrots and nuts, rather than sweet bars.
This is condign one attribute of trading, however. Due to the insular nature, traders can change into withdrawn and incapable of regular social interaction, which is viable to corollary in a aggrandized reclusive lifestyle. There is a mild reimburse to this, in the fashion of forums of like-minded tribe on the Internet.
In particular, it is doable to bargain forums that canvass all aspects of trading on every practicable market. Trading forums in typical should be viewed with caution with regard to any blazing tips that may be given. It is popular for someone to go and hype a low cap inventory in which they hog honorable bought a mammoth position, in the hopes that other traders testament assume the recommendation, invest in the stock in number and pushed the payment up.
So what are you to do? You either sit alone in a time with no social interaction, calmly trading and going dippy from having no one to dissertation to, or you fall into the trap of chasing each else's close tips.
There is a centre ground. You longing to acquire social interaction, and it should be with nation sharing the equivalent interests as yourself, i.e. traders, nevertheless it should be with clan who you comprehend and trust, and whose stock advising support you can safely ignore, at least until you annex a chance to independently investigate it.
The reinstate to this is to append in a battery of peers where you can body relationships and altercate items of case on the forum without enjoyment the vigour to hug all the views expressed. A animated interactive conversation will assist to clarify your thinking on the merits of any specific commerce or strategy, and a general analysis is bound to introduce latest points of theory that you hold not considered before.
Most importantly, however, you'll good buy that you are continually lenghty and questioned by participating actively in a forum, and this will immeasurably aid your own trading performance. Peer procession of your thoughts and methods in interaction with others will accumulate your trading up to time and lock up that you always way it in a virgin manner.
Site Soberman of NetPicks LLC has been trading for over 20 yrs and offers cuffo educational resources, online dialogue forums, vital forex and futures expression services, as hale as breathing webinars.7 Secrets

Home Related Tax Deductions

2009-05-08T06:56:00.000-07:00

Cardinal Chronology Habitat Buyer Impost Credit
Did you get a down home in 2008? Whether you purchased a family for your relevant habitat after Apr 8, 2008 and before The middle of summer 1, 2009, you could be eligible for a Aboriginal Continuance Territory Buyer Toll Credit of up to $7,500 for your 2008 excise return. This credit is available to contemporary homebuyers, defined as those who hold not owned a household as a principal home in the preceding three years.
Home Ownership Expenses and Deductions
Home Related Deductions
The case if here is intended for a detailed overview and understanding. Everything stated here might hog exceptions. During the tribute questionaire on eFile you testament be prompted to enter the decisive information. Please reference Book 530 and Volume 587 for extended feature on what you can deduct and what you cannot deduct.
Deductions for Costs of Purchasing a Home:

House Morgage Interest
Valid Estate Taxes
Mortgage Insurance Premium
Points (charges paid by the borrower to achieve mortgage)

You can asseverate a deduction on the points you remuneration when captivating gone an first-hand internal mortgage , yet provided the points were paid by the seller. Everyone objective is identical to one percentage mark of the loan amount. Additionally, you may deduct the mortgage care and belongings levy paid for that specific year. You should always conduct all documents , such as the settlement statement from the term company. Settlement costs, which are besides referred to as closing or escrow costs, may accommodate any transfer, cd and fame fees, however are not deductible in the happening charge year.
Some homey related expenses that cannot be deducted:

Embers or homeowner insurance
Extent to decrease principal mortgage

Home Improvements
Some types of homely improvements can potentially lower your tariff debt when you sell your home. Such expenses may comprehend adding a roof margin or replacing your roof , which increases the usefulness and market price of your home. These types of expenses/deductions cannot be used until you sell your home. However, all records should be kept for approaching use, in that any familiar improvement costs can add up over the years. Be mindful that any regular repair or maintainance on your inland is not customs deductible.
Additional National Tax Deductions:
Mortgage insurance premiums: you might be all around to grip an itemized deduction on the insurance premium paid.
Note: trustworthy itemized deductions (including taxes and local mortgage interest) are regional if your adjusted gross process is exceeding than $156,400 if you are married filing jointly ($78,200 if you are married filing separately).
Refinancing a House: Some homeowners keep built salient fairness in their home, which they then employ to capitalize on a at ease equity loan. This is sometimes called a moment mortgage due to the loan sits due endure the basic mortgage (original mortgage for your home). Homeowners can either takings the cash in a lump sum or arouse a native equity wrinkle of credit, which is collateral to having a low-rate credit card with the added assistance of duration tax-deductible. Of particular interest, if the wealth are used for habitation improvements, all or some of the points can be deducted in the in fashion tax year.

Useful Employment Federal laws In Business

2009-05-08T06:55:00.000-07:00

In businesses and organizations, there are a character of laws that discharge exist to protect employees from abuse by their employers. They dispense legal labour benefit and formalities to employees of which failure by the episode or assemblage to can-opener amounts to disciplinary alacrity activity taken. Such duty laws include;
The American with disabilities act: Clan who are trained in a addicted existence and liking to pursue their dreams should not be denied whether they are disabled. It adds that relatives of a disabled mortal should not discriminate against that human race when looking for a job. Disability affects both intellectual and physical being.
Age discrimination in job act: Your day should never be a apprehension for you to be denied a berth breaks at any working place. This detail applies to those crowd who are in the stated date bracket by elderliness by office law. When you corner a complaint concerning the same, you can always cite to the event depending on the country you are in and the bit because laws accumulate changing from day to time.
Consolidated omnibus budget reconciliation act: This deed gives you an befalling to appropriate bit in the accommodation production concerning such issues as health charge among others. According to the law, you compass the ethical to assert medical insurance involve to your husband and children in position of health complications or all the more death.
Employee retirement wealth security act: This type of point behold to it that an lone hire inland retirement carton that is equitable that testament backing him in the future. Further it highlights that relatives of disabled heads gets their rights as required by law
Fair labour standards act: The circumstance sets the minimum wage, the check you entertain for additional duty done, the records that companies annex approximately you and laws that restrict descendant labor.
Safety and health act: There are conditions that are always locate to certify that the director has risk-free working nature to the boss of employees' safety and health. The fact extremely requires that you prepare your employees on how to respond to any dangers that may occur within their jobs.
Medical and family assent act: Family and medical authorization reality ensures that employers confer their employees some tolerance away within a specific space of time. During this period, you guaranteed your salary however and assured that you will much hold a business when you shop for back. This is to dish out an worker epoch to rest or may be as a aftereffect of illness of a family member or much yourself.

Article

2009-05-08T06:37:00.000-07:00

I sidestepped Probate and got 40 of my Inheritance cash up-front, before conclusion of Probate: using Heir Advance

Age to help my story, because each else is telling their Brand-new Fine Depression combat stories now...
December, 2008. Everything was going counterfactual - Pursuit was unbelievably slow... Some goon, literally, threw a spanner into the centre of my printing works almost ended processing a massive order. The early body I did was research with my insurance society matchless to detect my monthly premium had been missed.
The moment and third business I did was sack my secretary and the goon with the spanner, which specious me palpation a total piece bigger on the other hand didn"t solve the disagreement of getting the method processed. Provided I didn"t replete within 4 weeks I was going to lose the order, the customer and probably my business.
I was waiting on an Inheritance, with colossal hopes... however that was creeping in slow movement finished the courts, in Probate.
I reckoned it was generation to settle power on my Probate Attorney, who was dealing with all the Probate issues I had to buy buttoned up to arouse to an Inheritance from my father"s Estate. It was compatible " Don"t worry. It"s peerless 4 to 6 months down the line..." So didn"t seem to be getting anywhere with speeding up the Probate Process.
Whether I could aloof influence my hands on some of my Inheritance cash this crisis would be resolved. My lawyer, didn"t control absent an ounce of hope. He reminded me of what he"d said in the antecedent process - Probate can activity on for months, sometimes years, and the aggrandized complicated the Estate is, the longer it takes.
My Probate Attorney suggested I might craving to expect approximately trying to entertain an Inheritance Loan nevertheless most loan companies I"d heard of accept an time with their credit checks, they necessity blood as hale as monthly attention fees and penalties
and in any condition won"t lend you a bean if you living in another homeland elsewhere from the source of your Inheritance, or if the Estate hasn"t reached a firm event in Probate Court.
Then he told me that a client of his had bowled over all these barriers by with the cooperation of a cranny financial trustworthy called Inheritor Advance Co., at www.heiradvance.com -
I went on limit and looked them up... and was super glad I did.
The website is not difficult on the contrary informative, and express unceremoniously to navigate around. Some of the customer quotes posted up on the territory stage seemed to be talking directly to me. I could observe it fitting away... I was going to be able to inspire all my questions answered about Probates, Probate Timelines, Estate Loans and Inheritance Loans....
Best kind of all I could data an manipulate on contour for a Probate Cash Advance - payable within 72 hours, once I got all my paperwork in! Seemed also useful to be true! Mainly as the full action was so light and straightforward.
I was having rotten luck that age so I didn"t ambience at all hopeful that they would in truth approve me for an Inheritance Cash Advance or an Estate Loan on an Inheritance that was half means wrapped up the darn probate courts. All the more the individual quantity of paperwork they asked for was probation of my convention with the Estate that was in Probate, a record of the Will; and a infrequent other documents from Probate Court.

Structured Settlement History

2009-05-08T06:35:00.000-07:00

1699
English Common Law basis for the "single recovery rule", which was the basis for the rejection of settlements including periodic payments for almost 250 years.
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1913
The 16th Amendment to the Constitution made the income tax a fixture in the U.S. Tax Code.
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1916
The Federal Employees Compensation Act (FECA) provides compensation benefits to civilian employees of the United States for disability due to personal injury. The Act also provides for compensation for employment related disease.
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1919
Revenue Act of 1918. The exclusion for personal injury damages presently encoded in I.R.C. 104(a)(2) was enacted.

IRS Code Section 61(a)
Gross income includes all income from whatever source derived except as otherwise provided by law.

I.R.C. Section 104(a)(2)
Damages received from claims of physical injury or sickness are excluded from gross income for tax purposes.

1935
The Aid to Famifies With Dependent Children Act provided the Federal basis for the establishment of state alimony and child support systems.
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1960s
Thalidomide
These cases, most of which occurred in Canada, were meant to compensate children born with birth defects caused by this morning sickness drug. These cases marked the first time periodic payments were used in personal injury cases on a large scale. The drug manufacturer, Richard Merrill, did not have sufficient insurance or funds to settle all of the cases in a lump sum.
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1960
Revenue Ruling 60-31
Deferred compensation is not recognized as income until there is actual receipt when the agreement to defer receipt was entered into before the compensation was earned.

McGhee v. McGhee
Because it was heard in equity court the single recovery rule was disregarded and periodic payments were allowed.
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1965
Knuckles v. Commissioner
The determination of whether a settlement amount is excludable must be based on the reason for settlement, which is determined by the wording of the original complaint.

Revenue Ruling 65-29
Interest earned from investing a lump sum payment is not excludable from gross income.
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1972
Seay v. Commissioner
States that Personal Embarrassment is to be considered a "personal injury" under Section 104(a)(2), therefore, payments meant to remedy it are excludable.

Holden v. Construction Machinerv Co.
The Supreme Court of Iowa reviewed a trial court decision that permitted the parties to elect either periodic payment of damages or specific performance of an employment contract
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1978
IRS PLR 7839075, June 29,1978
Interest earned from investing a lump sum payment for damages is not excludable where:

• The lump sum was paid to the Guardian of a minor Claimant

• By court order, the lump sum was invested in time deposit accounts maturing not later than Claimant's majority

• Neither principal nor interest can be withdrawn without express permission of the court

General Counsel Memorandum 37687, September 25,1978
Periodic payments are fully excludable when the Casualty company agreed to make fixed periodic payments to Claimant for the longer of twenty years or Claimant's life, provided that Claimant does not have actual or constructive receipt of the economic benefit of the present value of the damages.

IRS PLR 7905017. October 31,1978
Periodic payments are fully excludable when:

• Casualty company agreed to make fixed periodic payments to Claimant for the longer of twenty years or Claimant's life

• Casualty company purchased an annuity from its affiliate to provide a source of funds to satisfy the obligation

• Casualty company is the owner of the annuity and has all rights of ownership,
including the right to change the Beneficiary

• Casualty company instructed the affiliate to make payments directly to the Claimant

• Claimant has no right to the discounted present value of the periodic payments or to control the investment of that amount, and

• Any payments to Claimant's estate are similarly excludable from
income.

Final report of the Royal Commission on Civil Liability and Compensation for Personal lnjury included a majority recommendation in favor of periodic payments being available in the case of liability claims involving death or serious and permanent disablement. (U.K.)
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1979
IRS PLR 7933078, May, 21,1979
Periodic payments are fully excludable when:

• Casualty company agreed to make periodic payments to Claimant for a term certain

• Casualty company is not required to set aside specific assets to secure any part of its obligation

• Claimant does not have the right to accelerate any payment or to increase or decrease the amount of any payment

• Claimant's rights against casualty company are no greater than those of its general creditor

• Payments are not subject to assignment, transfer, commutation or encumbrance

• Casualty company is obligated to make final payment of a specific amount to Claimant's estate in lieu of the obligation to make further payments if the Claimant should die before a specific date

• Casualty company also agreed to reimburse Claimant for future medical expenses that do not exceed a sum certain, and any such reimbursement must be offset against actual future medical expenses
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1980
IRS PLR 8020095, February 25,1980
Periodic payments are fully excludable where:

• Defendant agreed to make fixed periodic payments to Claimant

• Defendant reserved the right to purchase an annuity to provide a source of funds to satisfy the obligation and reserved the right to assign its rights and duties

• Defendants terminated its obligations to claimant by assigning its rights and duties to Assignee and paying Assignee the sum of Y

• Assignee was required to use the entire sum of Y to purchase an annuity sufficient to make the periodic payments to Claimant and was required to instruct the issuer of the annuity to make payments directly to Claimant

• Neither Claimant nor Claimant's estate has the right to accelerate, increase or decrease the amount of any payment
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1982
IRS PLR 82190698219069, Februarv 12,1982
Payment by Employer to Employee in settlement for racial discrimination is not excludable, unless there is evidence (in the original complaint) that the claim was based on personal injury.

IRS PLR 8307015, November 10, 1982
Periodic payments are fully excludable when:
• Defendant agreed to make fixed periodic payments to Claimants

• Defendant was given the right to assign and arrange for the assumption of its obligations

• Pursuant to an assumption agreement entered into by the parties, defendant terminated its obligations to Assignee

• The assumption agreement gave Assignee the right but not the duty to purchase an annuity to fund the obligation

• Assignee instructed the issuer of the annuity to make payments directly to Claimants, and these instructions cannot be revoked or modified without Claimants' written consent

• Neither Defendant nor Claimants have any ownership or other rights in the annuity

• Claimants will have recourse only against Assignee in the event of a default under the settlement or assumption agreements

• Claimants will not actually receive funds until the annuity payments are made and have no present right to receive payments.

(Any payments to Claimants' estates are similarly excludable from income.)

Periodic Payments Settlement Act of 1982
This law expanded allowable conditions for qualified assignments, including:

• The assignment of the duty to make periodic payments may include a provision granting Claimant creditor's rights greater than those of a general creditor, and

• The determination of when the claimant is treated as having received any payment pursuant to the qualified assignment shall be made without regard to any such provision of the assignment
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1983
IRS PLR 8321045, February 18,1983
Periodic payments are fully excludable where:

• Defendants agreed to fixed periodic payments

• Defendants were given the right to assign their obligation

• Pursuant to agreement of both parties, Defendant assigned all of their obligation to Assignee

• The agreement gave to Assignee the right, but not the duty to establish a trust to fund the obligation

• Assignee established a trust where:

• A bank is a Trustee

• Neither Claimants nor Defendants have any ownership or other rights in the trust

• Assignee was irrevocably designated as trust Beneficiary

• Assignee instructed trustee to make payments directly to Claimants Pursuant to terms of the settlement agreement

• Assignee's instructions to Trustee can be revoked or modified by Assignee

• Claimants have no right to compel payment from trustee if Assignee stops payments, and

• Claimants' sole remedy if periodic payments are not received is to bring an action against Assignee

IRS PLR 8325054, March 21,1983
Periodic Payments are fully excludable when:

• Defendant proposes to make fixed periodic payments to Claimants

• Defendant will purchase an annuity from an Insurance Company to fund the periodic Payments

• Defendant will own and control the annuity and will have the right to change the Beneficiary
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1984
IRS PLR 8435154, June 1, 1984
Periodic payments are fully excludable when:

• Claimant, casualty company and re-insurer executed a Settlement Agreement in which, pursuant to a reinsurance agreement previously entered into between casualty company and re-insurer and consented to by Claimant as part of the settlement, re-insurer shall make periodic payments to Claimant

• Casualty company shall be discharged from all liability for said payments

• Claimant's right to receive periodic payments conforms to all of the guidelines set forth in paragraphs 83 and 91 supra.
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1985
Burford v. United States
All damages from wrongful death action, including punitive damages are excludable under 104(a)(2).

IRS PLR 8527050, April 9,1985
• Damages in this action made due to wrongful discharge, age discrimination and State Handicappers' Civil Rights Act violations were paid on account of personal injuries, and are excludable from gross income. Nor do they constitute wages for purposes of FICA, FUTA, or income tax withholding.

• The portion that was paid on account attorneys' fees, costs and interest thereon is included in gross income but does not constitute wages for purposes of FICA, FUTA, or income tax withholding.

• The portion to be paid in annual installments on account of lost wages and interest thereon will be includable in gross income in the taxable year received

• Only the lost wages and not the interest thereon will constitute wages for purposes of FICA, FUTA, or income = withholding

IRS PLR 8547025, August 23, 1985
The amount received in settlement of this wrongful death action is fully excludable, even though the complaint alleged both punitive and compensatory damages, so long, as:

• Applicable state law allows for recovery of punitive damages only after compensatory damages have been proven
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1987
Thompson v. Commissioner
Liquidated damages received under the Equal Pay Act of 1963 were excludable (even though this portion of the award was measured by the amount of back pay) because this amount was received through prosecution of a tort-type claim for personal injuries (sex discrimination).

An additional amount received as back pay, under the Equal Pay Act and Title VII of the Civil Rights Act of 1964, was not excludable on grounds that it was more in the nature of a payment for a contract violation than for tort-type right.

Bent v. Commissioner
Amount received in an unallocated settlement of a claim under 42 U.S.C. § 1983 for abridgment of speech (which the IRS attempted to characterize as a substitute for wages) was excludable under 104(a)(2) because: 1) it was received on account of personal injuries, and 2) A § 1983 claim is based on tort type rights

McShane v. Commissioner
The total amount of this settlement was excludable under I.R.C. § 104(a,)(2) and no portion of the proceeds was characterized as taxable interest where:

• The parties agreed to a post verdict settlement before judgment was entered

• The plaintiff would have been entitled to pre-judgment interest, post-judgment interest, or both, if the settlement had not occurred and

• The settlement agreement made no express allocation to interest

The court was persuaded by the following factors

• There was no unconditional, enforceable obligation to pay the amount of the verdict because final judgment has not been entered

• The settlement agreement stated that no interest was included in the award; and

• All parties and their attorneys testified "in an honest and forthright manner" that tax consequences of the settlement were not a part of the negotiations.

For these reasons, and because McShane is a "memorandum" opinion by only one judge, this decision offers limited tax guidance to plaintiffs who are considering a post verdict settlement.
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1988
Comprehensive Environmental Response, Compensation and Liability Act
In a study mandated by this law, the EPA detemined that structured settlements demonstrated the highest potential as an incentive to promote personally responsible party (PRP) settlements with the EPA.

IRS PLR 8831021, May 6,1988
Code Section 104(a)(2) treatment of amounts received by a claimant pursuant to a qualified assignment does not appear to be jeopardized if:

• Defendant will be the sole owner of the annuity and will have all rights of ownership including, without limitation, the right to chance the Beneficiary.
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1989
Wuff v. City of Wichita.
Settlement amount received pursuant to civil rights action for wrongful discharge in violation of First Amendment was excludable under Code Section 104(a)(2).
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1990
Uniform Periodic Payment of Judgments Act
This Act was approved by the National Conference of Commissioners on Uniform State Laws in order to assist state legislatures as they continue to develop large personal injury awards in periodic payments rather than lump sum payments.

IRS PLR 9015046, January 16,1990
Periodic payments made to a trust established on behalf of a minor claimant, and to be made directly to the claimant upon his majority,. are excludable where the periodic payments are made in accordance with the requirements of Revenue Ruling 79 220. No opinion is express concerning:

• Income tax consequences to the minor's parents if trust distributions are made to discharge the minor's expenses for which they would otherwise be liable as parents; or

• Tax consequences of the transaction under any other provision of the Code.

IRS PLR 9017011, January 24, 1990
Knowledge of the existence, cost and present value of an annuity contract used to fund a settlement offer does not cause these claimants to be in constructive receipt of the annuity contract or the amount invested in the annuity contract; therefore, periodic payments received pursuant to that settlement are excludable under I.R.C. § 104(a)(2).

Commissioner v. Miller
All money from personal injury settlements is excludable from gross income, whether it is labeled as compensatory or punitive damages.
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1992
United States v. Burke
Back pay awarded in settlement of a sex discrimination action under Title VII of the Civil Rights Act is not excludable under Code Section 104(a)(2).
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1994
Childs v. Commissioner (download the court document [PDF:56KB])
Allowed for Plaintiff's attorneys to structure a portion of all of their associated legal fees when representing a client with a legitimate case under 104(a)(2).
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1995
Commissioner v. Schleier
Recovery under the ADEA is not excludable from gross income. A taxpayer must meet two independent requirements before a recovery may be excluded under 104(a)(2):
• The underlying cause of action giving rise to the recovery must be "based upon tort or tort-type rights", and

• The damages must have been received "on account of personal injuries or sickness."

New test for determining taxability: "First the taxpayer must demonstrate that the underlying cause of action giving rise to the recovery is 'based upon tort or tort-type rights', and, second, the taxpayer must show that the damages were received 'on account of personal injuries or sickness"'.
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1996
O'Gilvie v. United States
Petitioners' punitive damages were not received "on account of'personal injuries; hence the gross income-exclusion provision. Does not apply and the damages are taxable.

Small Business Job Protection Act.
• Any damages flowing from tort claims that do not have a physical injury or physical sickness at their origin are taxable,

• Damages, other than punitive damages, that flow from tort claims having physical injury or sickness as their origin are excludable from gross income whether or not they are suffered by the injured party.

• Damages from wrongful death claims are also excludable from the recipient's gross income.
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2001
Structured Settlements Protection Law enacted in Idaho, Louisiana, Massachusetts, New Jersery, Oklahoma, Rhode Island, South Dakota, Texas, Virginia, and Washington
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2002
Federal Structured Settlements Protection Law Enacted
Federal legislation was enacted setting forth requirements for a structured settlement recipient to to "sell" his right to receive future payments in exchange for a lump sum. Under these guidelines, a sale cannot go forth unless a judge determines that:
• It is in accordance with State and Federal Law

• It is "in the best interest" of the Claimant

• It contains provisions whereby the Claimant (Seller) is told:

• The amounts and due dates of the payments to be transferred;

• The aggregate amount to be transferred;

• The amount received by the Claimant for the transaction;

• The discounted present value of the transferred payments; and

• The expenses to be paid by the Claimant for the transaction
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2004
IRS Issues New Confidentiality Rules confirming that physical injury cases are not subject to disclosure requirements to the IRS

Code Section 213 allows deduction of certain medical expenses. The allowable deduction is always less than the actual medical expense incurred because:

• This deduction is limited to the amount of expense in excess of five percent of adjusted gross income

• For purposes of this calculation, allowable expenses for medicine are
limited to the amount in excess or one percent of adjusted gross income

California, Colorado, and Illinois Structured Settlements Protection Law Enacted
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FAQ Selling Structured Settlement

2009-05-08T06:34:00.001-07:00

THE 10 MOST FREQUENTLY ASKED QUESTIONS

THINGS YOU DEFINITELY WILL WANT TO KNOW
BEFORE GOING ANY FURTHER...

WHY SHOULD I SELL MY INCOME STREAM?

If you are happy with receiving your money in payments, then by all means, do not sell. Many people are quite content receiving monthly, quarterly or annual payments over a number of years. But, what if you have a need for immediate cash? Often, people find themselves in situations where a lump sum of cash is required. These range from needing to pay taxes and settle debts, to getting a divorce or experiencing an illness.

Many people want to cash out their payments in order to pay college tuition, buy a home, or open a business. Still, others who understand the time value of money will want to take advantage of lucrative investment opportunities. Whatever the reason, more and more people are choosing to take a lump sum of cash today over waiting for future dollars while inflation eats them away.

HOW DO INSURANCE COMPANIES AND GOVERNMENT AGENCIES FEEL ABOUT THIS?

Well, in a word, THEY HATE IT! Insurance companies do not want you to know that you can cash out your payments. Why? Consider what happens when an insurance company offers you a structured settlement, paying what seems like a large amount of money, say $100,000 dollars over a 10 year period. Do they actually pay $100,000? Of course not. Common sense tells you that. It is in their best interest to pay out AS LITTLE AS THEY POSSIBLY CAN. So, they buy an annuity for a lesser amount, (A GREAT DEAL LESSER), and then let that annuity earn sufficient interest to make your payments over the next 20 years. They would never want you to know that they actually paid only a fraction of what it looked like they paid. It's a money game, and as long as you are in the dark, they come out on top.

The same is true of lottery winnings. When you win a million dollars in the lottery, you don't really get a million dollars! You get annual payments for 20 years. When you break it down over such a long time, a million dollars is really only $50,000 per year, less taxes of course. How much will that $50K buy in 10 years? Certainly not what it will buy today! So, why don't they just give you the money? Again, it's because they are investing a much smaller amount, and letting it build interest to make those $50K payments every year. In short, they are making money on what should be your money, while you have to wait!

Now, consider for a moment what you would do if you had a lump sum of cash. How would you invest it? Do you think that you could earn as much, if not more, interest for yourself? Wouldn't you like to be the one making the decisions about your money, and reaping the rewards?

IS SELLING MY FUTURE PAYMENTS LEGAL?

ABSOLUTELY! Not only is it completely legal, but corporate America and wealthy individuals have been buying and selling contracts & income streams to improve their cash flow and meet their financial obligations for years. However, this knowledge has been a well-kept secret from the general public. The truth is there are funding sources across the country who are buying these types of paper right now. Our job is to know who those funding sources are, to know who pays the most for each type of income stream, and to secure the highest purchase price for our client. It's a job we do well!

WHY DIDN'T MY LAWYER TELL ME I COULD DO THIS?

Most likely, the reason your attorney did not give you this option is because he probably doesn't know about it! Attorneys are trained to look out for the best interests of their clients, but they are not trained in alternative finance or secondary markets. The vast majority of attorneys, as well as the public at large, are completely in the dark about these options. This is also true of CPA's, financial planners, and real estate professionals. They believe there are no options, and no one has told them otherwise. However, those few who do know about these options are jumping at the chance to offer these services to their clients!

HOW MUCH WILL IT COST ME?

There are no out-of-pocket expenses incurred by a client when selling your income stream. All up-front costs, expenses and legal fees are paid directly by the funding source.

HOW LONG DOES IT TAKE?

The process is pretty straight forward. Once the necessary documents are in, the process usually takes about 6 - 8 weeks for funding, sometimes even less. Upon closing the deal, the funding source will send you your money, either in a check by overnight courier, or by wiring the $$$ directly into your account, as you instruct.

IS THIS A LOAN? DO I HAVE TO PAY THIS BACK?

No, this is not a loan. There is no money to pay back and no debt incurred. When you sell your future payments, you receive cash to use as you choose. There are absolutely no strings attached.

WHAT IF THE PAYOR DEFAULTS?

Once a funding source purchases your payments, they assume all future risk. Should the payor go bankrupt or otherwise default on the debt, the funding source takes the loss. No one can ever come back on you.

HOW DO I PICK THE BEST BROKER?

One important question to ask a broker is how many underwriters they are going to present your deal to. This is a critical issue because many brokers have entered into exclusive contracts with the funders themselves. Funders depend on brokers to bring them their deals - these brokers are their life blood. Therefore, it is in the funders best interest to get the broker to sign a contract guarenteeing them exclusivity. They do this by offering incentives. Many offer co-op advertising dollars to the broker, or provide them with prepackaged media. Others offer higher broker commissions, or preferential broker status, etc.

Many brokers have been seduced into signing contracts to bring their deals directly to these underwriters, thus eliminating any outside competition. What does that mean for you? Simple -- it means less money. Because when a funder knows that no one else is bidding on this deal, they can literally pay what they want, which translates into as little as possible.

WHAT ABOUT CERTIFICATION?

This is an important question to ask. As with any industry that experiences a period of growth, there are always those few individuals who choose to operate in an unethical manner, and diversified cash flow is no exception. Especially when the industry is new, it can be that much harder to know who you are dealing with. This is why certification is extremely important. The diversified cash flow industry is self-regulating and has developed training standards, testing for certification, and continuing education requirements that are nation-wide. Still, there are a lot of so-called "brokers" who are not certified at all. These individuals may only represent one or two funding companies, which eliminates competitive bidding. And, because they are unregulated, your recourse is limited. Therefore, always be sure to ask about certification. If necessary, contact the American Cash Flow Association, located in Orlando, FL., to verify the status of a particular broker. Or, visit their web site at www.acfa-cashflow.org.

Structured settlements - examples

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Please note: The amounts quoted below are examples only. Amounts of compensation will vary from case to case. A lawyer will be able to provide advice about personal injury compensation. These examples illustrate the application and components of structured settlements.

Participants in a typical structured settlement

A structured settlement

At the age of 19, Paul was seriously injured when a public walkway collapsed under him. Paul's lawyer made a claim for compensation against the public authority responsible for the walkway. After negotiations between the parties, the public authority admitted liability (fault).

The following settlement agreement was reached between the parties:

The public authority will pay an immediate cash sum of $500,000 to Paul to pay existing debts and costs.
The public authority will purchase a personal injury annuity for Paul from a life insurance company. This annuity will start at $30,000 per year, with payments paid to Paul monthly, indexed to the consumer price index (CPI), payable for as long as Paul lives and guaranteed for the first 10 years.

The annuity payments will be exempt from tax when received by Paul. The immediate cash sum will also be tax-exempt.

A structured settlement involving a minor and a trust

At the age of 10, Chris was in a car accident when the car driven by his father collided with another car. He sustained a serious head injury, resulting in permanent brain damage. Chris is permanently unable to work and his financial affairs need to be managed by a trustee on his behalf.

A claim for compensation was made against the driver of the other car (the defendant). The other driver was insured, so their insurance company defended the claim.

Chris's lawyer negotiated a structured settlement agreement in which the defendant's insurance company agreed to pay the following compensation:

An immediate lump sum of $420,000 will be paid to Chris's trustee to settle Chris's existing debts and meet some of his future expenses.
The insurance company will purchase two personal injury annuities for Chris from two different life insurance companies:

The first annuity will provide periodic payments for Chris, starting at $12,500 per year*, payable in monthly payments, continuing for the term of Chris's life, increasing in line with the CPI and guaranteed for the first 10 years.
The second annuity will provide periodic payments for Chris, starting at $30,000 per year, payable annually, continuing for the shorter of 30 years or Chris's life, increasing at 5% per year compound with no guarantee period.

This settlement agreement was approved by the court (as required under state law because Chris, being under 18 years old, has a legal incapacity). The annuity payments are tax-exempt when received by Chris's trustee on his behalf.

* The minimum level of monthly support requires that the pension be equal to or greater than the maximum basic rate of the age pension. The payments under the first annuity to Chris were greater than the minimum monthly level of support at the date of the settlement order.

A structured settlement involving a single personal injury lump sum

A structured settlement agreement included the following payments:

a personal injury annuity of $1,400 per month that satisfies the requirements for providing the minimum monthly level of support - the payments are indexed to increase in line with the CPI and are guaranteed for 10 years from the date of settlement
another personal injury annuity paying $15,000 per year for 10 years
a personal injury lump sum of $100,000 payable in 15 years if the injured person is alive at that time, and
an immediate cash lump sum of $250,000.

The personal injury annuity payments and the personal injury lump sum payment will be tax-exempt.

A structured settlement involving a series of personal injury lump sums

At the age of 32, Robert was involved in a motorbike accident and acquired a spinal cord injury resulting in quadriplegia. A motorist failed to stop at a red light and the car hit Robert's bike.

Robert engaged a lawyer to make a claim for compensation for personal injury against the motorist. The motorist was insured and the insurance company defended the claim on its client's behalf.

The parties reached the following structured settlement agreement:

The insurer will pay Robert an immediate cash sum of $565,000. Robert can use this amount to pay his lawyers, pay off his debts and purchase some equipment.
The insurer will also purchase for Robert a personal injury annuity that will provide him with periodic payments, starting at $2,000 per month and continuing for as long as he lives. The payments are indexed to increase in line with the CPI and are guaranteed for 10 years from the date of settlement. The monthly payments will be used to cover his medical expenses and other living costs.
The insurer will also purchase for Robert a series of personal injury lump sums. These eight payments are spaced out every five years and will be payable if Robert is alive on the agreed payment dates. The agreed dates and amounts are as follows:

after five years - $10,000
after a further five years - $25,000
after a further five years - $40,000
after a further five years - $50,000
after a further five years - $75,000
after a further five years - $100,000
after a further five years - $150,000, and
after a further five years - $200,000.

It is expected that Robert will use these payments to replace his wheelchair every five years and to cover other expenses.

The personal injury annuity payments and the personal injury lump sum payment will be tax-exempt.

Two annuities that together meet the minimum monthly level of support

Tony was seriously injured because of medical negligence, for which the hospital admitted liability. Tony and the hospital agreed to the following settlement agreement:

The hospital will pay an immediate cash lump sum of $500,000 directly to Tony.
The hospital will purchase two personal injury annuities from two different life insurance companies. Each annuity starts at $8,500 per year, with monthly payments, payable for as long as Tony lives and indexed to increase in line with the CPI.

These annuities together total $17,000, which more than meets the minimum monthly level of support requirement. The payments from both annuities and the lump sum payment will be tax-exempt.

Court deciding liability and no immediate cash payment

Helen acquired quadriplegia as a result of a car accident. A claim for compensation was made against the other driver involved in the accident. The other driver's insurer defended the claim. The parties (Helen and the other driver's insurer) could not agree on who was at fault so the case went to court and a judge made a decision that the other driver was 70% liable.

The judge indicated that a settlement figure of $1.5 million could be considered appropriate and the case was adjourned so that the parties could consider arranging a structured settlement.

The parties were able to reach the following structured settlement agreement:

The insurer agreed to purchase a personal injury annuity, starting at $35,000, payable monthly, indexed to the CPI and guaranteed for 10 years from the date of settlement.
The insurer agreed to purchase a second personal injury annuity, starting at $10,000, payable quarterly, indexed at 4% and with no guarantee period.
The insurer agreed to purchase a series of personal injury lump sums, starting at $15,000, payable every five years for as long as Helen lives, and indexed to increase in line with the CPI.

Note that Helen had a private insurance policy that provided her with sufficient money to pay her debts and set up her living arrangements, so she did not need an immediate cash lump sum as part of her structured settlement.

The personal injury annuity and personal injury lump sum payments are tax-exempt. Also, the court is not required to endorse this settlement.

Defendant pays compensation in the form of an annuity (not a structured settlement)

Kerry was injured at birth through the negligent use of forceps. The doctor's employer, a local government health authority, admitted liability and agreed to a settlement under which it would pay an annuity to Kerry over her lifetime.

The doctor's employer is not a life insurance company or a state insurer. As the annuity has not been purchased from a life insurance company or a state insurer, it will not be exempt from tax.

Effect of a guarantee period

Geoff is an injured person who is receiving a tax-free personal injury annuity under a structured settlement. The annuity has a guarantee period of 10 years from the date of settlement.

Geoff's sons Michael and Robin are specified in the annuity contract as the reversionary beneficiaries. Geoff dies five years from the date of settlement.

Michael and Robin are entitled to receive the payments that would have been payable to Geoff over the remaining five years of the guarantee period, or a lump sum to the value of the remaining payments (less any increases).

With either choice, the payments would be exempt from income tax.

Injured person uses a lump sum to purchase an annuity (not a structured settlement)

David settles a claim against Anne for a personal injury he has sustained. Under the terms of the settlement agreement, Anne is obliged to pay David a lump sum amount. David uses the lump sum to purchase an annuity from a life insurance company.

The annuity is not a personal injury annuity and therefore will not qualify for the tax exemption. If the settlement agreement had specified that Anne or her insurer would use the lump sum to purchase a personal injury annuity from a life insurance company, the arrangement would be a structured settlement (assuming all the other requirements of the tax legislation were met, including the minimum level of support).

Court approving a structured settlement for a minor

At the age of nine, Peter was struck by a car and sustained a serious injury. When Peter was 15, his legal personal representative made a claim for compensation against the driver of the car. The driver has insurance and the insurance company defended the claim. The claim was settled. Peter is a minor and considered to be unable to manage financial matters so the settlement involves the establishment of a trust and court approval.

The settlement agreed to and approved by the court is as follows:

The insurer will pay an immediate lump sum of $250,000 to the trustees for investment on Peter's behalf to meet medical costs and other expenses incurred up to the date of settlement.
The insurer will buy a personal injury annuity that will pay the trustees $23,000 a year, indexed by the All Groups CPI, payable for the duration of Peter's life and guaranteed for the first 10 years.

If all the eligibility conditions are met, the annuity will be exempt from tax in the hands of the trustee and also when payments are made to Peter, or applied for the benefit of Peter. The lump sum is also tax-exempt. The exemption does not apply to investment income derived by the trustee from the investment of the lump sum of $250,000.

Person injured while overseas

While holidaying overseas, Phil was severely injured in a motor vehicle accident. He has returned to Australia. Phil seeks compensation from the driver of the other car under the laws of the nation where the accident occurred. The other driver is insured and the insurance company reaches an agreement with Phil. Under the terms of the agreement, the insurance company pays an immediate lump sum of $300,000 to Phil and purchases a personal injury annuity of $25,000 per year from an Australian life insurance company. This annuity will be paid monthly and indexed to the CPI.

The lump sum payment and the personal injury annuity are exempt from income tax. However, if the annuity had been purchased from a foreign life insurance company that was not registered under the Life Insurance Act 1995, the annuity would not qualify for exemption from income tax.

Cash For Structured Settlement

2009-05-08T06:31:00.000-07:00

If you are the beneficiary of a structured settlement as the result of a personal injury, medical malpractice, or workers' compensation case, you may have seen ads that promise "cash for your structured settlement", and be wondering if you should cash out. Even if you really need the money, you should carefully examine your options, and try to determine if selling your settlment is truly in your best interest.

Promises of Cash Payment for your Structured Settlement

A growing number of companies offer "fast cash" or "cash payment" for structured settlements. You should try to make sure that the company you choose to work with is on sound financial footing, such that you are not at risk for default on your promised cash payment after you sign over your annuities. You should also make sure that your company is competent and ethical, and won't try to come back at you if they later have problems obtaining your settlement payments after you are cashed out.

Before You Enter Into a Structured Settlement

Not all plaintiffs have the luxury of choosing whether part or all of their settlement will be structured. For example, a number of states require that certain future damages awards be paid in installments as opposed to in a lump sum, or permit a defendant to petition the court to pay future damages in installments. However, where a plaintiff can choose between a structured settlement or lump sum payment, care should be taken to make the correct choice.

Benefits of a structured settlement include possible tax avoidance, preservation of settlement funds for future care and future needs, and coordination of settlement proceeds with other benefits or public assistance.

Disadvantages of a structured settlement include possibly not having the available funds to make necessary purchases, or even desirable discretionary purchases, high commissions on the purchase of annuities, and a low yield as compared to other investment options. Also, if payments are equal, each payment will actually be reduced in real value as compared to the prior payment due to the effect of inflation.

Considerations Before Selling Your Settlement

Factors which should be taken into consideration before selling a structured settlement include:

Legal Restrictions - Due to the nature of some settlements, there may be legal restrictions on their sale.

Contractual Restrictions - Some structured settlements and annuities are set up in a manner which makes it difficult to impossible to sell them.

Tax Considerations - A structured settlement may offer considerable tax savings to an injured plaintiff, whereas a cash payment may subject the plaintiff to a significant, immediate tax liability.

Low Offers - Sometimes a buyer of structured settlements will make an unreasonably low offer for the settlement.

Can a Lawyer or Accountant Help

While a lawyer may not be able to help you decide if you should sell your settlement, a lawyer or financial professional can help you figure out the short- and long-term financial consequences of selling your settlement. They may also be able to help you determine a reasonable selling price for the settlement. A lawyer can also review a proposed contract for the sale of your structured settlement to make sure that you are adequately protected in the event of future complications.

Depending upon your circumstances, you may require a court to approve the sale of your structured settlement, and a lawyer may be able to assist you with that process.

It is not very difficult for a person who has acquired a structured settlement to trade it for cash. Irrespective of the source of the structured settlement, whether from an insurance claim or an out-of-court settlement, a good factoring company can help in obtaining cash for a structured settlement.

The factoring companies give a lump sum to an individual and become beneficiaries of the periodic payments. The lump sum is given minus the factoring companies’ fees which can be up to 15% of the total amount. The amount can be used in a number of ways to accomplish objectives such as repaying debts, buying a vehicle or a house, or funding education. It would not be possible if the money was made available in installments. At the same time, one should sell structured settlements only for meeting genuine requirements and not perceived ones.

A person wishing to sell his structured settlement should decide upon the amount that he wishes to sell giving due consideration to the genuineness of his need and his future requirements. Prospective sellers should shop online for the most appropriate factoring companies so that they can get the best price and terms for their structured settlement. It is possible to get free quotes online that give a basis for comparing settlement firms. One should also try and get an idea of the company’s reputation for fair-dealing, technical competence, and prompt payment.

A person desirous of selling a structured settlement can also do so by contacting a structured settlement broker who can apprise the seller of the best offers available. The seller should be proactive in keeping himself informed regarding any developments with respect to the sale of his settlement; he should also be aware of the responsibilities of the broker and the buyer as well as the steps that need to be carried out to sell the settlement. At no stage should a seller allow himself to be pressurized into making a deal which he is not comfortable with.

The process of selling a structured settlement can take up to two months. Some states in the United States have a minimum waiting period before a structured settlement sale can go through. The obligations to be fulfilled vary with the state and one should be aware of requirements as per state law. A court will decide whether the sale of a settlement is in your best interests. The court procedure involves submitting relevant documents and when these are approved, a date for the sale of the annuity is given by the court. A court-approved sale of annuities is exempt from taxes.

What if I want all of my money?

There may come a time when people who receive structured settlement payments wish to cash them out and receive a lump sum payment. There are a number of companies available who are willing to buy these settlement(s) and give them a lump sum payment. Before contemplating such a move, it is in your best interest to consult with an attorney or financial adviser.

Peachtree Settlement Funding is the nation's largest purchaser of structured settlements. Call a toll free number or request more information from their website.
Novation Capital offers help through a toll free phone number or online form. They have a "FAQ" page as well, and can help wade through your state's regulations.
Patriot Settlement Resources are purchasers of structured settlements, lottery payments and other future income streams. Convert your future payments into cash today.
Structured Settlements at StoneStreetCapital. Specializing in personal injury settlements, structured settlements, cash for structured settlements and personal injury settlements.
Torrey Pines Funding can assist you quickly in getting cash for your structured settlement.

There are many reasons people want to convert their structured settlements to a lump sum payment. Usually it's because they need a large amount of cash for a variety of reasons. Taking all or a portion of the settlement in one lump sum can pay for education, down payment on a home, or debt consolidation. And in the event of the death of the recipient, the heirs may want to sell the settlement for the lump sum so it can be divided between them.

Since 1979, Structured Settlements have become the most common way to settle personal injury cases. Payments are non-taxable, and the recipient is assured of a steady source of income. Should the recipient decide that he would like to have all or part of the settlement converted to a lump sum payment, there are many companies who can assist. Approval must be made by the court first, for the protection of the recipient. Lives and circumstances change, and the option to sell or assign the settlement for cash is always available.

Structured Settlement Annuity

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An annuity is an insurance contract. An annuity contract is created when an individual gives the insurance company money which may grow tax deferred and then can be distributed back to the owner in several ways.

Annuity contracts in the United States are defined by the Internal Revenue Code and regulated by the individual states. Annuities have features of life insurance and investment products. In the US, annuity contracts are only allowed to be sold by insurance companies, although private annuity contracts may be arranged between donors to non-profits to reduce taxes. Insurance companies are regulated by the states, so contracts or options that may be available in some states may not be available in others. However, their tax treatment is dictated by the Internal Revenue Code. There are two types of annuity contracts: the immediate annuity, which guarantees payments for a period of years or the lifetime of an individual or couple, and the deferred annuity, which grows tax deferred until such time as the annuity contract is annuitized (converted into an immediate annuity) or cashed in (either in periodic withdrawals or in a lump sum).

The process of structured settlement involves negotiations that concern payment schedule and the value of annuity. It mainly involves a life insurance company and a claimant. Litigation related structured settlement annuity involves the defendant also.

What happens in structured settlement annuity? According to the contractual agreement, the defendant agrees to pay the money in installments to the claimant under structured settlement annuity process. In return, the claimant drops his litigation. The defendant gives instructions to a third party/assignee for the execution of annuities on his behalf. He provides the party with the necessary funds. The assignee purchases an annuity contract to fulfill the periodic payment obligations.

If you are in the process for obtaining structured settlement annuity, then you can avail a broker?s service to help you get the deal that suits you.

Structured Settlement Firms: How they can help you? Structured settlement firms manage all the paperwork of structured settlement annuity, including court orders, annuity contract, settlement agreement and release and assignment agreement. For the settlement duration, the defendant needs to ensure he fulfills all the conditions for annuity for it to remain tax-free. For the protection of the tax-free status of settlement annuity, no alterations should be made to the structured settlement annuity once the concerned parties have agreed to it.

You can also make the payment from structured settlement to an estate. In this case, your payment is free from income tax but not estate tax. It can take up to 3-6 months for closing the structured settlement. You will start receiving payments after 30-45 days of the court order.

Advantages of Structured Settlement Due to various benefits offered by structured settlements, they are popular with those reeling under financial losses or heavy litigation, as well as claimants. These benefits include guarantee of payment and tax-free payment within the time. Although stocks and real estate investment alternatives offer better returns, they do not provide security and guarantee like that offered by structured settlement.

State and federal laws regulate these settlements. For structured settlement transactions, these laws are followed. You can invest annuities in low-risk government insured options and U.S Treasury Securities.

Adjusting structured settlements for inflation is a major advantage for the same amount as their sum is more than lump sum payment. Structured settlement is also preferred by the paying party, which is usually an insurance company, as they have to pay less than what they would have to pay a claimant if the litigation had been successful for him. This is beneficial for the defendant too as he saves on court expenses and attorney fees.

With so many advantages accruing to all parties concerned, it is no wonder that structured settlement annuity process is so popular when it comes to settling financial disputes out of court.

Annuities are one of the most important and inevitable and lucrative policies for the well being of the senior citizens of America. However, at some crossroads of life one might need to have their future to be planned in a proper way, especially during and after the retirement phase. The best time to buy an annuity is age 55 or older. An annuity is the ideal life planning tool for a senior citizen that comes up to him or her with all the advantages near the end of his life.

A structured settlement annuity is a particular kind of an annuity plan that has its own advantages and disadvantages. A structured settlement means “by the obligation of a payment that is deferred”. This type of annuity results from the settlement of a personal injury lawsuit. Usually a structured settlement annuity buyer has to make his or her payments over a considerable time or over a period of several years. This kind of annuity plan varies from personal injury accidents and such other mishaps to product liability. It is the fundamental right for a citizen to receive the amount of compensation that he or she deserves if he or she is hurt for some other person. Therefore various insurance companies and agencies buy annuity plans. This plan would be valuable enough to pay a combination of principal and interest over a long period of time. This payment is even possible on the conditions of restrictions regarding the schedule of disbursement.

There are a number of structured settlement companies, however, that offer a number of flexible, individually tailored plans. This is a great leap for those who are structured settlement recipients in receiving a considerable amount of money for their future payments. In one word, a structured settlement helps one to meet today’s needs, turning the future and distant payments into the money one needs today.