Structured Settlements 4Real: What's Real News in the Structured Settlements, Settlement Planning, Consulting and Lawsuit Recovery Space?

"Leading" Cash Now Pusher Hounds Jailed Structured Settlement Annuitant

They may have funny commercials but the recent actions of representatives of J.G. Wentworth to track down (through 3rd parties not a party to the payment rights) and exploit the desperation of a jailed client of a lawyer I know will go down in infamy.The jailed client had decided NOT to sell his structured settlement payment rights.

This morningThe exasperated lawyer, who represents personal injury victims, said to me that " it's unbelievable what level this company will go to..it's outrageous!"

As much as one can argue that the liquidity provided by factoring improves the structured settlement product its questionable solicitation practices like this that

One day the structured settlement factoring industry will seek to enhance its credibility by establishing and adhering to published standards of practice or agree to be regulated like the rest of us.

 

Qualified Settlement Funds: Beware the 3.8% Surtax

Unless the money in your qualified settlement fund goes in and out faster than a loaded hot chili dog, plaintiff attorneys need to be aware of the new investment surtax. A new 3.8% surtax on certain investment income starts January 1, 2013, as part of the health care reform act. The 3.8% surtax applies to trust investment income in excess of $12,000 in 2013

3.8%  is applied to the lesser of:

1. the undistributed net investment income for the year, or
2. the excess, if any, of
   1. the adjusted gross income (as defined in Internal Revenue Code Section 67(e)) for the year, over
   2. the dollar amount at which the highest tax bracket in Code Section 1(e) begins for the year ($12,000 in 2013)

Trusts and estates reach the maximum income tax bracket faster than individuals and joint tax filers. The same thing happens with the surtax

 Example: The Sick Puck 468B Trust has investment income of $51,000 and no distributions.
Result: $39,000 of income ($51,000 - $12,000 top bracket amount) will be subject to the 3.8% surtax.

Additional Planning Application: Because income from tax-exempt and tax-deferred vehicles like municipal bonds, tax-deferred non qualified annuities, life insurance and non qualified deferred compensation are not included in investment income, investments in these vehicles should become more favorable.

Executive Life of New York Liquidation: The "Trenchcoat" is Off

Several months ago I was approached by someone "in the know" to pull my posts about Executive Life of New York.  Similar requests were made of fellow bloggers Mark Wahlstrom and Patrick Hindert.  None of us did pull our posts. While I entered the structured settlement industry as ELNY was leaving the business (and thus my clients and I were fortunate to have "dodged the bullet"), I was intellectually curious and felt it important to share my research with those who were not receiving answers to their questions.

The would be "censor" characterized the number of structured settlement recipients affected as being in the hundreds. With the November 7, 2011 filing of  Schedule 1.15 for the proposed Executive Life of New York (ELNY) Restructuring Agreement with the Supreme Court of Nassau County New York, it is clear that the representation to me and presumably to Wahlstrom and HIndert,  has proved to be inaccurate.

Notwithstanding a party  line that "this is an Executive Life of New York problem not a structured settlement problem" the stark reality about the ELNY proposed plan of liquidation is this:

43% of the outstanding annuities in ELNY estate are structured settlement annuities

5.9% are Single Premium Immediate Annuities  (SPIA)

51.1% are Pension Annuities

Of the ELNY annuities that will experience shortfalls under the proposed Executive Life of New York (ELNY) Restructuring Agreement with the New York State Supreme Court, Nassau County:

97% are structured settlement annuities

2% are SPIAs

1% are Pension Annuities

Of the 1502 structured settlement annuities that are projected to have shortfalls

73.2%(1100) have uncovered shortfalls in excess of $100,000 present value

15% (227) have uncovered amounts in excess of $1,000,000, including" 

• 17 with uncovered amounts in excess of $5,000,000
• A single structured settlement annuity has an uncovered amount of $25,692,377 present value.

The total amount of "contract value" protected will vary from 34% to 100%

In his November 27, 2011 blog ELNY Liquidation- 3 Patrick Hindert states that Schedule 1.15 indicates shortfalls ("uncovered amounts") will occur for the  annuities even assuming state guaranty association contributions and enhancements

A hearing on the proposed plan of liquidation is set for "The Ides of March" 2012  (3/15/2012)

The Executive lIfe of New York liquidation has been described by some in the industry as a "train wreck". Yet, despite the 1895 Montparnasse tragedy (depicted above), people have continued to travel by rail.

Furthermore...

• People continue to fly despite aircraft accidents. For example 71 fatal air crashes involving the Boeing 737, yet the 737 has been cited has the most numerous and reliable passenger jet aircraft in the world. On November 17, 2011 Boeing announced a deal with Indonesia based Lion Airlines that includes 29 737-900s,  201 737 MAX and options for 150 more planes in the future. The company remarked that " with 230 airplanes at a list price of $21.7 billion, this deal when finalized will be the largest commercial airplane order ever in Boeing’s history by both dollar volume and total number of airplanes". This came just days after USA Today reported a Boeing 777 aircraft order from Emirates that was described as "the largest commercial order in terms of dollar amount that it Boeing has ever received".
  
• People continue to work in tall skyscrapers despite a bunch of terrorists who executed on an idea to  fly commercial airliners into them on 9/11/2001
  
• Visitors to London, including this author, still ride the bus and Tube despite the events of 7/7/2005
  
• People still order hot coffee from McDonalds
• People still take cruises despite the Titanic, Achille Lauro, rogue waves and Somali Pirates
  
• People still buy Firestone Tires and Ford Explorers
  
• People still live in flood zones and in tornado alleys despite disaster 
• People will still trust investment advisers after Bernie Madoff
• Surfers continue to "shoot the curl" at beaches where there have been shark attacks, despite the fear of lurking sharks that want to eat them

Is it because we never learn or is it because a tragedy is often followed by an examination and investigation which foments improvements in safety , education and/or regulation?

There is no need to sugar coat anything with respect to the Executive Life of New York proposed liquidation, in my opinion. There is plenty of information here and elsewhere to learn what led to the downfall of ELNY 20-25 years ago and what has happened in the ensuing years that has led to its proposed liquidation. We know that the the factors that gave rise to ELNY are not likely to happen again in the  future.

 

 

 

 

 

 

 

 

 

Factoring Companies Seeking Structured Settlement Trademarks

A unified flurry of trademark applications by structured settlement purchasers have set some tongues wagging. Developing story...

Why is Settlement Planner Providing Outdated Advice on Estate Taxes and Returns?

IT REALLY bothers me when people who hold themselves out as settlement planners fail to demonstrate  fundamental knowledge essential to the advice they are doling out to injury victims that are relying on them by publishing information that is so out of date.

Here is a quote from a website of a "serial offender" in this regard:

"The receipt of settlement proceeds, either by a lump sum or through periodic payments, when combined with the claimant’s other assets, can create an estate in excess of $1,000,000 which would be subject to estate taxes at the death of the claimant. Estate tax rates range from 37 to 55 percent of amounts above $1,000,000, and payment generally is due in cash in nine months after the death. With proper planning, the impact of potential estate taxes can be minimized"   quote from website of  a particular settlement planner November 27, 2011 1:48pm EST. The owner of the website claims a copyright 2007-2011.

Year	Exclusion Amount	Max/Top tax rate
2001	$675,000	55%
2002	$1 million	50%
2003	$1 million	49%
2004	$1.5 million	48%
2005	$1.5 million	47%
2006	$2 million	46%
2007	$2 million	45%
2008	$2 million	45%
2009	$3.5 million	45%
2010 *	Repealed *	35%
2011	$5 million	35%
* See paragraph to left   with respect to reinstatement   of this exemption

To the right is a table of the amount of exemption by year an estate would expect. Estates above these amounts would be subject to estate tax, but only for the amount above the exemption.

The 2001 tax act would have repealed the estate tax for one year (2010) and would then have readjusted it in 2011 to the year 2002 exemption level with a 2001 top rate. However, on December 17, 2010, President Barack Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Section 301 of the 2010 Act reinstates the federal estate tax. The new law sets the exemption at $5 million per person A top tax rate of 35 percent is provided for the years 2011 and 2012.   (Chart: Wikipedia)

I am embarrassed for the settlement planning profession that such individual apparently doesn't care to stay on top of the news and publish accurate information. Furthermore, by citing that he is a CSSC, the settlement planner is dragging down the integrity of Certified Structured Settlement Consultant designation with him. Thank god that NSSTA has instituted new continuing education requirements.

In discussing structured settlement rates of return the subject settlement planner is currently using (11/27/2011) examples with 7% plus rates of return and taxable equivalent yields in the 11 plus% range!  The published web page disclaimer states  "NOTE: The rates used in these examples were for one annuity company and were valid on the date quoted. However, rates will vary between companies are are subject to change". With a copyright of 2007-2011 listed at the bottom of the web page, when the heck were the structured settlement rates on your website quoted and with which annuity company?

The United States Treasury Department publishes an interactive chart that allows you to compare interest rates of different maturities over different time periods.  The chart shows that neither of the 10 year or 30 year nominal rates exceeded 5% between 2007-2011. Structured settlement rates typically exceed, but closely track Treasury rates.

The individual in question feels it is important for every claimant to have their own consultant who is independent from the liability insurer.   I agree (as a practical matter most deals are done today with brokers on both sides).  Otherwise,  he says you will be relying on an adversary to handle a large financial transaction on your behalf.  On the aforementioned showing perhaps the adversary's advice might prove be more accurate, eh?

 

First Amendment Ratings Defense Fails For Standard & Poors in New Mexico

Credit ratings are not always protected opinion under the First Amendment, according to a Federal judge's decision in New Mexico. The November 12, 2011 decision  is a win for investors who lost money on mortgage backed securities and a defeat for credit rating agencies who regularly invoke First Amendment free speech protection to defend against lawsuits over their ratings.

In  Genesee County Employees' Retirement System et al v. Thornburg Mortgage Securities Trust 2006-3 et al, U.S. District Court, District of New Mexico, No. 09-00300, the rating agencies argued that the Constitution protected them from claims they issued inflated ratings on more than $5 billion of securities issued in 2006 and 2007, and backed by loans from former Thornburg Mortgage Inc and other lenders. The court rejected the rating agency defendants' arguments that the First Amendment provides any protection to them under the facts of this case on the basis that the ratings were shared with too small a group of investors to deserve the broad protection sought.

For further information on the case please read this Reuters report by Jonathan Stempel

Standard & Poors has come under criticism over the years. Examples include having rated Executive Life Insurance Company paper AAA until January 1990 ,despite its massive junk bond holdings. The company collapsed  a little more than a year later.  S&P lowered its rating on Lehman Brothers from A+ to A in June 2008, just 3 months before Lehman filed for bankruptcy on September 15, 2008.  

 

 

 

 

They Say They "Never Charge You Or Your Client For Our Services" BUT...

Plaintiffs and plaintiff attorneys need to be mindful of advertised claims that a structured settlement or settlement planning consultant never charges you or your client for their services.(emphasis ours).

Consider these products and related services commonly offered by structured settlement brokers and settlement planners and methods of compensation:

Structured Settlement Annuities

Your broker or settlement planning consultant is paid by a managing general agent for the annuity issuer. What is common structured settlement industry practice (and similar to what happens with brokers in a real estate transaction), the commission may have been split with one or more other structured settlement brokers or settlement planning consultants representing other parties. The standard commission paid by annuity issuers is 4% of the annuity cost,  net of the nominal qualified assignment fee (typically $0-$750)or non-qualified assignment fee (typically $500-$1000)

Treasury Funded Structured Settlements

Your broker or settlement planning consultant is paid by the treasury funded structured settlement provider. Commissions are variable and determined by the settlement consultant. If one broker or settlemeent consultant agrees to work for 1% and another works for 4%, is the differential a charge?

Settlement Trusts

Be mindful that if your structured settlement broker or settlement planning consultant is incorporating a trust into the settlement planning solution for you or your client such as a Special Needs Trust,  Medicare Set Aside Trust, Disability Trust, Settlement Preservation Trust, Settlement Conservation Trust,  Recovery Management Trust there ARE fees and your structured settlement broker or settlement planning consultant may be sharing in them.  The fees charged by the trust company are set forth in the trust documents. A structured settlement broker or settlement consultant may charge a flat fee up front and bill the trust or may simply earn a trail fee by sharing in the fees earned by the trust company assessed on assets under management.

Qualified Settlement Fund (468B Trust or QSF)

The legal departments of several state insurance departments have come out with opinions in recent years that state that payment of expenses of the qualified settlement fund by the structured settlement broker does not comply with the anti-rebating statutes. Prior to these opinions at  or more settlement planner made the claim that they  did "cost-free" QSFs! 

Moreover, the near zero short term interest rate environment makes it highly unlikely that the interest earned on the pre-distribution QSF corpus will be sufficient to cover the expenses of the QSF  and its trustee or administrator.

Factoring/Secondary Market Activity

Upon information and belief, a significant number of structured settlement brokers and settlement planners refer business to factoring companies or factoring brokers and demand and/or accept a referral fee. The referral fee, which could be undisclosed, ultimately affects the calculation of the effective discount rate.  While the fees charged by the factoring company must be disclosed in the documents submitted for Court approval, the specific fee paid to the structured settlement broker or settlement planning consultant or financial planner may not be.

Note: The purpose of this post is to examine the fairness of an advertising claim, not an indictment of any one broker, settlement planner, or firm.

Conclusion

The barometer of whether or not "we never charge you or your client for our services" or implying that you are "working for free" is a fair advertising claim SHOULD NOT hinge on whether or not a plaintiff or plaintiff attorney has to write out a check, or whether referral fees are buried in the fees charged by other vendors or service providers, in my opinion . How about you? (emphasis ours)

 

J.G. Wentworth Sullies A Childhood Memory

They say " If you lay down with 'my dog' you're gonna get up with fees!" Legal fees that is. J.G. Wentworth finds itself a defendant in a recently filed copyright action in the United Staes District Court for the Southern District of New York captioned "CLASSIC MEDIA, LLC, Plaintiff, v. J.G. WENTWORTH, LLC, Karlin + Pimsler, Inc., Defendants. No. 11 CIV 8394. November 18, 2011.

According to the complaint, the plaintiff  is the sole owner and proprietor of copyrights related to the famous fictional collie dog character known as “Lassie”--the star of eleven feature films and several television shows, most notably the first Lassie series (hereinafter “Lassie” or the “Program”) that originally ran from 1954 until 1973 and is still in syndication to this date. 

The ad is still posted on YouTube on the account of J.G. Wentworth's ad agency Karlin Pimsler

Copy of the Complaint Download ALLCPlaintiffvJGWENTWORTHLLCKarlinplusPimslerIncDefendan[1]

I had a collie like Lassie as a child and have fond childhood memories (that I don't wish to be sullied) of watching the show with "Woofie" and our family after dinner on Sunday nights wearing my footie pjs . Lassie would never have a cash now pusher. That would have been "for the dogs". She'd see Mr. Wentworth coming from a distance and do her best Scooby Do impression "Ruh Ro" and then go chase the squirrel.

Photo: Jebo Avatars

 

 

Jumpin Jack Flash Saved On Gas Gas Gas! Shop Around Gets a Better Deal Now

The gas gauge was just about empty as I set off for home today after enjoying Monday Night Football live in Foxboro , MA. Heading towards I-95 South there is only one gas station that charges $3.80 for regular and it doesn't take the credit card I prefer to use. Relying on the sage advice of Strategic Capital's Cam Mears who yesterday, at a critical juncture, advised me to go directly to the stadium(instead of stopping to fill up at the end of my 3 hour journey) to avoid traffic and "don't worry, on empty" means another 20 miles", I set out to find the next station. The next station, a Mobil,  was considerably farther (I'm talking miles not the yards described by the woman who would not take AMEX) down the road, but lo and behold, my "thirsty" car enjoyed a fill up with gas that cost $3.35 per gallon. A savings of almost 12%.

Ironically, for his day job Mears regularly saves money for structured settlement sellers who comparison shop.

When it comes to factoring, I've used the lemonade stand analogy for the shopping process that sellers of structured settlements should be mindful of. Essentially there is nothing wrong with setting up a lemonade stand on one corner and charging $1.00 per cup while someone else can set up another one on another corner that charges 50 cents (assume for the purpose of this example that we're not talking about  Midway Georgia,  or RIverside Park , New York City, and that the appropriate permits have been obtained).  If someone is REALLY thirsty and passes by the $1 stand , will he or she walk an extra block to save 50 cents? What if they don't know there is a lemonade stand down the block that is 50% cheaper? If someone is ignorant or doesn't shop around,  is it tough luck?  Conceivably some could perceive a value for the extra money spent because for example, they were REALLY thirsty, or the higher priced lemonade carries a designer label, a certain cachet or is organic.

But you can navigate through the opportunists by shopping around. You can help yourself a bit with this free structured settlement factoring discount rate calculator. When you are calculating an effective discount rate make sure that you use an offer amount that includes ALL charges,expenses or add-ons.

Shop Around With Structured Settlement Factoring Discount Rate Calculator If You're "Thirsty"   July 22, 2011

 

Commutations and Structured Settlements

A  commutation rider is a custom option for structured settlements that permits all or a portion of the present value of future structured settlement pyaments to be paid in a lump sum.  Typically the commutation is tied to the death of the annuitant, with the proceeds to be used, for example, to provide liquidity for the annuitant's estate, or to pay off liens with a Special Needs Trust. There are also similar riders to cover contractual contingencies such as remarriage or cessation of liability.

One of the limitations of commutation riders is the requirement that they must be elected when the structured settlement is created on order to follow the spirit of a 1995 Private Letter Ruling that was issued to the structured settlement annuity issuer, Allstate Life Insurance Company.  The secondary market for structured settlements may be able to provide relief in those situations where there is no commutation provision in the structured settlement and there is a valid liquidity need.  Such so-called "structured settlement factoring transactions" require approval of a judge "to protect the innocent".

Allstate Life Insurance Company pioneered the use of another form of commutation, for hardship, through its Advanced Funding Exchange Notice (AFEN). AFEN is issued with every structured settlement annuity issued by Allstate Life Insurance Company, or its New York subsidiary, Allstate Life Insurance Company of New York where there is a qualified assignment. Essentially Allstate offers its structured settlement annuitants a liquidity option that is designed to comply with IRC 5891 and state structured settlement protection acts, at a discount rate that is less than typically offered by the "low hanging fruit grabbers" in the secondary market. If you must seek this form of liquidity, then shopping around is the message of the day. At the very least an annuitant can use the AFEN rate to negotiate a better deal. Bear in mind that if you are an Allstate annuitant and call a cash now pusher with a funny TV ad, they may not inform you of your rights under the Allstate contract.

Following Allstate's AFEN introduction, a number of companies quietly offered hardship commutations to their annuitants. In 2006,  Symetra, went to so far as to establish an entire subsidiary, Clearscape, to purchase structured settlement payment rights from its annuitants and ostensibly others.

Both Allstate and Symetra sent notices to their annuitants that were hugely unpopular with many structured settlement brokers who had a sour taste in their mouth from a saturation of misleading and in some cases fraudulent advertising by some secondary market companies at the time.  One factoring company blogger even got into the act, although such posts were eventually withdrawn.

In December 2006, San Francisco tax attorney Robert Wood  wrote a piece which questioned whether commutations could jeopardize the tax status of IRC 130 assignments that spooked a number of the quiet "commuters". Neither Symetra, which has the dedicated factoring subsidiary, nor Allstate, which does commutations, decided to withdraw their offerings. Allstate however, bowed to pressure of its brokers and stopped sending AFEN notices to its structured settlement annuitants.  Since then the structured settlement watchdog has received a number of phone calls from Allstate annuitants who contacted other factoring companies, were not told of their rights under AFEN and received low bids with discount rates that exceeded the AFEN rate.

I was pleased to learn last week that one of the major structured settlement annuity issuers is making it known that it plans to introduce a hardship commutation similar to AFEN in early 2012. Here! Here!

The best way to compete with "low hanging fruit grabbers", in my opinion,  is to "lower the bar" and thereby "raise the fruit".  I don't mean lower standards. I mean force the aforementioned into offering discount rates below a yardstick rate.  This won't completely eliminate the problem (because there is still low hanging fruit from non shopping sellers who possess structured settlement payment rights from  companies who no longer write structured settlements) but I believe it will help.  Each and every company currently writing structured settlements is encouraged to come up with its own version of a hardship commutation.