Structured Settlements 4Real™ Blog: Structured Settlements | Settlement Planning News and Commentary

California Annuity Agent Faces Jail Cell For Selling One Unsuitable Annuity

A California annuity suitability case has destroyed a successful career for a 51 year old married father of four and leaves Glenn Neasham facing prison, after being found guilty for "felony theft", according to a report in the March 2012 Annuity News. Neasham's predicament stems from the sale of a $175,000 Allianz MasterDex 10 indexed annuity to 83 year old Fran Schuber in February 2008 as a replacement to a CD. It turns out that Schuber had Alzheimer's Disease since 2003.

The story is extremely chilling because, according to the story, it appears that Glenn Neasham took extraordinary steps to comply with California annuity suitability and senior solicitation laws. Ms. Schuber walked into his office with her boyfriend. Neasham on two occasions discussed the annuity details with Schuber's son prior to closing.  A health questionnaire was completed. Another person was present during the presentation. A fact finder was completed an only a portion of the woman's funds was allocated to the annuity.

According to a report in the Lake County Record-Bee February 23, 2012, Neasham has denied wrongdoing and that he had no regrets making the transaction.

In a motion for a new trial Neasham's attorney, Mitchel Hauptman argued:

• Schuber did not suffer a loss, therefore there was no theft. She, in fact, gained the significant benefit of $43,000 in the process. She also had access to a 10 percent withdrawal without penalty and had not taken any money out. Duff’s offer to purchase the annuity at a profit for Schuber still stood (Defense expert Dick Duff, a noted author on annuities said he would be happy to buy Schuber’s annuity for at least $180,000—$5,000 more than she paid for it. Duff testified that he knows a good deal when he sees one because, at that moment, the annuity had $217,000 of annuitization value).  If Neasham was guilty of theft for passing a check from Schuber to the insurance company to purchase an annuity, then the bank would have been just as guilty for taking Schuber’s money to purchase a new CD at the same time in a “virtually identical” transaction.
• The last-minute introduction of the audiotape from the interview the DA investigator conducted with Schuber and  Jochim (Schuber' boyfriend) in April 2008 constituted prosecutorial misconduct. Hauptman was not able to cross-examine witnesses based on the information on the tape. The prosecution was allowed to show a video of the clearly incapacitated Schuber three and a half years after the annuity sale but the jury was not able to hear the far more lucid Schuber a month after the sale.
• Schuber was not legally determined to be incompetent or unable to enter into contracts until the middle of Neasham’s trial, when her son took conservatorship— three and a half years after the annuity sale.

The judge is scheduled to rule on the motion today, March 1, 2012.

What if any implication will the Neasham case have on structured settlements and the business of settlement planning? Among other types of plaintiffs, structured settlement annuities are sold to benefit people with Traumatic Brain Injury, and people whose rational decision making capacity may be impaired by the litigation process.  That some plaintiffs sell their structured settlement payment rights within a month or two of the creation of the structured settlement exposes them to a considerable capital loss may also bring suitability and over structuring into question. The question would be how forseeable was the situation. Were the plaintiff's cash needs adequately considered?

Patrick Hindert and I have been writing about product suitabilty in the claims settlement process. Stay tuned.

Read the entire AnnuityNews report on the Glenn Neasham case

UPDATE: Glenn Neasham's request for a new trial was denied on Feb. 29 by a county judge and he was sentenced to 300 days, reduced to 90 days. Neasham's good behavior credit reduces the sentence to 60 days. Neasham's attorney told the Lake County Record-Bee that he filed an appeal in higher court.

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)

 

Making Structured Settlement Documentation Exchanges More Efficient

Making use of the track changes function in Microsoft Word is a good way to make the process of structured settlement documentation more efficient.  Before sending out a draft settlement agreement and release, the original drafter simply clicks his or her mouse cursor on the Review tab and then “Track Changes”. Each commenter to the initial draft is automatically assigned a different color by MS Word so that all parties, their lawyers and their structured settlement consultants can quickly and clearly see edits, who made the edits and can accept or reject them. While MS Word allows users to toggle  between clean and marked versions, often documents are sent for review in a “clean” version as .pdf and “marked” version in Word. When the collaboration is finished one simply needs to click on “accept all changes” and a final document is created that can be saved as an Adobe .pdf file and distributed for signature.

Contrast that with the “nuances” of a decade (or more) old way of doing things. The drafter creates a Settlement Agreement and Release document, saves it in Adobe pdf and then sends it for review to the opposing party.  The reviewing party or parties must scribble in the margins or worse, type or write out in long hand what their edits are. Some may still use Wite Out and an IBM Selectric. They then submit these changes to the original drafter who then compiles yet another .pdf  (if he or she can read the handwriting) and so it continues.

• Isn’t the reason that documents are sent to be reviewed to make sure that the meeting of the minds is accurately reflected?
• While there’s a certain regimentation that a “cookie cutter” provides, kind of like comfort food for the legal soul, if one thinks logically, there IS more than one way to “skin” a Qualified Assignment Release and Pledge Agreement. For example, if the payee is a Supplemental Needs or Special Needs Trust, a Settlement Preservation Trust, or a case involving a minor who will be an adult when the structured settlement payments begin.
• For the plaintiff side of the case, the "old way" may be an inconvenience at best, but for the defendant or insurance company it might mean needlessly added legal expense when a "pressed for time" case juggling defense attorney has to repeatedly peruse a 6-10 page document for changes .
  

The brief video below explains the Review and Track Changes function that is included in Microsoft Word.

Try it! You MIght Like it! If you're clients aren't familiar with it, take the time to teach them.

 

 

 

Why Name a Beneficiary on Annuity or Life Insurance? New York/ CT Education Series

Should you name a beneficiary, or just leave guaranteed structured annuity payments, or life insurance proceeds, to your estate? Registered Settlement Planner and Chartered Financial Consultant John Darer from Stamford, Connecticut frames the issue in this video.

             

Words of wisdom...

"When they refer to you as 'The Late...'

You Don't Wanna Be Intestate

AND, Naming Who YOU Want IS great

"Cause your Heirs Bypass Probate" - © John D. Darer, CLU ChFC CSSC RSP 2011

 

Why Fund Structured Settlement in Advance of Court Order or Release?

An insurance company or Defendant that funds a structured settlement in advance of receiving a signed Court Order or signed release is doing themselves a favor in addition to the other parties involved in the case.

With a case that requires court approval, it could take months to receive the Court approval. This is most likely due to a backlog in the system. Courts in and around New York City are notoriously slow, particularly Surrogate's Court.  One of my clients recently encountered a Court in Connecticut that wouldn't even commit to a date for a hearing. Sometimes delays are the result for the time it takes for the plaintiff's lawyer to draft documents or for defense counsel to review them.

With cases that involve Court approval and a structure, the Court must consider the structured settlement payments it is being asked to approve. In order to fix the benefit the structured settlement consultant must "lock-in" the benefits to preserve the negotiated cost for those benefits.

The problem exists when a combination of the above factors comes into play. Some carriers have free lock ins for 6 months, others for 90 days and still others 30 days or less.  When you are dealing with large settlements that often  includes prudent diversification, this can present a major challenge as some charge hefty lock in fees after the free lock in period expires.. Talk about being the proverbial  balancer of spinning plates on long sticks!

The Solution

To encourage insurers and defedants to fund structured settlements in advance of a release or court approval, most life insurance companies that issue structured settlement annuities will issue some sort of refund letter that says to the effect that the life insurer will refund the premium paid, if the court does not approve of the settlement. So there is no risk to the insurer or defendant to fund the structured settlement.

This solution has worked with some of the world's major insurers on cases involving significant sums of money in the millions of dollars.

When you're talking small settlements in the $25,000-$50,000 range, the money is sitting in short term reserves, earning little to no interest on what has to be short term money. So why not just pre-fund the structure having previously obtained a premium refund letter executed by the annuity issuer, through your structured settlement broker?

 

 

 

Structured Settlement Documents: Let's Ditch "Tom, Dick Or Harry" Please!

In you are reviewing structured settlement documents you may see one or more of the following:

• This Defendant, or its Insurer or that Defendant or its Insurer may assign
• The Defendant, the Insurer or the Assignee may purchase an annuity
• The Plaintiff may change the beneficiary of his or her periodic payments by notifying the Defendant, Insurer or Assignee, in writing...

I disdainfully refer to these clauses as "Tom, Dick Or Harry ". If subject to a settlement agreement with such a clause (or clauses) and down the road a plaintiff wants to change their beneficiary, who the heck  
does he/she/it contact, Tom, Dick, or Harry? To add to the uncertainty, if an annuitant has sold some of their payments down the road,  "he/she/it,  or the guardian *(if applicable), etc etc,  may have to contact the "Ben Dover" factoring company, or if "Ben Dover" uses a third party servicing company, does he/she or it Ben's cousin Jerry", or both Ben and Jerry?!  Where does it frickin' end?

Some act as if these clauses are necessary as if "to avoid altering the space time continuum". The purported purpose of these clauses was to create "tension" that puts the direction of the investment of the present value in doubt, or out of the plaintiff's hands, for tax purposes. The reality today is that the planning associated with structured settlements is increasingly specialized and many plaintiffs have structured settlement experts. Moreover, the laws of some states like New York require that potential structured settlement annuitants to be advised by the Defendant (or its legal representative) to seek independent professional advice about the structured settlement, there is arm's length negotiation about the terms and in the end there is little in doubt.  It fact it has been that way for years so why does this continue to be necessary in some circles?

As I explained to one of my industry colleagues earlier today, we are long term industry professionals who ARE familiar with jargon. Not many annuitants are.  Lawyers and adjusters may not completely be either. So let's try to make things just a little more clear shall we, for the betterment of our industry and its core product?

The National Structured Settlements Trade Association (NSSTA) periodically puts out model documentation. This author opines that it's time for an update.

 

 

NY Insurance Department Issues Opinion on Guaranty Fund Ads in Social Media: Unlawful

Insurance agents and brokers who want to jump aboard the social media train should know who how social media interplays with insurance advertising laws.

In a November 22, 2010 opinion the New York State insurance Department Office of General Counsel responded to an inquiry made by the structured settlement watchdog, John Darer, with the following points:

1. "The the use of a LinkedIn profile page or similar website for promotion of insurance, insurers, or insurance agents or brokers, constitutes an advertisement, announcement, or statement under New York Insurance Law".

2. "A licensed insurance agent or broker who solicits structured settlement annuities MAY NOT properly speak or write about guaranty funds even in general terms, in connection with the solicitation of annuities to lawyers or their personal injury clients".  (emphasis ours). As part of its analysis the OGC cited to a January 26, 2009 opinion letter that was issued in response to a request by the structured settlement watchdog in conjunction with an NSSTA brochure containing a general discussion of such funds.

3. "The inclusion of an express disclaimer in marketing materials, such as  statement that the existence of guaranty funds is not a reason to buy insurance, or a direct reference to the provisions of Insurance Law 7718, will not render guaranty fund references in such marketing materials acceptable"  (emphasis ours)

It is a well known fact that business people use LinkedIn, Facebook, YouTube, blogs, video podcasts and other social media to expand their business network and as a result,  to write more business. Indeed the inspiration for the request was the posting by a structured settlement broker, William Fazio, of a slide presentation on the subject within his LinkedIn profile and online social groups within theLinkedIn platform, that include New York attorney members. Fazio's slide presentation still resides on LinkedIn as of December 1, 2010 at 730pm EST.

The final and perhaps most poignant question addressed to the OGC was:

is there an acceptable way under Insurance Law 7718 for a licensed insurance agent or broker to respond to inquiries on the subject of guaranty funds?

Their Answer: "Agents and brokers are advised to refer any questions about guaranty fund protection to the Insurance Department or to a licensed insurer, which may, upon a written request, provide information about the guaranty fund to policyholders by means of a form prepared by the guaranty fund and approved by the Superintendent of Insurance"  (emphasis ours)

A big thank you goes out to Michael Campanelli, Esq. of the new York State Insurance Department Office of General Counsel for taking the time to write the opinion and provide thoughtful analysis that provides practical "best practices" guidance to structured settlement brokers and agents of every persuasion, plaintiffs and personal injury lawyers.

For a copy of the complete opinion, including  the questions posed to the department by the structured settlement watchdog, please click the following link Download NY Insurance Department 11222010 on Propriety of Guaranty Fund Ads in Social Media

New York Structured Settlements: Defense Counsel Don't Blow Your §5-1702 Disclosure Obligation!

When a structured settlement is part of the resolution of a New York personal injury case the New York General Obligations Law creates a legal obligation on the defendant, or the defendant's legal representative to disclose a number of things in writing. To wit:

§ 5-1702. Initial disclosure of structured settlement terms.

In negotiating a structured settlement of claims brought by or on behalf of  a claimant who is domiciled in this state, the defendant or defendant's legal representative shall disclose in writing to the claimant or the   claimant's legal representative all of the following information that is not otherwise specified in the structured settlement agreement:

 (a) the amounts and due dates of the periodic payments to be made
 under the structured settlement agreement. In the case of payments that
 will be subject to periodic percentage increases, the amounts of future
 payments may be disclosed by identifying the base payment amount, the
 amount and timing of scheduled increases, and the manner in which
 increases will be compounded;
 (b) the amount of the premium payable to the annuity issuer;
 (c) the nature and amount of any cost that may be deducted from any of
 the periodic payments;
 (d) where applicable, that any transfer of the periodic payments is
 prohibited by the terms of the structured settlement and may otherwise
 be prohibited or restricted under applicable law; and
 (e) a statement that the claimant is advised to obtain independent
 professional advice relating to the legal, tax and financial
 implications of the settlement, including any adverse consequences and
 that the defendant or defendant's legal representative may not refer any
 advisor, attorney or firm for such purpose.

In the opinion of this author it is a best practice to include such disclosures in the settlement agreement where the signatures to the agreement acknowledge receipt of the information. 

This author has observed that one too many claims adjusters and defense counsel are apparently not familiar with this obligation even though the law has been in effect for years. Thus they could needlessly be leaving their company or clients exposed. Even if the plaintiff engages their own settlement planner, it does not absolve the defendant, or its legal representative, of the legal obligation to make the written disclosure in the settlement agreement or otherwise.

This author encourages defendants and their counsel to add this to their checklist of things to do in closing out a case file. Executives at insurance companies with New York exposure should be establishing protocols with their legal representatives and structured settlement consultants to assure that this legal obligation is not overlooked.

It is in the public interest that ALL plaintiffs receive adequate disclosure of the savings or investment products that they purchase or, in the case of structured settlements, may benefit from.

Guaranty Fund Advertising in Social Media: Structured Settlement Annuities

The explosion in social media use for business promotion seems to present some potential new compliance challenges for settlement consultants

In response to a posting of a slide show by a structured settlement broker on LinkedIn this author has written to the New York Insurance Department for an opinion:

"Many insurance agents are asked about LIGCNY (commonly requests simply refer to  "the guaranty fund")  by clients, prospective clients and their lawyers. It is understood that Article 77 prohibits the discussion of even the existence of the guaranty in the solicitation of insurance, which includes structured annuities.

 

Recent history

 

Furthermore in response to an October 2008 request concerning a brochure published by a national structured settlement trade association, that mentioned guaranty funds in general w the OGC opined in January 2009 its use to not be permissible if used in connection with New York annuitants.

 

Subsequent to that opinion, in early 2009  the OGC would not permit relief to a structured settlement firm to list each state guaranty association along with their phone numbers, so that the individuals could contact the associations on their own and obtain answers to their questions directly. The fact that the web posting contained an express disclaimer that the information was "not intended to be used in solicitation of any insurance product in violation of the laws of any state" was not persuasive to the department at the time.

 

The present

 

Now we have become aware of a slide show on the subject of guaranty funds as they relate to structured settlements that is posted on LinkedIn by a non resident agent believed to be soliciting New York lawyers and their clients. Postings on a LinkedIn profile can be seen by any connection, or in many instances even those that are not connections, such as the undersigned.

 

The solicitation on LinkedIn reads as follows:

 

"Check out this great SlideShare presentation on LinkedIn. Click on the link below to view the presentation.

 

http://slidesha.re/bsbrdZ"

 

Note that the slide show discusses insurance guaranty funds, limits concerning such funds and strategies for insurance consumers (in the case of the slide show, structured settlement consumers) and even acknowledges that in most states it is a violation of state insurance codes to use the guaranty association as an inducement.

 

Upon information and belief there are other insurance agents in other states using the existence of a state guaranty fund as part of a solicitation of structured settlement annuities. The request below is simply for New York, but the OGC should be familiar that this is not an isolated case.

 

It is important to note that in a structured settlement transaction the consumer could be someone who has suffered a personal injury or sickness OR the lawyer representing that person (who could receive structured payments from an annuity to pay legal fees)

 

LinkedIn profiles and other social media such as Facebook are increasingly being used to promote business and are considered advertising by the SEC, FINRA and other regulatory authorities.

 

It is important that the OGC issue and publish an opinion because the primary subject matter is of general interest

 

Questions

 

1. Is use of social media for the business of promoting insurance products, insurance companies, agencies or brokers considered advertising under New York insurance law if a Facebook Friend, Linked In, Plaxo or other social media connection is a New York resident or has an office in New York?

2. May licensed insurance agents or brokers who solicit structured settlement annuities speak or write about guaranty funds in general in connection with the solicitation of annuities to lawyers or their personal injury clients?

3. Does an express disclaimer that the marketing piece is ""it's not a reason to buy insurance" or a recitation of Article 7718 (placed) on the relevant media hold any more weight in 2010 than it did in 2009?

4. Given the assumption that the Department recognizes that agents and brokers are likely to receive requests about "the guaranty fund", is there an acceptable way under the law to answer the questions of clients and prospects on the subject that does not run afoul of Article 7718?"

5. If such slide show is used in a presentation to a group of lawyers (who are prospects for annuities used to fund attorney fees) does that use violate New York law?

Rhetorical Question

Do current state insurance laws around the country adequately cover the new possibilities created by the social media phenomenon?

Example:  Insurance prospect from 3,000 miles away sees agent's slide show on "Guaranty Funds" which agent posted on his Facebook page. A friend of the agent clicks the Facebook "Like button" prompting a friend's friend to look at it. That person is impressed, calls the agent, relies on the solicitation and advice provided in that slide show and decides to do business with the agent. The insurance laws of the agent's "Facebook friend" and the "Facebook friend's friend" prohibit the advertising of the state guaranty fund.

This author would like to thank MIlwaukee structured settlement consultant William Fazio, for posting the slide show in question (below) and inspiring the important questions being asked here today.

Structured Attorney Fee Malpractice Looming

Having been contacted for a number of second opinions recently , I am increasingly troubled by the number of cases where I've observed that those who hold themselves out as competent advisers to plaintiffs are convincing (or attempting to convince) a plaintiff attorney to take an ultra short term structured legal fee over say 2-3 years, the result being that the attorney actually loses money because of the very low to non existent ultra short term rates. The only person that appears to be making money is the structured settlement broker and that's NOT right!

If the attorney wants to structure $1,000,000 the broker will make or split commissions of close to $40,000. So on a 2 year structure where the the total gross payout shows attorney comes out lower than what the attorney has allocated to the deferral is mostly a losing proposition, enriching the insurance agent at the expense of the attorney. The picture is dramatically worse after one takes into account the taxes that the attorney must pay in the tax year he/she receives the money.

In theory, structured attorney fees are advantageous because during the deferral period, there is implicit interest on that portion of the gross amount that would otherwise have gone to the IRS. While the plaintiff attorney may ultimately pay taxes on that money the net after tax amount MAY possibly be better than simply paying the taxes in year 1. It depends on the cash flow. One should not always fear paying one of life's "certainties".

One structured annuity company told this author today that it WILL NOT accept money to fund a structured attorney fee with one of its annuities in which the projected total payout is less than the premium paid to the company.

Until short term interest rates make a meaningful rise to support better pricing, an ultra short term structure would only have a modicum of benefit if the incremental amount being deferred pushes the attorney into a different tax bracket, or if a large gap in the case pipeline presents a near term projected income void that needs filling and the lawyer or firm is willing to accept losing money for the peace of mind.

For a few years a number of industry colleagues are marketing "companion" loan deals against structured attorney fees. The gist of it is (1) the attorney structured fees over a period of time; (2) shortly thereafter, in an actually separate transaction, the attorney takes a loan from a specialty finance company which is in substance "appears" to be tied in someway to the structured attorney fee. The sales pitch is that you avoid taxes recognition of income now, but "get use of a percentage of the money" via the loan. The transaction obviously depends on a healthy spread to work financially. Where are those spreads coming from today?

There are still plenty of good reasons to structure attorney fees. In addition to the reasons stated in the link to the left, my colleague Dan Finn alerted me to an article appearing in Kiplinger's Retirement Report on October 7, 2008 entitled A Ladder of Annuities Can Hedge Your Bets. The article, published during the 2008 financial meltdown, provides foundational support to systematic structuring of attorney fees by correctly suggesting that staggering purcbases or laddering annuities can smooth out highs and lows of interest rates, and payouts.

Attorneys who wish a consultation on structured attorney fees please contact this author, John Darer, at (888)325-8640,  (203)325-8640 from within Connecticut.