Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

George Best Dies, Fortune & Fame meet Trauma & Tragedy in Sudden Money Tales

by John Darer® CLU ChFC MSSC RSP CLTC

George Best died yesterday in a London hospital after a long illness. Some Americans may not be familiar with him. Those that know me well know that I am a soccer (football ) fanatic.  Growing up in London, at the beginning of the 1970s, I was privileged to have witnessed first hand the sublime talent and wizardry of George Best, the Manchester United and Northern Ireland icon once referred to as the "best in the world" by the great Pele. For me, having seen George Best dribble past 4 defenders and then score from an impossible angle is a lasting childhood memory. My memory also unfortunately recalls that some of his most impressive performances came at the expense of my favorite soccer team, Chelsea. Best's popularity was such that he was once referred to as the "El Beatle".

George Best, who first achieved fame in his mid-teens, was famously quoted in 2000 as saying " I spent my money on booze, birds (women) and fast cars. The rest I just squandered".  This quote is the segue to the message of today's post.

Best's proclamation is a classic fortune and fame dissipation story. We're all subject to our own human frailties when money is involved. Recipients of law suit proceeds are no exception. Sometimes we need to be protected from ourselves. Giving a teenager or young adult access to large sums of sudden money is a recipe for disaster.

Adults are not immune to this sudden money problems. Fully customizable structured settlement annuities and and other devices such as settlement preservation trusts can be useful in providing such protection for law suit recipients. A spendthrift trust is one tool may be useful for non lawsuit recipients.

Use Qualified Licensed Professionals for Structured Settlement and Settlement Planning Advice

by John Darer® CLU ChFC MSSC RSP CLTC

Readers of the Structured Settlements 4Real® blog may have read my recent piece entitled "Should Structured Settlement Factoring Reps Be Required to Have a License in NY?". Perhaps you've noticed the latest trend in factoring company blogs. There appears to be an attempt to seem informative about the creation of structured settlements to build up credibility and gain your confidence (so they can ultimately buy your structured settlement payment rights, at a huge discount, through a structured settlement factoring transaction).

Today I read an article in Sovereign Financial Group' (SFG)'s Cash Flow industry blog, authored by David Springer that was posted on July 2, 2005 (which incidentally is my birthday) entitled "Structured Settlements Can Be Funded Using Variable Annuities" . The article describes a "recent" IRS Private Letter Ruling, if you consider the year 1999 to be recent. Six, almost seven years is an eternity when it comes to the financial services industry. The industry is dynamic, products, techniques, tax laws, markets and the economy are always changing. We have had 3 administrations since 1999 (Clinton, Bush 1st and 2nd).

Fact: The product in question can only be sold by registered representatives whose broker dealer has a selling agreement with the annuity issuer (MetLife is the only one right now) and otherwise meets the requirements of the annuity issuer, the broker dealer and the securities regulations. A prospectus must be delivered to the annuitant and to the parties. While SFG, in the person of David Springer, implies that the variable structured annuity product is able to be used for attorney fee structured settlements, the fact is that it cannot.

Further, careful planning must be done by the attorney or firm interested in structured attorney fees. Advice about structured attorney fees should be left to those, with experience, who do this sort of transaction for a living.

As I keep on saying folks make sure you are seeking advice from someone who has an insurance license in your state. If the advice is regarding an investment product, like a variable annuity, then you need to seek advice from someone who is additionally a registered representative holding a Series 6 or Series 7 and Series 63. A licensed broker and/or registered representative must take continuing education courses and thus be most current on product features and strategies incorporating the use of such products.

David Springer's article pretty much erodes my confidence. How about yours?

Settlement Planning and Structured Settlements: What Is Broker Afraid of?

by John Darer® CLU ChFC MSSC RSP CLTC

One of my respected  competitors proclaims: "There is no interest in selling another financial product before, during or after the case is settled". It's like "Dr. Erythro", a student health center physician at my University, who seemed to prescribe Erythromycin no matter what she was presented with. My question is a big fat rhetorical WHY? What is the broker afraid of?

I have always felt that skill in developing and communicating creative solutions is one of my strengths in helping my clients to resolve a case. There are many settlement planning issues to deal with, and problems to solve, that arise around the the time of the resolution of a personal injury case regardless of who you represent.  A structured settlement annuity may or may not have a role in the settlement planning solutions.  As part of a settlement solution ("before, during or after a settlement") there might be the sale or placement of a structured settlement annuity or annuities, a variable structured settlement annuity, various types of trusts and administration services depending on need, life insurance on caregivers or to provide estate tax liquidity, disability insurance, long term care insurance. There may be the need to dispose of a business asset or real property as part of the settlement planning process. If the installment sale method is desired then a structured installment sale solution might be put together.

Staying on top of your game means being more than a "one trick pony". Developing and possessing the knowledge and skill to be able to deliver the concepts and solutions to your clients problems is your challenge in being a better settlement professional.

"We Buy Structured Settlements" Say The Ads. Yeah right!

by Structured Settlement Watchdog

"We Buy Structured Settlements! We Buy Structured Settlements! We Buy Structured Settlements!" cry out the endless ads all over the internet and print media. But is it really true? Can those advertisers indeed buy structured settlements?

Who buys structured settlements? First let's look at the definition of structured settlement under the United States' Internal Revenue Code.

For purposes of Federal taxation,  a structured settlement is defined by IRC Section 5891(c)(1) as an arrangement that meets the following requirements:

i.  A structured settlement must be established by:

(a)    A suit or agreement for periodic payment of damages excludable from gross income under IRC Section 104(a)(2); or

(b)    An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Section 104(a)(1); and

ii.  The periodic payments must be of the character described in subparagraphs (A) and (B) of IRC Section 130(c)(2) and must be payable by a person who:

(a)    Is a party to the suit or agreement or to a workers compensation claims; or

(b)    By a person who has assumed the liability for such periodic payments under a Qualified Assignment in accordance with IRC Section 130.

Patrick J. Hindert of S2KM, and co-author of Structured Settlements and Periodic Payment Judgments also defines a structured settlement as a "package of financial and/or insurance products, generally including periodic payments, that a claimant accepts to resolve a personal injury claim or to compromise a statutory periodic payment obligation."

If one accepts the definitions included in the Internal Revenue Code, as well as from one of the industry's foremost scholars, then those advertisements are false. Let's elaborate.....

When a structured settlement is created who actually buys the qualified funding asset (generally a structured settlement annuity, but can be a US government obligation)? In the majority of cases the periodic payment obligation is assigned to an assignee, by way of a qualified assignment (referred to in the IRC definition). If this is the case then the assignee receives consideration for taking on the assignment and buys the structured settlement annuity. If the case is unassigned then the Defendant or The Defendant's Insurer buys the structured settlement annuity. In either case the "buyer" buys the structured settlement from a licensed insurance agent/broker.

Other than the above you can't buy a structured settlement. A factoring company, such as any one the advertisers in question, cannot buy a structured settlement unless it is a Defendant or Insurer on behalf of the Defendant and the case does not utilize a qualified assignment, or it is acting as an Assignee. I have no knowledge of of any scenario where this would be the case.

A structured settlement factoring transaction accurately describes what is really happening and its right there in the Internal Revenue Code as such. A structured settlement factoring transaction is one which effects the transfer of the structured settlement recipients rights to receive the future structured settlement payments (future periodic payments). "We do structured settlement factoring transactions", or SSFTs, or FTs, or TPPRs ("transfer of periodic payment rights"), or whatever, just doesn't sound as sexy and simple as "we buy structured settlements" and of course it is more of a mouthful to say.  I guess the truth is hard to swallow.

Last updated September 5, 2021

Selling Structured Settlements Isn't What You Think

by John Darer® CLU ChFC MSSC RSP CLTC

Selling structured settlements is one of things I do in my practice. I sell structured settlements, but I do not have my own structured settlements to sell. Thinking about that, if I had a structured settlement, I certainly wouldn't sell the structured settlement. Who do I sell structured settlements to?  The people or entities I sell structured settlements to include plaintiffs, attorneys, insurance and reinsurance companies, corporations, government entities. These are the people or entities which benefit when I sell structured settlements to them. I sell structured settlements just about every day and I have had experience selling structured settlements for many years.

To sell structured settlements you need to have a wide range of education and practical experience. First of all, you need an insurance license to sell structured settlements. Generally each state in the United States requires that you have an insurance license to sell or give advice about an insurance product. A structured settlement may be funded with an annuity, which is an insurance product, or it may be funded with obligations of the United States government. I am very careful to get an insurance license in the states where I want to sell structured settlements or give advice or even review or give a recommendation about an annuity policy which as i stated is a form of insurance. In some cases there may be the need to sell variable structured settlements. Then you need a variable annuity authority on your insurance license as well as a securities license in order to sell that type of structured settlement or give advice or make a recommendation about any product.

To sell structured settlements isn't just the a matter of selling. To sell structured settlements you must also be structured settlement counselor. When you sell structured settlements you may also have to act as a structured settlement broker, structured settlement consultant or settlement planning consultant.  I love selling structured settlements. Why do I love selling structured settlements? Because when I sell a structured settlement I am doing something good for the person or entity that I am selling a structured settlement to and they appreciate it. I sell a structured settlement as part of an overall settlement plan. There's an old saying that "people don't plan to fail, they fail to plan". With a good settlement plan there should be no need to "transfer your periodic payment rights" in the structured settlement also known as structured settlement factoring transaction. Some people confuse the term for what I do, which is to "sell structured settlements", with structured settlement factoring transactions, which is when you "transfer your periodic payment rights". Its right there in the Internal Revenue Code if you care to, click on those links. I mean it's there in black and white.

Thus, if you have a structured settlement it doesn't mean that you can sell a structured settlement. Only people that have the required insurance or securities licenses can sell structured settlements. If you have a structured settlement you do not own the annuity, you only have Structured settlement payment rights which means rights to receive payments under a structured settlement. This is what you can sell, if a judge approves the sale as being in your best interest and the best interest of your dependents. In case you don't believe me its in IRC 5891(c)(9). It makes sense that you can't sell something that you don't own and in general the structured settlement annuity is owned by the assignment company that took over the obligation to pay you from the Defendant, the Defendant's insurer or if applicable, the trustee of a Qualified Settlement Fund, when you signed the settlement papers when the structured settlement was created.

If you have any questions about what it really means to sell structured settlements or perhaps you have the ambition to sell structured settlements please contact me.

 

Are Structured Settlement Factoring Company Reps Violating New York Law?

by John Darer® CLU ChFC MSSC RSP CLTC

A opinion of the Office Of General Counsel of the New York State Department of Financial Services issued in January 2005, might be the thing that turns the structured settlement factoring company practice of masquerading as "structured settlement brokers" on its head.

The opinion answers the following question

"May a risk manager (consultant) licensed as such in his home state (but not licensed as an insurance agent, broker or consultant by New York) review insurance policies of a New York insured for a fee (and provide advice regarding the same) if the consultant conducts such work by telephone and mail and never physically enters New York State?"

§2102(b)(1) of the New York Insurance Law provides:

Unless licensed as an insurance agent, insurance broker or insurance consultant, no person, firm, association or corporation shall in this state identify or hold himself or itself out to be an insurance advisor, insurance consultant or insurance counselor.

As quoted from the opinion, N.Y. Ins. Law § 2102(b)(3) provides "Unless licensed as an insurance agent, insurance broker or insurance consultant with respect to the relevant kinds of insurance, no person, firm, association or corporation shall receive any money, fee, commission or thing of value for examining, appraising, reviewing or evaluating any insurance policy, annuity or pension contract, plan or program or shall make recommendations or give advice with regard to any of the above."***

One factoring company's national director has held himself out in writing as a  "financial coach to structured settlement recipients and lottery winners". He has also stated that he "educates structured settlement recipients and lottery winners nationwide. This begs the question of whether he or his company do any business in the State of New York?  Neither the individual in question nor the principal of his company are listed as even having insurance licenses in their own business domicile.

Does this man's or his company's "financial coaching" constitute "making recommendations or giving advice with regard to an annuity contract" in violation of the New York State Insurance law? Part of what he or his company do is clearly to review the recipient's annuity contract and relevant documents pertaining thereto. They advertise and solicit such persons via electronic means. And there is compensation involved

Taking it a step further, is there investment advice being given in any discussion between a structured settlement recipient and the factoring company representative that would require licensing by FINRA and other authorities.

If what they do constitutes giving advice do they have Errors and Omissions Insurance?

The purpose of the licensing and regulation is to protect the consumer. My colleagues in the industry spend time and money licensing ourselves to comply with regulations. Why should any  factoring company representatives, or factoring companies themselves, be exempt from licensing and regulation when they hold themselves out to the public as "structured settlement brokers, structured settlement consultants, experts etc". and giving advice?

*** while other states laws are not cited here we are looking into this and expect there to be some similar to New York's law.

Structured Settlement Quotes | Funding Issues Related to Structured Settlements

by John Darer® CLU ChFC MSSC RSP CLTC

Here are some common issues related to structured settlement quotes and funding of structured settlements, which should be of importance to plaintiff attorneys, plaintiffs, insurance adjusters and defense attorneys and other interested parties or stakeholders in the structured settlement process.

Structured Settlement Quotes| How Long Are Structured Settlement Annuity Quotes Good For?

Let's say you are looking for structured settlement quotes, how long are they good for? The answer depends on the type of quote. A book rate may be good for 5-7 days while a daily rate may be good for 24 hours or less  A Treasury Funded Structured Settlement Quote is just an illustration. There are no lock-ins. The final numbers are determined when the Treasuries are purchased after funding. If you are making or accepting on offer based on a quote that has been given to you be sure to check for an expiration date. Some brokers place a disclaimer on the quote stating that "rates are subject to change unless the case is locked-in with a commitment to accept". If the quote is based on a rated age, the rated age must be valid. Generally rated ages are good for 6-12 months (depending on the structured annuity issuer). If a case has been pending for sometime, the rated age request must be renewed or the quote may not be valid. A request for renewal or reconsideration of the rated age determination is a good business practice. Occasionally a rated age has been based on aged medical information. New medical information can be helpful in improving the rated age if there has been a change in the plaintiff's medical condition.

Structured Settlement Quotes and Timing Issues

The timing of structured settlement funding may vary by (1) who is funding the structured settlement  ("the payor"); (2) the statutory requirements of the jurisdiction as to timing of payment (e.g in New York, per CPLR §5003-a prompt payment of settlement statute,  a defendant has 21 days to pay from the time he/she/it has been delivered the release of liability;(3) the nature and business practice of the payor (some stretch it out to the last possible day, others pay very quickly, or will even pre-fund the structured settlement prior to receiving a release); (4) whether Court approval of the settlement, or approval of the plan of distribution of the settlement proceeds, is required before releases can be executed; (5) whether the payor is a government entity, like the City of New York, New York City Health & Hospitals Corporation,  New York City Transit Authority or the State of New York, that has special funding consideration as to timing of payments; (6) whether the payor is a state insurance guaranty or liquidation fund or insolvency scheme of arrangement; (7) anything that may be stipulated by and between the parties;

A key factor in the pricing structured settlement quotes is the purchase date. This is the date that the annuity issuer expects the structured settlement funding. If the structured settlement funding arrives later than the purchase date it can affect the cost of the annuity. Why does it affect the cost of the annuity? As an example, consider an obligation to pay $150,000 in 10 years. If this has been priced based on a purchase date of December 1st with the payment date on December 1st, 10 years later,  it will have a particular price. If the structured settlement funding is not received on time and is instead received one month later on January 1st it is 9 years and 11 months until the payment date. Thus it makes sense that the cost could be higher.  Of course if interest rates were to rise in the interim then the price could be the same or better.

Playing interest rate trends with your or your client's money is a dangerous game. If you are taking such calculated risks, you need to continuously evaluate whether those risks are working for or against you. Fortunately the the broker that creates structured settlements (i.e not the factoring company representatives masquerading as structured settlement brokers) have lock-in privileges with the annuity issuers. In exchange for the agreement to fund on a certain purchase date in the future the annuity issuers will generally agree to lock-in the interest rate associated with that quote. This is particular useful when Court approval is a required for the settlement.

Structured Settlement Lock-Ins

It's important to note that agreeing to a lock-in is a commitment.  The annuity issuer actually goes out and secures investments to balance the liability created by the periodic payment obligation (as is required under the insurance laws of most states). If interest rates rise in the interim and the plaintiff attorney, who previously agreed to the lock-in commitment, goes somewhere else to get a better rate the annuity issuer agreeing to the lock-in is left screwed. Occasionally an insurance company may be willing to extend the lock-in provided the annuity payment dates are moved a number of days commensurate to the days delay in funding. However the message is that you should exercise care in agreeing to a lock-in commitment. Use structured settlement rate lock-ins for the valuable tool that it is,  in the right situation. If you or your structured settlement broker abuses the privilege, the annuity issuer may not grant lock-ins in the future.

Awards v Settlements | Can you Be "Awarded a Settlement"?

by John Darer® CLU ChFC MSSC CeFT RSP CLTC

"Awarded a Settlement?" reads the headlines of a number of structured settlement buyer internet ads. But can you be awarded a settlement? Let's set the record straight.

What is the Difference Between an Award and a Settlement

• A settlement is an arrangement, adjustment, or other negotiated compromise or understanding reached, as in financial,  legal or business proceedings, A structured settlement is the result of a negotiated compromise.
• An award  means "to give as legally due" (i.e. awarded damages to the plaintiff).It refers to a decision, such as one made by a judge or arbitrator.

 

In a settlement involving minors or incompetents, or distribution of proceeds of a wrongful death case Court approval is generally needed.

 

The bottom line is that you may be granted an award, or receive an award by judge or jury, but you won't be "awarded a settlement!"

 

The Effectiveness of "Quasi Structured Settlement" Trusts

From time-to-time attorneys may be faced with a vendor who wishes to sell their client on the concept of a structured settlement alternative that purports to do everything that a structured settlement can but is not an insurance product.

Many times, a plaintiff's needs call for both guaranteed income and liquidity for uncertain needs. Such a situation often calls for a multi-vehicle solution that includes both guaranteed income that can't be outlived together with liquidity and investment flexibility.

These quasi "structured settlement" trusts, which are not really structured settlements defined by Internal Revenue Code Section 5891, bundle periodic payments with investments, which in turn begs several questions:

1. Is the income stream guaranteed?
2. Is the income stream tax free?
3. Is the income stream for life (assuming that is what is needed)
4. What are the underlying assets?
5. What is the tax efficiency of the underlying assets?
6. What is the assumed growth rate in the projections used to "match" the structured settlement? What is the effect of rising interest rates on the fixed income component of the underlying assets?
7. What are the underlying costs and fees?
8. What is the impact of a large principal invasion on the illustrated income payments? (Very important as principal invasions can wreak havoc on the projections)

Consider unbundling the function of guaranteed income with the need for liquidity. By blending a true structured settlement with a true settlement preservation or other special purpose trust  you may get the best of both worlds*** at a more efficient cost. A structured settlement is perhaps the only way to contractually guarantee lifetime income with the growth and liquidity components provided by the trust.

*** a Special Needs Trust (known as a "Supplemental Needs Trust" in New York) can effectively be paired with a structured settlement

Structured Settlement Quotes | Guide to Structured Settlement Quotes

by John Darer® CLU ChFC MSSC CeFT RSP CLTC

How do you obtain a structured settlement quote? 

First, make sure that you are speaking to a true structured settlement broker, expert or consultant and not a factoring company or cash flow company representative masquerading under any of these terms.

Most state insurance departments in the United States have consumer protection regulations which require actuaries at insurance companies to certify that each liability has an asset to match it on an annual basis. Therefore, the insurance companies issuing structured settlement annuities must be careful in rate setting to assure that they have a balance of assets to meet their obligations. Should it take on too much premium and the corresponding liability, without assets to match, an insurance company could find itself in hot water with the regulators.

What are the types of structured settlement quotes?

On a very basic level there are several types of quotes: Book Rates, Daily Rates and either of the two with a Rated Age or special impaired risk pricing .

Book rates are the published rates of the structured settlement annuity issuer. The "book" refers to the fact that in the pre-computer era, rates literally came from a rate book or rate sheet. Today most companies make such rates are available for download online to its appointed agents/brokers so that your structured settlement broker, expert, consultant or settlement planner should have in his/her office or installed on his/her note book computer. Book rates change periodically. Generally book rates are good for a certain number of days

Daily rates, as you might assume, are generally good "for the day of quote only", a " blue plate special". Given that bond markets fluctuate daily there may be bonds out there on a particular day that will permit the annuity issuer to issue a more aggressive rate. In part because of the asset/liability matching requirement most annuity issuers require daily rate pricing on very large cases (definition of "very large" varies by company).  Note that some structured settlement annuity issuers will hold daily rate pricing for 24 hours.

Rated age pricing applies to book rates or daily rates. A rated age affects the cost of any life contingent structured settlement annuity benefit. Rated ages are opinions based on medical information concerning the annuitant that causes the underwriter to believe that the plaintiff or annuitant has a shorter than normal life expectancy. Based on this opinion the annuity issuer is wiling to issue the annuity at a lower cost/higher yield an absorb the mortality risk. A rated age can either reduce of the cost of providing a known life contingent benefit or it can boost the yield per claim dollar if buying a life contingent benefit and the contribution is known. Rated ages vary by annuity issuer and the effect of the rated age on the pricing of the annuity will vary by company and even by the type of benefit desired. If you are seeking a benefit that is for a certain period of years or is a guaranteed lump sum  payment then the rated age has no effect on the cost of the structured settlement.

Different structured settlement annuity issuers specialize in different types of cash flows. Some may be better short term. Some may be better long term. Some may specialize in lump sums. Others may be more competitive at older ages or with deferred start dates. It seems complex but a good structured settlement broker, expert, or consultant should be skilled at weaving the best plan/offer together for you or your client. Such plan/offer may involve one or more structured settlement annuity issuers.

Most structured settlement brokers today have the ability to send you structured settlement quotes via email for speed, ease of storage and re-transmission (to clients or other advisers) and reduce your paper clutter.

One thing to note is that a quote to "sell your structured settlement annuity payments rights" is NOT a "structured settlement quote". To clear up the confusion (created by factoring company Internet advertising) it is a "factoring quote".

Updated July 1, 2023