by John Darer® CLU ChFC MSSC RSP CLTC
It's odd seeing Patrick Hindert on the defensive in NASP 2011 Annual Meeting -2. Very little of the blog is about the NASP Annual meeting. Instead the post primarily deals with a defense of criticisms of Hindert's review of the NASP meeting and criticism of his long advocacy of factoring in general (which the reader must assume has been from the primary market).
The private criticism that Hindert is referring to did not include this author. However, having now read the post, I am now going to share some observations that I personally find interesting.
A. Hindert's viewpoint about a structured settlement annuitant's "right to factor" appears to be inconsistent with that of the President of NASP, whose annual meeting is the subject of the post!
"Many primary market participants will disagree with portions of the above paragraph. They do not view structured settlements transfers either as a product improvement or as a recipient's "right" however that right may be qualified by statute". S2KM November 18, 2011
"Structured settlement annuitants do not have the right to factor their structured settlement payment"s (emphasis ours),..." Matt Bracy, President National Association of Settlement Purchasers (NASP) and General Counsel Settlement Capital Corporation, in a video appearing on Factoring Channel, November 7, 2011. See my November 9, 2011 review
B. Hindert's opinion on structured settlement commutation must have changed
In S2KM's opinion, the primary market's general attitude toward and perspective of the secondary market since 2001 represent a serious strategic mistake that has caused considerable harm to the primary structured settlement market. Instead of improving their own products by adding commutation or transfer features, and re-learning how to sell their product in a statutorily re-defined market, the primary market continues to criticize and shun the secondary market. -November 18, 2011
yet on December 31, 2006, Hindert wrote...
"Summary of (Attorney Robert) 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."-S2KM/Hindert December 31, 2006
C. Hindert Describes 3 elements of Criticism but Fails to Address the Main One
The 3 elements of criticism that Hindert admits he has received.
- S2KM is biased toward (or has an affinity for) the secondary market at the expense of the primary market.
- S2KM criticizes primary market business conduct without reporting abhorrent secondary market bad business behavior.
- S2KM should be more of a positive voice for change and not a muckraker
In the personal opinion of this author Hindert does not address his long time lack of criticism of the secondary market marketing .