by John Darer CLU ChFC MSSC RSP CLTC
Does having structured settlement payments paid into a settlement preservation trust provide better protection than simply relying on state structured settlement
How it works
- Payee of the structured settlement is the plaintiff's trust instead of the plaintiff
- A professional trustee is used.
- Court scraping cash now vultures must deal with an intermediary with a fiduciary duty to act in the payee's best interest.
- The professional trustee may be consulted by the payee to discuss the payee's needs, investments, business ideas and loans in the context of fiduciary duty and discuss the best way to address those needs without the only solution being the sale of structured settlement payment rights.
- A professional trustee carries errors and omissions insurance.
What is a Fiduciary?
A fiduciary duty is the highest standard of care. The person who has a fiduciary duty is called the fiduciary, and the person to whom he owes the duty, is typically referred to as the principal or the beneficiary. If an individual breaches the fiduciary duties, he or she would need to account for the ill-gotten profit. His or her beneficiaries are entitled to damages, even if they suffered no harm.
Fiduciary duties exist to encourage specialization and induce people to enter into a fiduciary relationship. By imposing these duties, the law reduces the risk of abuse of a beneficiary by the fiduciary. As a result, potential beneficiaries can have greater confidence in seeking out a fiduciary. [ Source: Legal Institute-Cornell University Law School]
Aren't there extra costs associated with having a trust?
Yes, all trustees charge a fee to act as a trustee (fiduciary). Let's assume, for example that the trustee fee is 75 basis points (.75pct) per $1,000,000, that's $7,500 annually.
Arguably a trustee fee is small in comparison to a very bad structured settlement factoring such as the one that Cedric Martez Thomas entered into with false advertisers Novation Funding LLC, where there is no other way to describe it but the seller got raped.
Cedric Martez Thomas is a New York native who did a horrible deal with Novation Funding LLC in Okeechobee County Florida in October 2015. He sold $6,600,000 for a little over $1,000,000 from his AIG structured settlement. Cedric Thomas could have received more than $2,400,000-$2,500,000 in cash for the benefits he sold according to two structured settlement purchasers that I contacted at the time of his deal. Cedric used the "under inflated balloon" he received from Novation to buy about $700,000 of West Palm Beach area Florida real estate, according to my research, which is not far from the offices of Novation Funding LLC. Novation continually advertises that they give the maximum payouts and such claims using its DBA Novation Settlement Solutions, are totally false and misleading on the basis of this deal. Because there are no laws that govern the solicitation of structured settlement annuitants by companies such as Novation Funding LLC, and no requirement that such companies be licensed or hold errors and omissions insurance for any financial advice that they may have provided, annuitants can be victimized.
An annuitant can instead interface with a trustee, who again has a fiduciary duty to him or her and discuss these types of deals. The trustee would certainly shop the market place for the best deal if such a deal was in the trust beneficiaries best interest. For this reason, I doubt that any trustee would have approved Cedric Martez Thjoams' deal with Novation Funding LLC.
Why aren't the structured settlement protection statutes enough?
In theory yes but recent history has proven that in reality not. State statutes have not universally kept up with current business practices. Relying on inexperienced unlicensed solicitors, whose compensation is based on a large variable discount rate spread, to provide financial advice is a recipe for disaster. Deal after deal has been approved in some of the worst cases of abuse where the judge's best interest decision was highly questionable.
Inserting a trustee into the mix assures that a competent fiduciary is accountable to the trust beneficiary.
Should you use a settlement trust with every structured settlement?
No. But if there is a concern about stronger protection from the cash now vultures, the use of a trust in conjunction with a structured settlement is one option. The needs of the client are primary when using this or any type of settlement strategy. The size of the case will come into play as well.
It's a Matter of Trust!
"The closer you get to the fire the more you get burned
But that won't happen to us
Because it's always been a matter of trust" -Billy Joel