by John Darer CLU ChFC MSSC RSP CLTC
How can structured settlement payment rights acquired in the structured settlement secondary market be used to achieve your client's financial goals?
From a settlement planning standpoint we are looking at the ENTIRE time continuum, not just the beginning or the end.
- If you believe in structured settlements then logically you should believe in structured settlement payment rights as long as the risks are disclosed, and you understand and are willing to accept the risks. There are risks in investing in structured settlement payment rights. Despite what you may see in advertising on the internet, assigned structured settlement payment rights are not annuities and carry greater risk than annuities.
- If you are sensitive to rates then logically shouldn't you consider all means of financing the need and preserve your client's resources? For example if you instinctively think about a special needs trust or supplemental needs trust to preserve client assets from dissipation that results from a loss of public assistance, why not think about most efficient after tax way to generate income? when multiple needs or goals are on the table?
- We're only speaking in this example about allocating $244,559 of the recovery. This cash flow combined with a traditional structured settlement and/or other asset classes may provide a superior solution for the plaintiff than a stand alone structured settlement.
- A transfer of structured settlement payment rights is only possible if a Court approves that such transfer is in the best interest of the seller and applicable dependents.
Examplar, available today
$8,937.11 per month for 11 years 1 month (133 months) guaranteed certain, increasing at 4% compounded annually starting August 2, 2031 and ending August 2, 2042.
Estimated Cost: $244,559
Total Future Benefits: $1,460,166
Internal Rate of Return ("IRR") 7.25%
Annuity Issuer: Has an A+ (Superior) A.M. Best rating with over $100B in assets.
Comparative rates (Source: Bloomberg.com)
United States Treasury 10 year 2.96%
United States Treasury 30 year 4.22%
AAA Municipal 20 year 3.89%
AAA Municipal 30 year 4.322%
Prospects for this solution (using the above deal as example)
- 45-50 year old, including plaintiff lawyers, using qualified plan assets. (Income stream starts at age 65-70)
- Plaintiff of any age seeking or in need of stable cash flow
- Plaintiff of any age with medical expenses in need of taxable income to offset against unreimbursed medical expenses.
- Fiduciary seeking stable income from a conservative source.
Plaintiff lawyers who, like us, have seen the obnoxious and sometimes misleading ads on TV from "cash now pushers", have every right to be horrified at the thought of doing business with a cash now pusher. However, despite saturation advertising, only a small percentage of structured settlement annuitants actually sell their payments rights and that those that do must get past a judge in their jurisdiction. In New York City, there are tough judges such as Ruiz and Hunter. As the structured settlement watchdog I have worked hard to expose abuses and will continue to do so. Yet the choice is this. The cash flows from the structured settlement transfers, that ARE approved by judges, can either be acquired by and benefit hedge funds, sovereign wealth funds and the wealthiest of investors, OR they can benefit tort victims. And if it can be done right, then why not consider it?
For some plaintiffs, a Settlement Asset Management Trust ("SAM Trust") is a way for a plaintiff to purchase structured settlement payment rights without having to become experts. Institutional expertise through a fiduciary is applied, consistent with parameters of the individual's trust document, to assure that benefits are maximized, spendthrift protection is maintained and that the trust maintains some liquidity.
For more information contact John Darer, CLU ChFC MSSC RSP CLTC at 888-325-8640/ in CT 203-325-8640.
** note that the aforementioned deal was available at time of writing and may not be available by the time you read this. Like the supply of fine art at an auction house that is moving fine art, or the chances of finding the specific model, and color and accessories of your desired "wheels" at a used car lot, the quality of secondary market deals is dependent on inventory. Structured settlement payment rights are not without risk, particularly transaction risk.