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

Is Attorney Fee Deferral / 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 have been 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.  

Systematic structuring of attorney fees through laddering annuities and other attorney fee deferral solutions 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

 

 

 

Factoring Company Servicing of Structured Settlements MAY NOT Get You Payments on Time

by Structured Settlement Watchdog®

The Connecticut Woman's torment and sequelae continues.

Background
Less than a year ago an NSSTA member acting as financial adviser to the Connecticut woman placed her into a very large structured annuity with American International Life Assurance Company of New York. As far as this author can tell from interviewing the woman, an inadequate amount of up front cash was considered in the final settlement plan, because less than a month later the woman sought cash to make a home modification.

The NSSTA member referred the CT woman to a representative of Structured Asset Funding.

The CT woman agreed to factor a portion ($1,600/month) of her structured settlement payment rights.

Structured Asset Funding did not "deliver the goods" to the CT woman in timely fashion despite the representation by its representative that it was "business as usual"  in September 2008,  when the financial world was falling part. Structured Asset Funding (a/k/a 123 Lump Sum), ultimately paid the woman in May 2009 after 6 months and, among other things, she had to hire a lawyer, she contacted this author and this author subsequently interceded on her behalf to expose the poor lady's situation to the structured settlement industry and public and put pressure on  Structured Asset Funding to act.

This was not the first substantial delay during this period involving a deal referred to Structured Asset Funding.

What Now?
Our investigation into the CT woman's problem in April revealed that Structured Asset Funding is "servicing" the CT Woman's structured settlement payments. This means that they receive all of the woman's payments from American International Life Assurance Company of New York, take their cut and then pass through the difference to the CT woman.

When the CT woman was dealing directly with American International Life Assurance Company of New York she maintains that she received payments on time via direct deposit.  Now she is receiving checks and the July payment, due July 1, 2009 was not received after the middle of the month.  Purportedly American International Life Assurance Company of New York mailed the check to Structured Asset Funding on June 26, 2009.  Mailing a structured settlement check 5 days in advance of a due date is common procedure.

The Structured Asset Funding delay caused the woman to miss her mortgage payment and her health insurance payment. Audrey Nadler, the Structured Asset Funding representative now dealing with the CT woman purportedly cannot give the CT woman a definitive date when payments will arrive each month.

Purportedly under servicing arrangements American International Life Assurance Company of New York will not make a direct deposit of structured annuity payments to the factoring company. This author is not aware of how other annuity issuers deal payment delivery under servicing arrangements.

I am not a fan of servicing arrangements. People depend on their settlement checks and if they cannot be "on time every time®" then cash now pusher "servicing" does not serve a purpose.

Furthermore, in my opinion those life insurance companies who will not split annuity payments to those who factor structured settlement payment rights are sending the annuitants to the wolves. At the very least people who sell their structured settlement payment rights, where there is going to be a servicing arrangement need to be given a written disclosure PRIOR TO signing an absolute assignment or transfer of structured settlement payment rights that payments may be delayed.

Message to the settlement industry

1. Don't over structure! Ask the right questions. Employ the approach of a settlement planner not a short order chef!
2. NSSTA MUST tackle the issue of structured settlement servicing by factoring companies to assure that its life company members are not contributing to the problem. For all the good the structured settlement industry does it can easily be tainted by unreliable or ineffective solutions that affect timing of payments to structured settlement payees.
3. Are commutation riders a possible solution, where the liquidity is provided in-house and there is no need to split payments?  A good industry resource would be Dan Durbin, the NSSTA President who is with Allstate Life Insurance Company, an annuity issuer that has had its Advanced Funding Exchange Notice (AFEN) in place for some time.

Message to the factoring industry

1. Come out and say something about servicing NASP members. If you have some procedures in place to assure that what is happening to the Connecticut woman does not happen with your company when payments are being "serviced", tell us what you are doing!

On Time Every Time® is a registered trademark of 4structures.com, LLC

New York Court Rejects J.G. Wentworth 21.42% Effective Discount Rate!

by John Darer CLU ChFC CSSC RSP

Kudos to Kings County Supreme Court judge James G. Starkey who put the kibosh on an attempt by J.G. Wentworth subsidiary, 321 Henderson, to get away with charging a 21.42% effective discount rate to Gladys Lugo. Lugo, 21,  has been receiving structured settlement payments from American International Life Assurance Company of New York* since February 2007.

Peter Vodola of Pullman & Comley has done a nice analysis of the June 12, 2009 decision In the Matter of the Petition of 321 Henderson Receivables Origination, LLC v. Gladys Lugo  (N.Y. Supreme Ct. Kings Index 3073/2009) on the Secondary Market Law Blog

Postscript February 8, 2013

*now United States Life Insurance Company in the City of New York

**now of Reardon Scanlon and Vodola, LLP West Hartford CT

Bronx NY Judge Hunter Stops "Vulture" Snack on Structured Settlement Carcass

by John Darer® CLU ChFC MSSC RSP CLTC

In the Matter of Medina New York Supreme Court Bronx County 260363/08 decided December 12, 2008 Justice Alexander W. Hunter, Jr. has denied a structured settlement factoring transaction because he could not "state with reasonable certainty whether or not the transaction is in the best interest of the payee". The best interest standard that must be applied when there is a proposed cash lump sum for structured settlement, requires the Bronx judge to take into account the welfare and support of her dependents.

Medina wanted to sell the rights to a $55,000 lump sum payment due June 5, 2012 to Structured Asset Funding, LLC, a Hallandale Florida based company that at the time of original publication of this post, used Ferraris and boats as a reason to sell your structured settlement for $31,500. The purpose of the proposed deal was to enable a move and to buy furniture.

In his decision denying the petition Judge Hunter stated that "Ms. Medina does not indicate whether or not she is employed or otherwise receives a monthly income in order to enable her to pay her monthly rent, utilities and other household expenses. Moreover, she does not indicate how long she intends to live off of the $31,500 she will be receiving from said transfer. She also recently received an annual payment of $16,900 on June 5, 2008 that could have been applied toward relocating to a place of her own".

A tip of the hat to New York attorney Gary E. Rosenberg for a nice write up on Matter of Medina  in Structured Settlements: Beware of The Vultures

Updated June 15, 2012

Related Reading

New York Judges Getting It Done with Structured Settlement Protection!  July 4, 2007

All Hail Judge Alexander "Bites Yer Legs" Hunter! May 25, 2007