Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary

Christopher Lemieux Social Media Road Kill on AIG Structured Settlements

by Structured Settlement Watchdog

How do six two-week courses in financial management at or through Cornell University qualify someone to have bona fides on structured settlements?  In the same vein as my credential puffery slamming missive "4 Days in the Vicinity of Touchdown Jesus Does Not make You One of The Fighting Irish", it's evident that $2,900 and six two-week E-Courses Through Cornell, Does Not Make You "Gorgeous Gorge "

One certificant, hereinafter to be known for his "timely reporting", Christopher Lemieux, published an article on January 14, 2011 entitled "What Happens to My AIG Structured Settlement Payments" 

A. Lemieux:  "The American International Group (AIG) bankruptcy scare has understandably caused concern over settlement annuities purchased as a structured settlement from a personal injury case covered by AIG insurance companies".

Comments:  (1) Settlement annuities are purchased from life insurance companies, not personal injury cases! They may however, be used to help resolve personal injury cases, as a qualified funding asset to to facilitate payment of some of the damages.  (2) AIG insurance companies do not "cover personal injury cases", they cover their insureds against insured losses subject to the terms of their policies.

B. Lemieux: A structured settlement is a financial or insurance payment a claimant receives after a personal injury suit.

Comments:  (1) The Christopher Lemieux definition is inaccurate and lazy. One better way to answer "what is a structured settlement?" can be found here  (2) The payments from a structured settlement are, as the name implies, the result of the settlement of a personal injury suit. There are many other types of payments that a claimant can receive after a lawsuit (3) Structured settlements are not limited to personal injury suits. You do not even have to have filed a lawsuit to be eligible for a structured settlement. Many structured settlements are created in settlement of a claim or claims.

C. Lemieux: AIG has not affected the solvency of any annuities in a negative way, according to the general counsel of Creative Capital, a structured settlement broker. If you have a structured settlement annuity with one of the AIG companies, it is safe and still in force (as of January 2011).

Comments:

1. Annuities do not go insolvent
2. If an annuity could go insolvent in any way, how could that be seen as a positive?
3. What Creative Capital DID say, through its VP and General Counsel, Martin Jacobson,  on September 17, 2008 was  "All of AIG’s structured settlement subsidiaries appear to be solvent, backed by sufficient statutory reserves, surplus and general account assets to continually meet 100% of their structured settlement annuity obligations.  None of the assets of these companies appear susceptible to be used to either pay or collateralize the debts of any AIG entity, including the parent corporation".

D. Lemieux: During the financial crisis of 2008, AIG was near bankruptcy and needed billions of dollars to survive. The federal government provided $85 billion, in Troubled Asset Relief Program (TARP)

Comments: According to the course description,  a certificant in financial management at Cornell University is expected to be able to:

• interpret financial information
• assess the costs and benefits of business decisions
• apply risk and return considerations in capital budgeting
• analyze the debt-equity decision
• communicate operational and financial strategies

The following are a selection of pieces of "financial information" were apparently overlooked by Lemieux at the time of his posting.

• December 21, 2009 " AIG Plans TARP Repayment (Targets two years)  Zacks Investment Research
• June 9, 2010 "Bernanke Says He Expects AIG to Repay TARP" Business Week
• October 3, 2010 "AIG En Route To TARP Repayment Plan" Zacks Investment Research
• October 5, 2010 " Treasury's TARP, AIG Bailout Costs Fall to $30 Billion
• January 14, 2011 "Update: US Treasury: AIG Has Completed Recapitalization Plan" Morningstar
• January 14, 2011 "Update: AIG has Repaid New Yorik Fed $47B" Morningstar

Dumb is a matter of opinion. The structured settlement watchdog suggests that amateurs do a better job of researching their topic before presenting inarticulate tripe that just pollutes the world wide web with inaccuracy and diminshes the utility of their work.

 

Take New York CPLR 50B Judgment or Take Settlement Offer?

by John Darer ® CLU ChFC MSSC CeFT RSP CLTC

It Doesn't Always Make Sense to Take a Settlement on a NY CPLR 50B Judgment

Would you put 20% of your money away in an investment that is guaranteed to lose money and 80% of your money in an investment with less than 1% rate of return over less than a decade? HELL NO!

Such a conundrum was a factor in what was proffered as part of a proposed structured judgment that I was asked to review.

There is some confusion over the significance of the 4% statutory increases built into Article 50B of the New York CPLR (or in any structured annuity for that matter). It simply represents the statutory percentage that the monthly benefit payment in a structured judgment (or structured settlement annuity funding the structured judgment) changes year to year. It does not represent a rate of return. In the aforementioned scenario, a payment stream that cost over $1 million that paid out over 7 years with a 4% compound increase carried an underwhelming 0.97% internal rate of return.  Other payment streams had negative rates of return. To think that some refer to the 4% as  a " kicker" just reminds me of the "Kick me" sign affixed to the back of George McFly in the movie "Back to The Future".  "Okay...Okay you guys very funny"

 
                                                 The 4% "Kicker"?

New York personal injury lawyers should bring in a credentialed financial settlement expert, such as a registered settlement planner, as early as possible to help them and their clients analyze their options, document their file and make the best decisions. 

When does it make sense to settle a NY CPLR 50A or CPLR 50B structured judgment?

Notwithstanding that you should rely on your attorney for legal advice, it may make sense to take a small haircut for any or all of the following reasons:

• Gain greater customization than the NY CPLR 50A or CPLR 50B statutes provide
• Achieve diversification
• Income spreading by structuring taxable elements of damages when cases are settled post trial, to help mitigate what would otherwise all be taxed in year one.  Read about structuring taxable damages by way of a non qualified assignment and  reinsurance structured settlements
  
• Mitigate mortality risk with New York structured judgments that would result in a windfall to the structured judgment annuity issuer in the event of premature death, which would come at the expense of the plaintiff's survivors if the plaintiff is uninsurable for life insurance. Read Life Insurance in Structured Judgments  and Personal Injury Settlement Planning, at 5 (c)

Updated August 16, 2021

     

"If You Insist on Your Own Structured Settlement Adviser Your Case Goes on Back Burner"-Defense?

by John Darer® CLU ChFC MSSC RSP CLTC

A Long Island NY plaintiff lawyer purportedly, was recently told that if he insisted on his own structured settlement adviser with respect to any structured settlement,  the case would go on back burner and it would delay his getting paid.

First of all this notion is absolutely preposterous. The New York General Obligations Law  1705(e) creates an affirmative obligation on the part of the defendant or the defendant's attorney to make:

"a statement that the claimant is advised to obtain independent professional advice relating to the legal, tax and financial implications of the settlement, including any adverse consequences and that the defendant or defendant's legal representative may not refer any advisor, attorney or firm for such purpose.

Second, New York Senate Bill 8072A sponsored by Eric Schneiderman includes the following ad gives an idea of what the legislature is thinking:

  "Structured settlements are current public policy both in New York State and Federally, providing for significant tax exemptions to children and disabled citizens of our state as an incentive to enter into periodic payment obligations. Although we are protecting our citizens that are attempting to sell their current existing structured settlements, we have done nothing to protect their rights in establishing a structured settlement in the first instance. The marketplace of structured annuities is complex and diverse, this bill established transparency for plaintiffs entering into structured settlements as partl of the resolution of their lawsuits, and makes the brokers/agents accountable to them as part of the sale of insurance. Due to the natural opposition encountered between parties in litigation, the plaintiff, the real consumer of insurance, and beneficiary of the structured settlement needs representation from an expert in the field of structured settlements. This bill gives the plaintiff a right to representation, fairly compensates that expert, and eliminates the self dealing occasionally encountered when insurance companies settle cases with plaintiffs state wide. This policy will foster a greater confidence in structured settlements, and will further encourage their use by all parties to litigation. At a time when every financial transaction and insurance product is in question, we should not expect the citizens of our state to entrust their financial future to the agent of their opponent in litigation. To continue do so, controverts the public policy and undermines the entire existence of structured settlements".

This author believes that both parties deserve representation. Yet whatever side of the fence you are on this issue, or on any particular case, the behavior described above, is just plain silly. Consider the following questions:

1. Could the attempt to circumvent the law (actually in contravention to the disclosure that they are legally obligated to make) by the defendant or defendant's representative in appealing to the plaintiff lawyer's need to be paid, be considered an actionable unfair trade or claim practice?
2. If this occurred at a mediation and was witnessed by a mediator or a judge, or any other party present, if things later go wrong for the plaintiff, could that put the plaintiff lawyer in jeopardy for not seeking independent advice for his client?
3. Are there any conditions by which a defendant is exempt from complying with 5-1702?

This matter concerning the Long Island attorney is under investigation. 

Related reading

New York Structured Settlements: Defense Counsel, Don't Blow Your Sec 5-1702 Disclosure Obligation!

Plaintiff Structured Settlements New Rights In New York Senate Bill S8072A?

 

Tax Exclusion for Structured Settlements | When Are Structured Settlements Tax Free?

by John Darer® CLU ChFC MSSC RSP CLTC

What Type of Damages Do the Structured Settlement Payments Represent?

Generally the determination of whether a structured settlement payments are income tax free, is based on the reason for settlement and the damages that the structured settlement payments represent. Not all structured settlements are income tax free.

While other tax principles may also come into play,  it is critical that constructive receipt, or actual receipt, of the structured settlement funding amount has not occurred. 

Ignore The Slick and Inaccurate

A slick presentation about structured settlements by one of my industry brethren includes the following inaccurate information:

• The misleading title "Annuity: Always Tax Free"
  
• The inaccurate statement that the governing US code and tax law is The Internal Revenue Code of 1954 which the individual represents is a "mandate that settlement proceeds from personal physical injury claim are always tax free"

Comments

1. An annuity is not always tax free.
2. A structured settlement annuity is not always tax free
3. There is nowhere in the Internal Revenue Code that says that structured settlement annuities are tax free.
4. IRC 104(a)(2) provides for an exclusion from taxable income, of "the amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness".
5. The word "physical" does not appear in IRC 104(a)(2). The author of the critiqued presentation has muddled things with its inclusion in IRC 130. IRC 130 came into being with the Periodic Payment Settlement Act of 1982.
6. The governing law is the Internal Revenue Code of 1986, as amended, not the Internal Revenue Code of 1954.
7. One must distinguish between taxes on income and taxes upon an estate in the event of death
8. Since 1918, the tax exclusion includes the terms "whether by suit or agreement".

 

References

• Revenue Act of 1918  Section 213(b)(6) The exclusion for personal injury damages appears in the Internal Revenue Code-see p22

"Amounts

received, through accident or health insurance or under workmen's compensation acts, as compensation for personal injuries or sickness plus the amount of any damages received whether by suit or agreement on account of such injuries or sickness"

Internal Revenue Code of 1954

"Section 104(a)(2) excludes from gross income the amount of any damages received (whether by suit or agreement) on account of personal injuries or sickness. The term damages received (whether by suit or agreement) means an amount received (other than workmen's compensation) through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered into in lieu of such prosecution".

Read more: http://cfr.vlex.com/vid/104-compensation-injuries-sickness-19700889#ixzz0nPMxz98x

Knuckles v. Commissioner (1965)
The determination of whether a settlement amount is excludable must be based on the reason for settlement, which is determined by the wording of settlement agreement.

 

 

How Structured Settlements Work | Structured Settlements

by John Darer® CLU ChFC MSSC RSP CLTC

Check out this structured settlement flow chart which helps explain how a structured settlement works when a structured settlement is funded with one or more structured annuities.

How Structured Settlements Work Flow Chart  by 4structures.com®

The flow chart introduced as part of the company's efforts during National Financial Literacy Month may be helpful to attorneys, plaintiffs, judges, claims adjusters and even some settlement professionals to better understand the sequence of events that occur when a structured settlement is created with a qualified assignment. Without a clear understanding of the sequence of events there is a risk that settlement documents will contain flaws.

What is a Structured Settlement?   How Do You Get a Structured Settlement?

Types of Structured Settlement Payments

Structured settlements provide core income stability with the safety, security and guarantees from well capitalized life insurance companies, or Treasury Funded Structured Settlement payments. A structured settlement is like getting a paycheck from a "job" that you can never be fired from.  That's just one reason why plaintiffs choose structured settlements for part of their recovery. Structured settlement payments are income tax-free, if they represent payment of damages from physical injury, physical sickness, wrongful death or workers compensation under IRC §104(a)(1) or IRC §104(a)(2). Structured settlements established for taxable damages offer tax deferral.

Structured Settlement "Standard of Care" in Bronx New York

by John Darer® CLU ChFC MSSC RSP

 New York State Supreme Court for Bronx County's required "Structure Broker's Affidavit", introduces a new "standard of care" for structured settlements, apparently due to the Court's concerns concerning structured settlement broker participation in factoring.

"11. Neither I nor (Insert name of company) will, without the express consent of the

plaintiff and the prior written approval of this court:

(a) provide any information about this settlement to any

factoring company for any purpose; or

(b) solicit the plaintiff or plaintiff’s family on behalf of any

factoring company for any purpose, including, but not

limited to, the proposed sale of plaintiff’s future periodic

payments, nor will I or (Insert name of company) participate,

assist, promote, or aid in such solicitation by any person, firm,

corporation or entity; or

(c) seek or accept any consideration, financial or otherwise, directly

or indirectly from a factoring company."

If there was no problem why would  there be a need for the Supreme Court of the State of New York to introduce this new "standard of care"?  Alas, the Court has spoken. If you are an attorney and do business in Bronx County, come into knowledge of "the problem" do you now owe your client, as part of your obligation to protect them, any less "standard of care" because you are prosecuting your client's case in Queens, Kings, Staten Island, New York County, Nassau or Erie County, or elsewhere in New York State?

Points for Plaintiff Lawyers To Consider

1. Consider that the overwhelming majority of the structured settlement industry has not subscribed to a Structured Settlement Transparency Initiative specifically addressing many of the points that are in item #11 of the Bronx County Structure Broker's Affidavit.

2. Consider that the National Structured Settlements Trade Association publicly rejected a Structured Settlement Transparency Initiative in a written memorandum to its members.  Despite having knowledge of the business practice, the National Structured Settlements Trade Association (NSSTA) failed to come up with an alternative solution. The majority of the structured settlement brokers and settlement planners you encounter will be members of NSSTA. 

3. Consider that it is known within the industry that many structured settlement brokers seek or accept financial consideration for structured settlement factoring transactions. 

4. Consider that some structured settlement brokers and settlement planners, including members of the National Structured Settlement Trade Association and Society of Settlement Planners are even disseminating propaganda that "factoring improves the structured settlement product" to members of the elder law and special needs community who you may call upon to assist you in your clients' special needs planning.

As part of the recent change to the "standard of care", plaintiff lawyers should consider screening current and prospective structured settlement relationships for their business practices on structured settlement factoring and then draw their own conclusions.

 

NY Anti-Rebating Law Served Up As Part Of Broker Compensation Debate

by John Darer CLU ChFC MSSC RSP

Sally Roberts reported in the August 4, 2008 issue of Business Insurance on the recent producer compensation hearings that have been taking place in New York. According to Roberts, the New York State Insurance Law anti-rebating statute "had a supporting role in the discussions and could ultimately play a part in any future regulatory outcome.

Insurance anti rebating laws are based on the general premise that allowing inducements or rebating of commissions to insureds or prospective insureds can cause an unfair competition between agents and agencies of differing financial size resulting in a possible reduction in competition and opportunity for entry into a market even though the agents are marketing the same or similar products.The public is better served when competition is healthy and agents or agencies differentiate themselves based upon the quality and efficiency of service provided by the agent and a comparison of the benefits provided by the insurance policy rather than upon how much of the agent's commission will be returned to the purchaser.

One reason to take this seriously is that the first deputy superintendent of insurance in New York, Kermitt Brooks is quoted by Roberts as saying that he does not want the state's anti-rebate statute to be "used as a shield" by producers to preclude serious consideration about whether broker compensation should be disclosed to clients. More telling is the quote "If you ask yourself the question am I going to give the consumer information about broker compensation, the next logical question is what can she do with that information legally. And that gets you to the anti-rebate statute".

On the table in New York is whether or not the anti-rebating statute needs to be amended, changed or repealed in conjunction with the enforcement of new compensation disclosure regulations.

Structured settlement stakeholders need to watch these New York state developments very closely.

Dealing first with disclosure, the New York State General Obligations Law 5-1702 mandates a series requirements to be delivered by the defendant (or defendant's legal representative) concurrent with the creation of a structured settlement. In addition, there are certain courts, such as Bronx County, which have local rules of disclosure. Then there are a number of structured settlement consultant firms such as 4structures.com, LLC, Creative Capital, Inc. and EPS Settlements Group, which use a form of structured settlement affidavit or declaration to provide or supplement the state mandated disclosure.

I am fully in favor of full and complete disclosure of any compensation taken by a settlement consultant for counseling, advising or implementing a structured settlement factoring transaction or for receiving referral fees from a company or individual who performs such services.

Moving on to the rebating discussion, IF the rebating laws are repealed, who gets the rebate? Consider these points for discussion:

1. While the plaintiff or annuitant may be perceived to be a consumer, he or she is not providing, and CANNOT provide the funds to purchase the structured settlement annuity. If they did attempt to do so then actual receipt would have already occurred and therefore no structured settlement is possible.
2. If the plaintiff's financial adviser recommends a 468B qualified settlement fund as a work around, this does not solve the problem in the majority of cases which involve single claimants. This is because the QSF severely limits market choices, there has been no final ruling from Treasury, and/or where the small size of the case makes for an unpleasant cost/benefit ratio.
3. If the property and casualty company or defendant gets a generous rebate on what are already thin margins then it is likely that the there will be little financial incentive for plaintiff advisers to do their business and tort victims will suffer as a result. It is also unlikely that a repeal would mean that the current system of commission sharing between brokers and settlement planners for plaintiff and defense (like real estate model) would survive.
4. Casualty companies with structured settlement programs may not be able to achieve their goals. Many consultants on their panels,as well as those running them, will attest to the value of having a counterpart on the complex cases. Moreover, if as a result every significant case goes to a qualified settlement fund how is that helping your program?
5. Would there be litigation over the rebate? What are the costs? Who suffers the most? I think ALL stakeholders
6. If repealed, the New York State Trial Lawyer Association (NYSTLA) and The New York State Academy of Trial Lawyers could lose significant donations. Large contributions from "plaintiff exclusive" settlement companies to the NYSTLA Partnership For Justice and the Academy equivalent would undoubtedly be affected by decreased profitability on New York State business.
7. If it happens in New York, does anyone believe it won't happen elsewhere?

There is no easy answer.

Members of The National Structured Settlement Trade Association, Society of Settlement Planners, New York State Trial Lawyer Association (NYSTLA) and The New York State Academy of Trial Lawyers and advocacy groups for the disabled such as AAPD and the Brain Injury Association of New York State must sit up NOW and take notice of the issues and the potential consequences to their constituents.

Ferris Lebous(ler) Gives "Day Off" To Factoring Company

by John Darer CLU ChFC CSSC

A Broome County New York Supreme Court judge, Ferris D. Lebous recently ruled against a proposed structured settlement transfer involving a 27 year old structured settlement annuitant Eric R. Lindsey. Lindsey hoped to transfer a $20,000 lump sum annuity payment scheduled for November 2010 to buy a motor vehicle.

The factoring company in question, Settlement Funding of New York LLC (believed to be the New York front for Peachtree Settlement Funding), offered Lindsey $9,517.07 for his rights to the $20,000 structured settlement payment, which represented only a portion of the overall structured settlement created when he was a child. The figure included the gross advance amount of $11,717.07, legal fees of $2,000, and a $200 assessment for costs and disbursements.

In his ruling that the factoring transaction was not in Lindsey's best interest, Judge Lebous cited the discount rate applied to the transaction of 19.9%, the fees and expenses used to determine the net amount, and the fact that the transfer amount wound up being less than 47% of the amount that Ferris would get if he waited for the disbursement. Apparently another mitigating factor was that Lindsey had nothing to show for the $55,000 he had already received.   

Comments

1. 19.9% is a pathetic discount rate which simply demonstrates that the seller didn't shop and the blatant opportunism of the buyer. 19.9% is NOT EVEN CLOSE to the reality of the structured settlement secondary market place. The buyer simply wasted Lindsey's and the Court's time.
2. While a motor vehicle seems like a reasonable expense to Eric R. Lindsey get to and from work, it's clear that annuitants must do more than just show up in Court. WHERE'S THE PLAN, MAN? Did Eric R. Lindsey contact an independent financial professional for advice or did he just call in from a hypnotic TV ad?
3. In another example of editorial ineptitude, DealFlow Media's  April 2, 2008 coverage of this story inaccurately reports and thereby falsely implies that the judge rejected the transfer amount because "it wound up being less than 47% of the amount that Ferris would get if HE waited for the disbursement".
4. Either DealFlow Media is on a first name basis with the judge, or continues to demonstrate a lack of respect for the judiciary first revealed in its report of Rhode Island Judge Netti C. Vogel's "vulture decision", where DealFlow referred to the judge as "Netti".