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Lawyers Structured Settlements' "Mis-Guidelines"

Lawyers Mutual Insurance Company's subsidiary Lawyers Structured Settlements, a Cary, North Carolina associate of Structured Financial Associates gets Wall of Shame "credit" this week for posting structured settlement guidelines that are replete with errors. Hence we will dub them "structured settlement mis-guidelines".

• First of all, a guideline is "a rule or set of rules giving guidance on how to behave in a situation" (see Websters Revised Abridged Dictionary). Lawyers Structured Settlements Mis-Guidelines are a mixture of guidelines and marketing statements.

• On the subject of Incompetents and Minors Settlements Lawyers Structured Settlements says there are broad planning options (for structured settlements-they say these are "structured settlement guidelines") including college funds , future lump sums and lifetime income-which they say are a "superior alternative to the Clerk of the Court Structured Settlements routinely approved by judges for minors".

Comment: Anyone known the clerk of the court to possess an insurance license?  Is it possible folks that what is being referred to is the Registry of the Court?

• On the subject of Medicare Set Asides, Lawyers Structured Settlements states "Effective July 1, 2009, new Federal regulations require that Medicare's rights of subrogation be fully protected.

Comments:  Funny, I and I suspect many others understand that the Medicare Secondary Payer Act, effective since 1980 establishes this.

Furthermore, if as I suspect, the "new Federal regulations"  they are referring to is "The Medicare, Medicaid, and SCHIP Extension Act (MMSEA) of 2007, THAT act added new mandatory reporting requirements (originally to be effective July 1, 2009) for group health plans and for other arrangements that are impacted by the Medicare Secondary Payer rules (i.e., liability insurance, no-fault insurance, and workers' compensation). The purpose of the new reporting requirements is to enable CMS – the agency responsible for the oversight of Medicare – to monitor the proper payment of benefits where Medicare is a secondary payer. Of course "the chains have been moved" concerning the effective date several times. 

• On the subject of Commutation at Death Rider. Lawyers Structured Settlements says: "commutes all remaining "certain" benefits to a lump sum at death. Useful in large cases (with estate tax implications) provides a final disposition for surviving family members"

Comments: While an annuitant can elect to have 100% of unpaid remaining certain payments and guaranteed lump sums be paid at death, one can elect a lower percentage with such riders. 

Although estate liquidity on a New York medical malpractice case was the impetus to the 1995 Allstate IRS Private Letter Ruling that provided the tax foundation and more widespread issue of such riders, commutation riders are also applicable (and widely used) on cases where a structured settlement is sued in conjunction with a special needs trust. The commuted proceeds can be used to pay of the lien at death with surplus residuals paid to heirs.

An annuitant can provide "a final disposition (of structured settlement payments) to surviving family members" regardless of whether or not there is a commutation rider, by simply naming a beneficiary.

• On daily rate quotes, Lawyers Structured Settlements states that a minimum range of $250,000-$500,000 is needed to get a daily rate quote 

Comments: This is simply not the case across the board. A good broker or settlement planner will seek a daily rate quote or underwriting concessions, regardless of case size,

• In its Frequently Asked Questions piece, Lawyers Structured Settlements says "when you consider it (structured settelment payment) is tax free, the return is often equal to the long-term after tax return of the stock market, without the risk and the volatility".

Comment: This is absolute "bollocks bolognaise".  How can a company run by lawyers make such a broad and unsupported statement, citing a market, without defining what "the stock market" is. For example, are they comparing it to the S&P 500, the Dow Jones Industrial Average, the FTSE 100, the Russell 2000, the Hang Seng, or what?  Once the index is defined; over what time period? Where's the authority? I didn't use the word "often", THEY did!

• Furthermore, in its Frequently Asked Questions piece, Lawyers Structured Settlements says that a lawyer's client CAN buy a structured settlement annuity after settlement.  They go on to state that "the income portion of the annuity payment will be taxable, and tax laws require that the annuity must begin within a year and have substantially equal payments (so no long deferrals and lump sums). However, if your client has settled a personal injury case without a structured settlement and needs the security of guaranteed income, a structured settlement after the fact will often be the best alternative".

Comments:

Lawyers Structured Settlements has muddled the terminology by describing a non qualified annuity as a structured settlement.

That being said Lawyers Structured Settlements is clearly not familiar with defined benefit annuities or longevity insurance that ARE available in the annuity market.

The only structured settlement that can be purchased after the fact is the rights to someone else's structured settlement payments in the secondary market. It's obvious that is not what Lawyers Structured Settlements had in mind in its FAQ.

Plaintiffs can benefit from a structured settlement "after the settlement" with the defendant in those cases where the underlying settlement is resolved via a qualified settlement fund per IRC 468B. Even in such cases "the client" DOES NOT buy the structured settlement annuity.  A QSF is not appropriate for every case.

CONCLUSION

1. A number of structured settlement brokers like to emphasize that they are attorneys. I think it's a given, based on this analysis, that simply having a law degree does not automatically make you the most knowledgeable structured settlement broker or settlement planner in the state of North Carolina or anywhere else in the United States. There's much more that goes into it.
2. In this author's opinion those in the structured settlement industry owe it to their clients, the industry and themselves to maintain a high level of financial literacy and be able to articulate it.
3. In the opinion of this author, companies like Lawyers Mutual have a responsibility to the industry and the public to assure that its employees are disseminating accurate information. This is the second time this author has addressed the work of Lawyers Mutual's Director of Annuity and Structured Products. See Walking The Walk on "Sound Diversified Settlement Planning"?  March 28, 2009.
   
4. In this opinion of this author, Structured Financial Associates and its parent, Integrated Financial Settlements (IFS) have a responsibility to the industry and consumers to assure that their employees, associates, or affiliates are disseminating accurate information. This author has already highlighted in another post how another North Carolina associate of an IFS affiliated entity  has been advertising the North Carolina Insurance Guaranty Fund, possibly in contravention with North Carolina Law.

Walking The Walk on "Sound Diversified Settlement Planning"?

I felt compelled to read Tacker LeCarpentier's February 16, 2009 article in North Carolina Lawyers Weekly after the NSSTA posted a link and "belated kudos" on its website referring to the article as "perceptive". After reading it I was left with considerable doubt as to whether the person responsible for that adjective actually took the time to read the article.

What could have been a great article from LeCarpentier has left me disappointed. While LeCarpentier does a reasonable job of stating the benefits of structured settlements he engages in too much puffery, fails to do his homework and, given the opportunity, suggests no alternative to the limitations in structured settlements while bashing The Halpern Group , a direct competitor of his, which has simply established a solid presence in LeCarpentier's territory and with the North Carolina Association for Justice.

As a Registered Settlement Planner I am tired of  people who call themselves settlement planners (but who are not registered settlement planners) who "talk the talk" but "walk the wobble" with an apparent ulterior motive to simply peddle structured annuities as a panacea.

LeCarpentier, a North Carolina licensed attorney, Summit Structured Settlements affiliate and Director of Annuities for a subsidiary of Lawyer's Mutual Liability Insurance Company of North Carolina says: "Sound, diversified settlement planning simply involves the appropriate allocation of settlement assets among a variety of risk categories in order to (1) first and foremost, provide income guarantees, security, liquidity and flexibility; (2) avoid the risk of dissipation of settlement assets; (3) avoid the volatility and uncertainty of the equity and bond markets (especially in today's uncertain and unsettled financial circumstances); (4) secure ongoing funding for past, present and future special needs, or life-care planning; (5) ensure maximum tax advantages; and (6) obtain a favorable return on principal with minimal risk

Points that LeCarpentier agrees with Halpern:

1. Virtually all plaintiffs will squander their financial recovery within a few years

2. Many, but not all, claimants are unprepared to manage their settlements, thus putting their settlements funds and their financial futures at serious risk.

3. Claimants, including their attorneys and other financial advisors, should understand all of the products and services available to them.

LeCarpentier admits that "all of these products (including structured annuities) have pros and cons, and therefore an effective and professional settlement planner should be weighing the individual needs of the claimant, evaluating the pros and cons of each of these products and recommending to the claimant and/or the claimant's family the appropriate mix of products and services that best secure and protect the claimant's settlement proceeds so as to provide long-term security and income for the claimant, prevent dissipation of assets and obtain the most advantageous tax position and return for the claimant.

He continues with  "those hardships might include medical emergencies, job loss and other personal or family emergencies. That is why I am a strong advocate for diversification and guarantees, security and protection, not merely liquidity, flexibility and safety, as my competitor recently stated as his company's goals (see R. Halpern, Protecting plaintiffs from the squandered settlement, North Carolina Lawyers Weekly, Dec. 1, 2008, p. 13)".

"An effective settlement planner can create a plan that allocates the claimant's settlement funds among several products that allow for security through income guarantees, flexibility, liquidity and tax advantages, while avoiding the possibility that a claimant might outlive his or her settlement funds".

LeCarpentier  says: "You simply cannot outlive a life-contingent annuity".  Comment: TRUE, in such case the annuitant, if the measuring life, will receive an income he or she cannot outlive.  

Tacker LeCarpentier goes on to say "diversification also avoids the claimant becoming a target of many of the unsavory companies making up the factoring industry ("cash now pushers"). Many of these factoring companies employ massive advertising, sales calls to vulnerable annuitants and other predatory sales tactics to buy annuities of all types at heavily discounted prices.

Comment: Is Le Carpentier saying that diversification of annuity products avoids the annuitant becoming a target (of factoring companies)? Here's what I think...

  

In fact a number of settlement planners, including NSSTA  and SSP member Patrick Hindert, consider and have published and marketed misguided opinions that factoring is an improvement to the structured settlement product. Moreover, a notable number of settlement planners assist annuitants in factoring their structured settlements and take compensation from such work, some not so openly.  A factoring broker who stated that 100% of its clientele was made up of industry members, stated in writing that 90% of them are on the take. More significant is that an independent year long grass roots structured settlement transparency initiative to obtain affidavits from industry members about their factoring business practice was publicly rejected by the National Structured Settlement Trade Association and 95% of industry members, the majority of whom to this day have no disclosure on factoring in published materials. The purpose of the initiative was to show the trial bar that such practices were in the minority and to educate the bar on questions they should be including as part of their due diligence on settlement consultants and other financial advisers.

If that's not bad enough the factoring companies are believed to employ "court sniffers" to obtain court papers identifying annuitants and then contact them to hock them to sell their structured settlements.

That the NSSTA would endorse LeCarpentier's article having prior knowledge of this business practice is astounding.

Le Carpentier then asks: So, why would claimants risk putting all of their settlement funds in a recovery-management program unless its administrator can state under oath that his program will provide the tax-free, guaranteed payment streams of a life-contingent structured-settlement annuity?

Comments

1. This is where LeCarpentier appears the hypocrite because LeCarpentier wants Halpern to make a statement under oath when he  would not do the same when it came to the structured settlement transparency initiative?

2. Has The Halpern Group made a claim that the recovery management trust or any of its products "will provide the tax-free, guaranteed payment streams of a life-contingent structured-settlement annuity"? If I'm missing something will LeCarpentier please show me where.

3. Does Tacker LeCarpentier suggest that all or most tort victims require a life contingent structured settlement annuity? Inasmuch as the term "life contingent annuity" also applies to life contingent lump sums, why is Tacker Le Carpentier using it to describe a life annuity?. Even if we're just talking annuities why limit the plaintiff's choice to 12.5% of the possibilities for structured settlement payments?

4. While LeCarpentier says that " although certain income streams to a claimant out of a trust can be made on a tax-exempt basis, nearly all trusts must pay taxes within the trust on investment gains (using Internal Revenue Service Form 1041)", he neglects to recognize that the tax exemption is not always an issue such as when there are out of pocket medical expenses for which a tax deduction can be taken. After all as LeCarpentier himself has stated one of the tenets of  "sound diversified settlement planning" is to ensure maximum tax advantages. The value assigned to liquidity and the putative debit to a trust product for not having the tax advantage of a structure is offset by the tax deductions. Moreover an active manager can construct a tax efficient portfolio to address both liquidity and tax advantage. Not to rub salt in LeCarpentier's wounds but the passage of the Disability Savings Act would render his tax argument moot up to the limits of the Disability Savings Account.

5. The contradiction of his own advocacy continues as LeCarpentier addresses the costs of creating and managing a trust which he claims are not so with (Section) 130 qualified structured settlements. He says "so, would you and your client rather have 100 percent of the claimant's settlement proceeds invested in an annuity now or 91.5-96 percent of those funds invested now?  WAIT A MINUTE!!! Didn't LeCarpentier just espouse diversification?

LeCarpentier states "trusts do not, and cannot, guarantee the performance of the "assets under management". IRS 130 qualified structured settlements can and do". IRC 130 qualified structured settlements DO NOT  guarantee "assets under management".  Per Wikipedia, Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management, investment management, wealth management, and private banking businesses to gauge how much money they are managing.  A structured settlement involves a contractual guarantee of future payments in an amounts and at times set forth in the contract or settlement agreement and, if assigned,  in the qualified assignment agreement. The use of the term "Assets Under Management" by a settlement planner in the aforementioned context is a grossly misleading misrepresentation of the facts, in my opinion. Total LeCrap!

LeCarpentier lobs up what seems at first blush to be an impressive number of cases against an adversary. At least one of them is a dud however, In re Estate of Yolette Mede, 677 N.Y.S.2d 707, 177 Misc.2d 974 (1998), which is among those cited as something that North Carolina courts may find as disturbing as "several different trial courts in New York State". Seemingly lost on the Le Carpentier is that the Mede decision was the bane of New York City area structured settlement professionals' existence for a period of time. As someone with practical experience in the effect of the Mede decision, I can tell you that in the immediate aftermath of the Mede decision the Surrogate in Kings County New York was even rejecting "(IRC Section) 130 qualified" structured settlements that went beyond the age of 18 of a minor. I further understand that Mede decision would probably not have even happened had the former Halpern Group employee shown the Surrogate the paperwork for a minor's trust instead of the adult trust upon which the decision was rendered. This author personally spoke with Surrogate's office a number of times and informed other structured settlement colleagues and attorneys so that a solution could be made.

LeCarpentier admits that there will soon once again be inflation risks, yet appears to promote a short term strategy addressing deflationary pressures in the economy. Attacking United States Treasury Bond Trusts he opines that that buying Treasuries at their current prices would seem illogical and not particularly advantageous for most claimants, particularly those with special needs. Le Carpentier again exposes the inconsistency in his game plan. First he touts the longevity insurance of an annuity and then takes the short term view on inflation. If longevity insurance is a concern then the time horizon is extended and inflation is therefore a corrolary concern. It would appear that LeCarpentier is not familiar with the fact that such United States Treasury Bond Trusts are funded with Treasury Inflation Protection Securities (TIPS)  Treasury Inflation Protected Securities, or “TIPS”, are government securities designed by the U.S. Treasury to help protect investors from inflation. 

The above chart from the U.S. Bureau of Labor Statistics shows a 105 year history of inflation. The level of spending as a percentage of GDP is in the range it was in World War II. Check out the change in the inflation rate in the decade after. Will history repeat itself?

Running up the score in an epilogue to this critique of Mr. LeCarpentier's  NC Lawyers weekly article, I selected this contribution to structured settlement financial literacy from his "revised FAQ" on structured settlements in which LeCarpentier poses the question Can a Client Buy a Structured settlement Annuity AFTER Settlements? To which he answers..."Yes, with qualifications. The benefit is that a structured settlement annuity will have better rates than an ordinary annuity and your client can still benefit from a 'rated age.' On the other hand, the income portion of the annuity payment will be taxable, and tax laws require that the annuity must begin within a year and have substantially equal payments (so no long deferrals and lump sums). However, if your client has settled a personal injury case without a structured settlement and needs the security of guaranteed income, a structured settlement after the fact will often be the best alternative". This is also total LeCrap by any definition of structured settlement! Since when does a client buy a structured settlement unless someone like J.G. Wentworth is your client? In that case they would be buying the structured settlement payment rights.

National Financial Literacy Month Begins April 1, 2009  Start walking the walk. Quit walking the wobble!

 

LeCarpentier states "trusts do not, and cannot, guarantee the performance of the "assets under management". IRS 130 qualified structured settlements can and do". IRC 130 qualified structured settlements DO NOT  guarantee "assets under management".  Per Wikipedia, Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management, investment management, wealth management, and private banking businesses to gauge how much money they are managing.  A structured settlement involves a contractual guarantee of future payments in an amounts and at times set forth in the contract or settlement agreement and, if assigned,  in the qualified assignment agreement. The use of the term "Assets Under Management" by a settlement planner in the aforementioned context is a grossly misleading misrepresentation of the facts, in my opinion. Total LeCrap!

LeCarpentier lobs up what seems at first blush to be an impressive number of cases against an adversary. At least one of them is a dud however, In re Estate of Yolette Mede, 677 N.Y.S.2d 707, 177 Misc.2d 974 (1998), which is among those cited as something that North Carolina courts may find as disturbing as "several different trial courts in New York State". Seemingly lost on the Le Carpentier is that the Mede decision was the bane of New York City area structured settlement professionals' existence for a period of time. As someone with practical experience in the effect of the Mede decision, I can tell you that in the immediate aftermath of the Mede decision the Surrogate in Kings County New York was even rejecting "(IRC Section) 130 qualified" structured settlements that went beyond the age of 18 of a minor. I further understand that Mede decision would probably not have even happened had the former Halpern Group employee shown the Surrogate the paperwork for a minor's trust instead of the adult trust upon which the decision was rendered. This author personally spoke with Surrogate's office a number of times and informed other structured settlement colleagues and attorneys so that a solution could be made.

LeCarpentier admits that there will soon once again be inflation risks, yet appears to promote a short term strategy addressing deflationary pressures in the economy. Attacking United States Treasury Bond Trusts he opines that that buying Treasuries at their current prices would seem illogical and not particularly advantageous for most claimants, particularly those with special needs. Le Carpentier again exposes the inconsistency in his game plan. First he touts the longevity insurance of an annuity and then takes the short term view on inflation. If longevity insurance is a concern then the time horizon is extended and inflation is therefore a corrolary concern. It would appear that LeCarpentier is not familiar with the fact that such United States Treasury Bond Trusts are funded with Treasury Inflation Protection Securities (TIPS)  Treasury Inflation Protected Securities, or “TIPS”, are government securities designed by the U.S. Treasury to help protect investors from inflation. 

The above chart from the U.S. Bureau of Labor Statistics shows a 105 year history of inflation. The level of spending as a percentage of GDP is in the range it was in World War II. Check out the change in the inflation rate in the decade after. Will history repeat itself?

Running up the score in an epilogue to this critique of Mr. LeCarpentier's  NC Lawyers weekly article, I selected this contribution to structured settlement financial literacy from his "revised FAQ" on structured settlements in which LeCarpentier poses the question Can a Client Buy a Structured settlement Annuity AFTER Settlements? To which he answers..."Yes, with qualifications. The benefit is that a structured settlement annuity will have better rates than an ordinary annuity and your client can still benefit from a 'rated age.' On the other hand, the income portion of the annuity payment will be taxable, and tax laws require that the annuity must begin within a year and have substantially equal payments (so no long deferrals and lump sums). However, if your client has settled a personal injury case without a structured settlement and needs the security of guaranteed income, a structured settlement after the fact will often be the best alternative". This is also total LeCrap by any definition of structured settlement! Since when does a client buy a structured settlement unless someone like J.G. Wentworth is your client? In that case they would be buying the structured settlement payment rights.

National Financial Literacy Month Begins April 1, 2009  Start walking the walk. Quit walking the wobble!