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

What to Do When Approached By A Settlement Planner to Sell the Structured Settlement They Sold You

by Structured Settlement Watchdog

If you receive an unsolicited email or a phone call from a trusted settlement planner to sell the structured settlement that they sold you, you should immediately become suspect.

There are legitimate reasons to question the settlement planner's motivation no matter how trustworthy the settlement planner may be to you. 

• Selling your structured settlement payments is a guaranteed money loser.  The most that any seller can receive is pennies on the dollar no matter who you go to. If you are solicited by the settlement planner that placed the structured settlement for you or your client, "pennies on the dollar" is the best they can do.
• On large structured settlements, you could be shafted for hundred of thousands, or like New York resident Cedric Thomas was, for in excess of $1 million. Thomas was shafted for over $1.4 million by a South Florida company. Let that sink in.  We estimated that there was around $1.4 million in that deal in profits for the buyers and investors in the shafting. At the time the deal was consummated in October 2015, we asked 3 companies to share with us what they would offer on the same deal. Multiple companies we canvassed at the time said they would have offered $2.5 million, compared to the little under $1.1 million that Thomas received.
• Always ask and get in writing how much the settlement planner, directly or indirectly  would make on the deal to buy your structured settlement payments.  Look how juicy the profits were in the Thomas case. If you are being solicited by the settlement planner to sell your rights to a big structured settlement and they won't be transparent in writing, then you may wish to question doing the deal.  It is your business because rates are not regulated and everything is negotiable to an educated seller.
• If the proposed deal is being handled by a third party, then be sure to get in writing that the amount of any payment that has been negotiated between your settlement planner and the third party. Once again, if settlement planner will not be transparent about the fees in writing then it may make sense to avoid the proposed deal.
• Some settlement planners are offering investment advisory services. If the settlement planner has solicited the sale of your structured settlement payments for pennies on the dollar, piggy-backed with an investment of the structure proceeds with a firm owned or controlled by the settlement planner, or where the settlement planner directly or indirectly receives a share of asset management fees only years after writing a big structured settlement in which he/she/it made a huge commission, seems like an obvious conflict of interest.
• Be mindful where you are signing or have signed a contract giving the settlement planner discretion over an investment account.

How can personal injury lawyers protect their clients?    Trust, But Verify

Personal injury lawyers working with settlement planners, should consider insisting that the following be a condition of working with clients of their firm. It is taken from the required Structure Broker's Affidavit required by Bronx County Supreme Court in New York

"Neither I, nor my firm, will:

(a) provide any information about this settlement to any factoring company for any
purpose.
(b) solicit the plaintiffs or plaintiffs’ family on behalf of any factoring company for
any purpose, including, but not limited to, the proposed sale of plaintiff’s future
periodic payment rights, nor will either of us or our companies’ 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 with respect to the proposed structured settlement".  

My firm includes this language in affidavits or declarations submitted in support of petitions for approval of minors' settlements, infant compromises and petitions to Surrogate and Probate courts.

 

 

 

 

Qualified Settlement Fund | "A Tax Free Way Station" for Attorney Fees?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

What is a Qualified Settlement Fund?

A Qualified Settlement Fund is a fund, account or trust authorized by Treasury Regulation 1.468B-1(c). Under the regulation, each QSF must:

1. Be established pursuant to an order of, or is approved by, the United States, any state (including the District of Columbia), territory, possession, or political subdivision thereof, or any agency or instrumentality (including a court of law) of any of the foregoing and is subject to the continuing jurisdiction of that governmental authority;
   
2. It is established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability; and
3. The fund, account, or trust is a trust under applicable state law, or its assets are otherwise segregated from other assets of the transferor (and related persons).

A Tax-Free Way Station?

It has been said that "A qualified settlement funds are a great tool in litigation to 'park' money or create a tax free way station", which conjures up that at least quarter of a century old dilemma once pondered by 1990s slackers Wayne and Garth.  [Jeopardy question for readers born after 1985, "What is Wayne's World?"]  #mikemyersbeforeaustinpowers

According to Chris Lordan CPA, whose Minnesota firm administers qualified settlement funds,  "an independent, qualified trustee, often an accountant or a lawyer, is appointed to handle the trust. The trustee manages the funds, handles ongoing claim resolution, and works with the plaintiffs to determine the trust’s payout structure.The trustee also assures strict compliance with 468B and other regulations: without constant and careful oversight, the benefits of the qualified settlement fund may not be fully realized or even disallowed".

If it's a trust under state law, wouldn't any income and gains generated  by the investment of the assets in the trust be subject to tax on a state or federal level? Even money markets aren't paying zero these days.

As of October 31, 2018

CIBC Bank USA 2.16% APY

HSBC  2.01% APY

Goldman Sachs Marcus 2.05%

Source:  Bestrates.com

One of the duties of a QSF administrator is to file tax returns for the QSF. For a New York QSF, this might include a Federal return, as well as fiduciary tax forms for New York state and other applicable taxing authorities.

So it seems a bit far fetched to call a qualified settlement fund "a tax free way station", in my opinion.  But that's just me. How about § 1.468B-2 Taxation of qualified settlement funds and related administrative requirements?  No way?  Way.

 

Workers Compensation Medicare Set Aside | The Case For Professional Administration of MSA

by John Darer® CLU ChFC MSSC CeFT RSP CLTC

What is a Medicare Set Aside Arrangement (MSA)

A Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) is a financial agreement that allocates a portion of a workers’ compensation settlement to pay for future medical services related to the workers’ compensation injury, illness, or disease. These funds must be depleted before Medicare will pay for treatment related to the workers’ compensation injury, illness, or disease .

Once the funds in the WCMSA account have been exhausted and Medicare has been provided with information to document that payments from the account were appropriate, Medicare will begin paying for the beneficiary’s Medicare covered eservices that are related to the work related injury or disease. { Note that Medicare expenses that are not related to the work injury or disease are no affected by the WCMSA and are reimbursed by Medicare unless another entity under 42 U.S.C. 1395y(b) is primary payer.

For Medicare Set-Asides (MSAs), it is important to note that a Medicare Set-Aside allocates for all future medical and pharmacy expenses related to the work injury, that are covered and otherwise reimbursable by Medicare

The Argument for Professional Administration of Medicare Set Aside Arrangements  (WCMSA, LMSA or NFMSA)

Medicare Set Aside arrangements are intended to not only protect Medicare's interest, a requirement of the Medicare Secondary Payer Act (MSP), but to also protect the settling injured worker (or plaintiff if Liability MSA) from the loss of Medicare benefits. Ongoing compliance requires, among other things, keeping track of medical bills, sorting through and having the knowledge to determining what procedures, equipment and medication is covered by Medicare and filing attestations.  Compliance requires attention to detail that the injured workers or personal injury victim may not be able to, or willing to handle. A number of professional administrators charge cost efficient one time fees and some have harnessed technology and group buying discounts to enhance the value and accessibility to clients.  Call me at 888-325-8640 if you would like more details.

Long Beach CA Insurance Agent and Daughter Charged With Embezzlement and  Money Laundering of Injured Workers' MSA Funds

According to its July 21, 2017 press release, investigators with the California Department of Insurance Investigation Division, Tom Fallon, 63 and daughter Christina Fallon, 28 embezzled $273,954 from the injured workers who entrusted him to invest their Medicare set-aside settlement funds with his agency, Fortis Financial Insurance Services, Inc. Tom Fallon then simply diverted their funds into his own accounts, spending the money for their personal use, and with business ventures that include Big Daddy’s Cigar Lounge at 5844 E. Naples Plaza in Long Beach. CA. The Los Angeles County District Attorney's Office filed a criminal complaint against Tom and Christina Fallon on July 14, 2017, charging two counts of Theft by Embezzlement PC 504 and 487(a), and 15 counts of Money Laundering PC 186.10 including PC 186.11(a) (3) white collar crime enhancements. If convicted of all charges, the defendants face a maximum sentence of more than 16 years in state prison

By stealing from injured workers who depend on the funds for future care, the Fallons may have left many victims without the resources they need for medical treatment.”

A Structured MSA and a Professional Administrator Would Have Mitigated the Embezzlement Risk

It is unclear who advised the injured workers to use the Fallon's or Fortis. It does not appear that the MSAs that were the subject to the conduct that led to the  Fallons arrest were Structured WCMSA. One wonders what the applicant attorneys' advice was when settling the cases.  The amount of money that the victims could have saved between structuring the MSA and the discounts offered by certain administrators would be meaningful.

If you are thinking that embezzlement is a one-off consider this case where an improperly exhausted MSA by Sister while Claimant in Jail was not Dischargeable in Sister’s Bankruptcy  N RE DAVID K. JOUETT and SABRA B. JOUETT, Debtors. STEPHEN E. HUBANKS, Plaintiff, v. DAVID K. JOUETT and SABRA B. JOUETT, Defendants. Case No. 13-10005-M Chapter 7 Adv. No. 13-01015-M UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF OKLAHOMA 2014 Bankr. LEXIS 950 March 12, 2014, Decided

The July 10, 2017 release of the Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide Version 2.6 appends Section 17.1, the section covering MSA administrators, with a single sentence:

"Although beneficiaries may act as their own administrators, it is highly recommended that settlement recipients consider the use of a professional administrator for their funds."