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

What is a Rated Age with a Structured Settlement Annuity?

by John Darer® CLU ChFC MSSC CeFT RSP CLTC

A rated age is an important component of a structured settlement pricing when there are life contingent payments* such as:

• Pricing out and funding a life care plan
• Providing a backstop to a special needs trust or to an investment strategy
• Funding a Structured Medicare Set Aside Arrangement (MSA) at the maximum discount.
• Funding the temporary life elements of a New York CPLR 50A or 50B structured judgment such as future pain and suffering, or future medicals in excess of statutory thresholds.
• Funding lifetime retirement benefits or any other lifetime payment stream
• Longevity Insurance

A Rated Age Puts a Younger Person Into an Older Person's Body For Structured Settlement Pricing Purposes

Structured settlements are one place where acting your age (or less) results in more expensive pricing! Your good habits result in you being rewarded with a longer life, but a more expensive annuity.

To obtain the best rated age, it is important to take the time to have the structured settlement consultant review medicals before they send them to the annuity issuer. This helps to eliminate redundant reports and may identify salient points for the underwriter's consideration.

Period certain payments and guaranteed lump sum payments are not affected by a rated age. Such payments are guaranteed to be paid whether or not the payee survives the entire payment schedule.

Image: Dreamstime.com

Structured Settlements | How Do Attorneys Get Paid? | 4structures.com LLC

by John Darer CLU ChFC CSSC RSP CTLC

Someone asks "If I employ an attorney for 33 and1/3  percent of my settlement do they get a portion of my monthly payments as well as the lump sum?". 

In short, the answer is no.  The agreed percentage that a contingency fee lawyer will take after disbursements is based on the total cost of settlement.  The retainer agreement, or letter of engagement should spell everything out.

It is also important to note that your law firm or your attorney may want to structure its, his or her attorney fees.  If this is the case the attorney's future periodic payments will be set forth in the settlement agreement that you execute with the Defendants and/or their insurers. Furthermore, the cash portion of the attorney fees and the cost of the structured attorney fees should not exceed the agreed percentage.

For example, have a look at the math

$1,000,000.00 settlement funding amount

$500.000.00 cost of plaintiff structure paying $X per month for life

$166,666.66 plaintiff up front cash

$133,333.33 attorney fee cash

$200,000.00 cost of attorney fee structured settlement paying $X per month for 10 years beginning at the attorney's age 62.

Special note for Attorney Fees on New York cases

When calculating the attorney fees on the future damages in excess of $250,000 on a New York Structured Judgment pursuant to CPLR Article 50B, the 1/3 attorney fee is applied to the present value of the future damages net of apportioned disbursements. Furthermore, the gross amount of future damages payments to be paid periodically, which were used in the present value calculation,  IS reduced by a percentage reflecting attorney fees and disbursements.

Medical Malpractice case have a different graduated fee schedule, unless in extentuating circumstances and then the attorney will petition for a higher fee.

 

Are Structured Settlements Subject to Federal Estate Tax?

by John Darer® CLU ChFC MSSC RSP CLTC

One often reads the advertising claims that structured settlement payments are "tax free". Such statements are misleading.

The TRUTH

1. To the extent a structured settlement payment represents payment of damages for personal physical injury or physical sickness, or payment for a worker sompensation claim, they are received by  the tax payer INCOME tax free. The relevant sections of the Internal Revenue Code are IRC 104(a)(1) and 104(a)(2)

2. Technically an estate is subject to tax, not a structured settlement.

3. At the death of the annuitant IF, and only if, there are any guaranteed certain payments remaining to be paid in the future, the present value of such payments is included in the decedent's estate along with other items such as the value of bank accounts, stocks etc. On a very basic level, if the total of such items exceeds the exempt amount then an estate tax would be due.  Exemptions apply on both a state and federal level.

4. There are techniques available to reduce or mitigate estate tax.

For more information about estate planning and your settlement,  please contact structured settlement expert John Darer at  888-325-8640

 

NY Personal Injury Verdicts | Defense Doesn't "Just Write Out a Check". Don't Forget 50A and 50B!

by John Darer ® CLU ChFC MSSC RSP CLTC

What happens after Plaintiffs have won a medical malpractice (or other liability) verdict in courts in the State of New York?

Gerry Oginski, a New York City area medical malpractice attorney, has released a useful video podcast on the above subject As Oginski points out, when a verdict is rendered by a jury, the defendant (or his/her/its insurer) doesn't simply write out a check. Oginski takes the viewer through the post trial motion and appellate process. Although not mentioned directly on Oginski's video, it is important to point out that medical malpractice or liability awards in the State of New York are subject to the statutory requirements for a structured judgment. The structured judgment requirements provide that future damages in excess of a statutory threshold be paid periodically (i.e. over time). If you are fortunate enough to have a sufficiently large sustained verdict, ultimately the defendant (or its insurer) will be required to purchase (and guarantee) an annuity to fund the "excess" future portion of the damages in the judgment that is paid to you. The form of annuity for payment of the "excess" future damages other than lost earnings, is in the form of a temporary life annuity. A temporary life annuity pays over a fixed period of time or your lifetime, whichever is sooner.

In addition to the post trial issues raised by Oginski, a complex series of calculations must be performed in order to finalize a judgment in New York. The statutory requirements, which have been in effect since the mid 1980s are set forth in Article 50A  (CPLR 5031-5039) for medical, dental and podiatric malpractice cases and Article 50B (CPLR 5041-5049) for other liability cases. The two articles were substantially similar until 2003 when Article 50A was amended. The calculations and proposed judgment are presented to a judge in a post trial hearing outside of the ears of the jury that rendered the verdict.

The manner in which such calculations are performed can also be a matter of dispute and may create additional appellate issues than those raised in the video. Generally experts in structured judgment calculations under New York CPLR Articles 50A and 50B are retained by the counsel for both sides. Providers of such services include certain economists, structured settlement consultants and settlement planners, although there are only a few structured settlement consultants (including this author)  who have the experience working on such cases to have comprehensive knowledge on the subject. It is not simply the matter of calculating the cost of an annuity.

 

A significant issue for a plaintiff with large recovery is that a structured judgment does not offer the same customization as a structured settlement, and comes with the risk that the non guaranteed portion of the recovery could evaporate in the event the plaintiff dies prior to the end of the defined life contingent period. Careful attention must be paid to assessment of this risk, particularly where there is a spouse, children and/or other dependents. If the plaintiff is insurable the risk can be mitigated through the purchase of a life insurance policy. If the plaintiff is uninsurable based on medical history then the possibility of a settlement in lieu of judgment should be vetted carefully.

A structured judgment also exposes the plaintiff to the credit risk of the defendant, or its insurer. 

If you have questions concerning New York Article 50A or 50B, the associated risks discussed here, or other settlement planning and lawsuit recovery issues please contact John Darer at 888-325-8640 or 646-849-1588.

 

New York CPLR 50-B Structured Judgments | Ramifications of Insurer Insolvency

by John Darer CLU ChFC MSSC CeFT RSP CLTC

What are the ramifications in a New York CPLR 50-A or 50-B judgment where the structured judgment annuity issuer and/or insurer becomes insolvent?

I received such a question in September 2008 from an attorney for a former plaintiff receiving a substantial CPLR Article 50-B judgment from an AIG insured and funded with a structured judgment annuity from American International Life Assurance Company of New York (now United States Life Insurance Company in the City of New York) when AIG entities were A++ AM Best and AAA Standard & Poors.

First, please note that the situation described is both unprecedented and untested. The financial crisis of 2008-2009 however placed it on the radar screen.

Now consider this:

CPLR 5041(d) states in pertinent part "The court, as part of its judgment, shall direct that the defendants AND their insurance carriers shall be required to offer and to guarantee the purchase and payment of such an annuity contract".

Under a CPLR 50-B judgment, the structured judgment annuity is owned by the defendant and/or its insurer. The defendant and/or insurer, as owners of the annuity contract, are general creditors of the annuity issuing life insurance company.

What if the structured judgment annuity issuer and the defendant''s insurer are subsidiaries of the same holding company, such as described above?

If the annuity issuer goes "belly up" the Defendant appears to be responsible to make payment under CPLR 5041(d).

Now consider this:

§  5044.  Failure  to  make payment. If at any time following entry of  judgment, a judgment debtor fails for any reason to make a payment in  a  timely  fashion  according  to  the  terms of this article, the judgment  creditor may petition the court which rendered the original judgment for an order requiring payment by the judgment  debtor  of  the  outstanding payments  in  a  lump  sum.  In  calculating  the amount of the lump sum judgment, the court shall total the remaining periodic payments due  and   owing  to  the  judgment creditor, as calculated pursuant to subdivision (e) of section five thousand forty-one of this article,  and  shall  not  convert these amounts to their present value. The court may also require the payment of interest on the outstanding judgment.

The implications of such a scenario are logarithmic! A defendant that is not aware of, and has not reserved for the contingent liabilty has significant potential exposure. The acceleration clause in CPLR 5044 could be lethal to a defendant if all the wrong stars are aligned. It is therefore wise for defense lawyers and insurers whose insureds take a large sustainable verdict and elect to pay a judgment in New York subject to CPLR 50-B, to discuss this possibility with their insureds in advance and document a complete understanding of the ramifications, however remote the occurrence may seem at the time,

A CPLR 50-B judgment has the potential to be a financially disasterous outcome for a plaintiff with serious medical impairments who wishes to leave an estate to his/her family. The typically large elements of damages (pain & suffering and medicals) are life contingent.  For such plaintiffs a CPLR 50-B structured judgment offers little to no protection for their heirs unless the plaintiff is medically qualified to be insured for life insurance which can offset the exposure.

Lawyers on both sides of New York cases clearly have an incentive to work towards a settlement that will protect their principals.

A settlement gives plaintiffs more flexibility,  a more tailored and diverse array of options and a greater ability to put a comprehensive plan in place for the litigation recovery.

Postscript

Note that this post was last updated on January 8, 2013.

New York Structured Settlements vs. New York Structured Judgments

by John Darer CLU ChFC CSSC

The recent DealFlow Media post "Appelate Court Reduces Award in Structured Settlement Case" on The Structured Settlements Wire,  highlights the confusion of the "wannabe structured settlement media".

The post deals with a recent New York Third Department Appellate Division Memorandum and Order in a case captioned" Mary Ann Nolan Appellant v Union College Trust of Schenectady, New York (Index 50854). DealFlow Media Headline states erroneously refers to this as a "structured settlement case". This IS NOT a structured settlement case. The origin of the case stemmed from an occurrence on January 26, 2003 when "at approximately 1:00 A.M., plaintiff was injured while walking across the campus at Union College in Schenectady County (New York), where she was a student, when she stepped into an uncovered manhole with her right leg".

New York's Periodic Payment of Judgment statutes, Article 50A  and Article 50B of the Civil Practice Law Rules (CPLR) deal with periodic payment of damages and have been on the books now for over 20 years. Article 50A entltled "PERIODIC PAYMENT OF JUDGMENTS IN MEDICAL AND DENTAL MALPRACTICE ACTIONS" deals with periodic payment of damages on medical, dental and podiatric malpractice cases. Article 50B of the CPLR deals with periodic payment of damages on personal injury, injury to property and wrongful death actions. Article 50A has been effective since July 1, 1985  (amended effective July 2003) and Article 50B since August 1, 1986.

Let's work through some logic here:

1. According to Nolo.com, in a lawsuit, damages are defined as money awarded to one party based on injury or loss caused by the other.
2. An award is the decision made by a panel of arbitrators or commissioners, a jury, or other authorized individuals in a controversy that has been presented for resolution.  Similarly a judgment is adecision by a court or other tribunal that resolves a controversy and determines the rights and obligations of the parties.
3. A settlement is an agreement reached between the parties in a pending lawsuit that resolves the dispute to their mutual satisfaction and occurs without judicial intervention, supervision, or approval (i.e. a compromise or "meeting of the minds")
4. A structured settlement is a form of compromise
5. A structured judgment is a form of award.
6. CPLR Article 50A makes the distinction between judgments (under the statute) and settlements, where at CPLR 5037 it states " Settlements. Nothing in this article shall be construed to limit the right of a plaintiff, defendant or defendants and any insurer to settle dental, medical or podiatric malpractice claims as they consider appropriate and in their complete discretion.
    

and FURTHER

1. A structured settlement is fully customizable.
2. A New York structured judgment is completely inflexible.
3. A New York structured judgment is likely to contain significant mandated life contingent elements (e.g. future medicals, pain & suffering) which evaporate upon the death of the structured judgment payee.

Thus you cannot be awarded a structured settlement in the State of New York. You can however, be awarded a structured judgment for your future damages, provided a minimum future damages threshold is met.

Perhaps Deal Flow Media's confusion stems from page 2 of the decision which states "Following a hearing pursuant to CPLR 4545, Supreme Court denied defendant's request for a collateral source offset and ruled that the structured settlement should be adjusted by reducing the award for future medical expenses by $50,000"

BUT, on page 3, the correct terminology of "structured judgment" appears. It states "Plaintiff and defendant ultimately agreed to the structured judgment computation made by plaintiff's economist pursuant to CPLR article 50-B. Supreme Court entered a judgment in accordance therewith. Defendant appeals from the judgment as well."

Clearly the appearance of the words "structured settlement" on page 2 is simply an clerical error in the published decision.

Click here for a copy of the Third Department's Memorandum and Order in Mary Ann Nolan Appellant v Union College Trust of Schenectady, New York (Index 50854).