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

Can you Get "Screwed By a Bad Structured Settlement" ?

by John Darer® CLU ChFC MSSC CeFT RSP CLTC

Is it possible to get screwed by a bad structured settlement?  Highly unlikely. Let's explore why.

Structured settlements come to be through a compromise between two or more parties who are represented by lawyers. 

Generally there is:

• A minimum of two lawyers
• A judge in cases involving minors or incompetents
• A guardian ad litem, the party the court deems responsible for an incapacitated, handicapped, or minor in court.
• Structured settlement consultants or settlement planners for both sides
• and of course, you!

How structured settlements work

A structured settlement annuity cannot be placed unless the following documents are signed:

• Settlement Agreement & Release (sometimes goes by other names)
• Qualified Assignment, Qualified Assignment and Release, Qualified Assignment Release and Pledge Agreement,  Non Qualified Assignment agreement, or Reinsurance Agreement
• Infant Settlement Order, Infant Compromise Order, Surrogate Decree or Probate Decree, if the settlement is a wrongful death or involves a minor or incompetent
• Sufficient premium is paid by the Defendant or its insurance company.

You cannot buy a structured settlement on your own

You cannot walk into a store or buy a structured settlement annuity online.  There is a lot of misinformation online generated by misinformed writers for the structured settlement secondary market,  that suggests that you can.  Usually, upon a closer look, the misinformation is about buying structured settlement payment rights which are not annuities.

Your lawyer's role in the post settlement process is to review, edit and ultimately approve settlement documents prior to advising you that it is okay to sign them.

You as the plaintiff have input during the negotiation of a structured settlement.   Most importantly you have the power to say yes or no.  If you say no, then there is no settlement.   Recognize that the nature of a compromise means that the other side can say yes or no too.

So if you say you were screwed by a bad structured settlement how is that even possible? 

"Screwed by a bad structured settlement?"

• Some say you can get too much of a good thing  ("overstructuring")
• Some say you can too little of a good thing  (see 30 year old "Grillo v Pettiete" case, where lawyers and guardian ad litem were sued and settled a dispute over allegations arising over the lack of a structured settlement in a medical malpractice case)
• If you put all your eggs in one basket and there is an insolvency, such as what happened with Executive Life Insurance Company of New York  (I never placed any of it but my extensive research shows that blame could be assigned all around)

Regardless of the choice, ultimately you can open up about your needs (or not), say yes or no,  sign or not sign,  with advice from your chosen legal and financial advisers  (or to ignore their advice).  For some, a Sudden Money® Advisor may be helpful.

Structured settlement annuities are placed by licensed insurance agents or brokers .

Regardless of how creative the descriptive adjectives may be, the structured settlement broker,  settlement planner, structured settlement consultants, structured settlement gurus, structured settlement experts, or structured settlement master blasters, structured settlement top dawgs, they must hold a valid license in your state.

Structured Settlement Factoring Companies co-opting the term "Structured Settlement"

Unfortunately the term "structured settlement" has been deceptively used in advertising and social media by structured settlement buyers "to describe the purchase of structured settlement payment rights", in contravention tohow structured settlement is definded under the Internal Revenue Code of 1986, a amended.

Those who buy structured settlmeent payment rights are buying receivables not annuities or insurance products. There is currently no licensing requirement or any higher regulatory authority. But sellers can only sell their payments if a judge approves the transaction as being their best interest.  Some sellers have experience a later regret for selling their payments and try to assign blame away from themselves, including misplaced blame on the structured settlement that they (or their guardian if established when they were a child) agreed to in the first place, and the sale of structured settlement payment rights that they also agreed to.

Structured settlements are a popular time tested way of providing stable guaranteed income to plaintiffs in claims or litigation  that has received the long time support of Congress

Ideally people live off their income not their assets. Most people can see how a steady guaranteed stream of income can help them, whether to replace lost income or to supplement it. 

Last updated August 28, 2023

 

 

 

 

 

 

 

 

 

 

Eugene Ahtirski Says State Guaranty Funds Apply to Recycled Structures IF...

by John Darer® CLU ChFC MSSC RSP CLTC

Interesting article by California lawyer Eugene Ahtirski about purchasing recycled annuities. 

Ahtirski, who provides independent professional advice to investors in structured settlement payment rights, acknowledges that the tertiary structured settlement market is highly unregulated and operates mainly on private transactions    Ahtirski states that firms are largely free to make their own production distribution (insurance products) and pricing decisions, and individuals depend largely on themselves for economic security.

In his August 18, 2014  post  "Purchasing Recycled Annuities" Ahtirski states that " by the time a structured settlement payment stream reaches the tertiary market, chances are you’ve lost the “specialized state guaranty funds” backing, unless you can meet the 60 day requirement [IRC Section 130(d)] that maintains the annuity as a qualified funding asset, thereby protecting the “annuity” from being taxed upon your purchase"  [emphasis added] .  He later cites a section of the California Insurance Code.

Commentary

Can participants in the structured settlement secondary and tertiary markets selectively apply the California Insurance Code?

California Insurance Code section 1067.17 “Use of existence of association for purpose of sales, solicitation, or inducement to purchase insurance; summary document; disclaimer; contracts not covered by association”(a) No person, including an insurer, agent, or affiliate of an insurer shall make, publish, disseminate, circulate, or place before the public, or cause directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in any newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio station or television station, or in any other way, any advertisement, announcement, or statement, written or oral, which uses the existence of the California Life and Health Insurance Guarantee Association for the purpose of sales, solicitation, or inducement to purchase any form of insurance covered by the California Life and Health Insurance Guarantee Association Act. Provided, however, that this section shall not apply to the California Life and Health Insurance Guarantee Association or any other entity which does not sell or solicit insurance...."

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Upon information and belief, many individuals or entities who make a market of recycled structured settlements are not licensed to sell insurance.  The secondary/tertiary market for structured settlements has long received a free ride on licensing from legislators. Members of the structured settlement secondary and tertiary markets have exploited and prospered from a regulatory gap across the country.

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How is annuity defined under the California Insurance Code?

10509.913. (a)  unambigiously says that "Annuity" means an annuity that is an insurance product under California law that is individually solicited, whether the product is classified as an individual or group annuity.[emphasis added]

While Mr. Ahtirski refers to structured settlement payment streams as annuities, he then captionates "annuity" in an apparent admission that structured settlement payment streams purchased in the tertiary market are not annuities.

Yet Ahtirski refers to the products distributed by actors in the structured settlement tertiary market as insurance products, without captionating the term "insurance products".

The Illusory Specialized Guaranty Funds" connection to IRC 130 (d)

Then Ahtirsky implies that investors in recycled structured settlement "have lost the 'specialized guaranteed funds' backing unless you can meet the 60 day requirement in IRC 130(d) that maintains that an annuity as  a qualified funding asset. thereby protecting the 'annuity' from being taxed on your purchase'. Notably Ahtirski uses both annuity and "annuity" in the same sentence.

What Does IRC 130 say about a Qualified Funding Asset?

IRC 130 is the section of the tax code that bestows a tax exclusion to the qualified assignment company  for the amount received for agreeing to a qualified assignment, provided that certain conditions are met.

IRC 130(d) deals with qualified funding assets. Pursuant to IRC 130(d)(4) such qualified funding assets must be purchased not more than 60 days before the date of the qualified assignmentand not later than 60 days after the date of such assignment. Here's the full text of IRC 130(d):

(d) Qualified funding asset

For purposes of this section, the term "qualified funding asset" means any annuity contract issued by a company licensed to do business as an insurance company under the laws of any State, or any obligation of the United States, if (1) such annuity contract or obligation is used by the assignee to fund periodic payments under any qualified assignment, (2) the periods of the payments under the annuity contract or obligation are reasonably related to the periodic payments under the qualified assignment, and the amount of any such payment under the contract or obligation does not exceed the periodic payment to which it relates, (3) such annuity contract or obligation is designated by the taxpayer (in such manner as the Secretary shall by regulations prescribe) as being taken into account under this section with respect to such qualified assignment, and (4) such annuity contract or obligation is purchased by the taxpayer not more than 60 days before the date of the qualified assignment and not later than 60 days after the date of such assignment. IRC Section 130.

If a structured settlement payment stream in the tertiary market, being sold to investors as a recycled annuity,  is not an insurance product, not an insurance contract, not an annuity issued by a company licensed to do business as an insurance company under the laws of any state, then it follows that it does not qualify under IRC 130(d) as a qualified funding asset as we sit here today.

If a structured settlement payment stream in the tertiary market sold to investors is an annuity, is an insurance product as Ahtirski seems to say could apply, then are those who are distributing such products that do not hold insurance licenses violating the law?

IRC 130(d) is unambiguous as to the application of the term annuity as well as obligation.  There is no mention of "annuity".

There does not appear to be any evidence that the purchase of structured settlement payment streams in the tertiary market entitles the purchaser of the "derivative" to the same state guaranty fund protection afforded the original annuitant.

 

Prudential Insurance Company of America | Moodys Upgrade

by John D. Darer CLU ChFC CSSC RSP CLTC

Moody’s upgraded The Prudential Insurance Company of America from A2 to A1 in 2013. It was last affirmed in 2017. The Newark, NJ based Prudential Insurance Company of America issues structured settlement annuities and has been in existence for 149 years. It is the 2nd largest life insurer in the United States in terms of assets and is admitted in all 50 states.

Prudential’s strong brand name and leading positions in the U.S. insurance markets for a number of segments, including individual life insurance, variable annuities, group life, and retirement and stable value products.

This was great news for Prudential structured settlement annuitants, insurers  and lawyers who litigate matters involving auto accidents, medical malpractice, airline and aviation related accidents,  drug and medical devices, onstruction accidents and the like.

According to Moody’s, “The upgrade of Prudential’s ratings reflects the company’s improved financial profile and capital position, as well as the steps the company has taken to reduce financial leverage and maintain ample liquidity at the holding company.”

See all of Prudential's ratings here  Structured Settlement Companies | Top Structured Settlement Companies 2024 (4structures.com)

For Prudential structured settlement quotes please contact me at 888-325-8640
The Rock of Gibraltar  Image: Dreamstine.com  Typhoonski

 

Prohibition on Advertising State Insurance Guaranty Funds | Structured Settlements

by John Darer CLU ChFC MSSC CeFT RSP CLTC

No structured settlement annuity issuer writing business during the 2007-2008 financial crisis, failed to make any structured settlement payment obligation.

The banking sector of the financial universe, the FDIC limits were temporarily increased, in October 2008, from $100,000 to $250,000 to inspire confidence in the banking system. That temporary time limitation was then extended to December 31, 2013 before being made permanent by "Dodd-Frank" on July 21, 2010.

Dodd-Frank Act: What It Does, Major Components, and Criticisms (investopedia.com)

There was also renewed interest in updating consumer protections for insurance products by various states.

California SB1408 

On September 27, 2010 California passed SB1408 entitled " Committee on Banking Finance and Insurance California Life and Health Guaranty Association Act,  a fact that was published and circulated in an email news blast that was also circulated on Facebook to the clients and prospects of a California licensed insurance agent, among others, along with the commentary:

• "This is welcome news for recipients of structured settlement benefits and those contemplating annuity purchases!"

• "Among the highlights, this bill increases coverage of structured settlements for California residents..."

The agent in question happens to be a structured settlement industry leader and someone I respect, yet I can't help wondering "what is this person thinking?"

However important the aforementioned news, following is the relevant section of the California Insurance Law which expressly  and unambiguously states (highlghted for emphasis):

1067.17. (a) No person, including an insurer, agent, or affiliate of an
insurer shall make, publish, disseminate, circulate, or place before the public,
or cause directly or indirectly, to be made, published, disseminated,
circulated, or placed before the public, in any newspaper, magazine, or other
publication, or in the form of a notice, circular, pamphlet, letter, or poster,
or over any radio station or television station, or in any other way, any
advertisement, announcement, or statement, written or oral, which uses the
existence of the California Life and Health Insurance Guarantee Association
for the purpose of sales, solicitation, or inducement to purchase any form
of insurance covered by the California Life and Health Insurance Guarantee
Association Act. Provided, however, that this section shall not apply to the
California Life and Health Insurance Guarantee Association or any other
entity which does not sell or solicit insurance.

(b) (1) The association shall prepare a summary document describing
the general purposes and current limitations of the article and complying
with subdivision (c). This document shall be submitted to the commissioner
for approval. Sixty days after receiving approval, no insurer may deliver a
policy or contract described in paragraph (1) of subdivision (b) of Section
1067.02 to a policyholder or contractholder unless the document is delivered
to the policy or contractholder prior to or at the time of delivery of the policy
or contract except if subdivision (d) applies. The document should also be
available upon request by the policyholder. The distribution, delivery, or
contents or interpretation of this document shall not mean that either the
policy or the contract or the holder thereof would be covered in the event
of the impairment or insolvency of a member insurer. The description
document shall be revised by the association as amendments to the article
may require. Failure to receive this document does not give the policyholder,
contractholder, certificate holder, or insured any greater rights than those
stated in this article. This paragraph shall remain operative only until
paragraph (2) becomes operative.
(2) Within 180 days of the effective date of the act that amended this
section in the 2009–10 Regular Session, the association shall prepare a
summary document describing the general purposes and current limitations
of the article and complying with subdivision (c). This document shall be
submitted to the commissioner for approval. At the expiration of the 60th
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Ch. 334 — 26 —
day after the date on which the commissioner approves the document, an
insurer may not deliver a policy or contract described in paragraph (1) of
subdivision (b) of Section 1067.02 to a policy or contract owner unless the
summary document is delivered to the policy or contract owner at the time
of delivery of the policy or contract. The document shall also be available
upon request by a policy owner. The distribution, delivery, or contents or
interpretation of this document does not guarantee that either the policy or
the contract or the owner of the policy or contract is covered in the event
of the impairment or insolvency of a member insurer. The description
document shall be revised by the association, as amendments to the article
may require. Failure to receive this document does not give the policy owner,
contract owner, certificate holder, or insured any greater rights than those
stated in this article.

(c) The document prepared under subdivision (b) shall contain a clear
and conspicuous disclaimer on its face. The commissioner shall promulgate
a rule establishing the form and content of the disclaimer. The disclaimer
shall do all of the following:
(1) State the name and address of the life and health insurance guarantee
association and insurance department.
(2) Prominently warn the policy owner or contract owner that the
California Life and Health Insurance Guarantee Association may not cover
the policy or, if coverage is available, it will be subject to substantial
limitations and exclusions and conditioned on continued residence in the
state.
(3) State that the insurer and its agents are prohibited by law from using
the existence of the California Life and Health Insurance Guarantee
Association for the purpose of sales, solicitation, or inducement to purchase
any form of insurance.
(4) State that the policy owner or contract owner should not rely on
coverage under the California Life and Health Insurance Guarantee
Association when selecting an insurer.
(5) Provide other information as directed by the commissioner 

In 2008 the National Structured Settlement Trade Association (NSSTA) published a financial security document, available to and thus intended to be distributed by its members which discussed the guaranty funds. The New York State Insurance department, in response to this author's inquiry, stated in January 2009, that the distribution of such document to residents of the state in connection with the sale or solicitation of an insurance product was not lawful.

New York did not even feel comfortable with a reference web page of a licensed agent and broker that listed each state association and its phone number listed as a self serve reference launch point for consumers and included a disclaimer that it was not intended to be used in the sale or solicitation of insurance.

Another NSSTA member, as reported here on several occasions, has made a similar mistake in the process of solicting and/or inducing the sale of structured annuities in North Carolina.

NSSTA has a published Code of Ethics posted on its website which at Principle VI states  "A NSSTA member should comply with all material federal and state laws and regulations applicable to the structured settlement services that are provided"

I cannot imagine that the Board of Directors of the NSSTA or its lawyers consider the prohibition of advertising state insurance guaranty funds to be "immaterial". Am I wrong?

This author has looked, but has not been able to find, a specfic carve out for structured settlement consultants in California, Connecticut, North Carolina, New York and several others' states' insurance laws that permits structured settlement consultants to do what other insurance agents cannot. 

Since the NSSTA does not "sell or solicit insurance", perhaps it could serve the role of both announcing and being an information repository for consumers in this area. 

National "Plaintiffs" Structured Settlement Firm's Needlessly Misleading Advertising

bu John Darer CLU ChFC MSSC RSP

Another national settlement planning firm, has tripped over the use of an absolute descriptive in their advertising

Despite common industry knowledge that a principal of the firm does defense work, the firm's website proclaims " We are solely retained by the injured party to create settlement plans that are tailored to meet the needs of your client. Not the defendant".  Hmmm.

In January 2010 The East Bay Claims Association News Network published an announcement made to the association by the firm concerning one of the firm's associates.  EBCA is an association of Insurance Claims Professionals. Are we missing something? Is networking among claims adjusters a "well known source of business" for "solely being retained by the injured party"?

The firm knows who they are as do many of us. Needless to say there are significant ethical concerns about this phenomenon. How many readers of such advertisements are unduly influenced by the misleading advertising?

Clearly the firm believes that plaintiff attorneys assign a high value to working with firms that are solely retained by the injured party

Yet if even one person in the firm does a single case for the defense the firm cannot ethically make the aforementioned advertising claim.  So why make it?

Why not crawl out of the pigeon hole that you painted yourself into, come clean and focus on your qualities as a settlement planning expert?

Where Are You Going To Put Your Settlement Money Now?

by John Darer CLU ChFC MSSC RSP

Still feel comfortable putting your settlement money in the stock market?

Today's headlines from CNBC

• Dow Down 4% after brutal sell off
• Dow Jones Industrial Average has dropped 6.7% from its 52 weeks closing high on January 19, 2010
• S&P 500 has dropped 7.6% from its 52 week closing high on January 19, 2010
• Nasdaq biggest one day drop since October 1, 2009
• Silver Futures down 5%, lowest since June 2009
• Gold Biggest Drop since December 2008
• Oil Futures Down 5%

A few memorable lines from Tim Rice and Andrew Lloyd Webber's dying protagonist Evita, frame the obvious question:

"Where do we go from here?
This isn't where we intended to be
We had it all, you believed in me
I believed in you

Certainties disappear
What do we do for our dream to survive?
How do we keep all our passions alive,
As we used to do?"

HOW WOULD YOU FEEL ABOUT THIS?

Using the S&P 500 as an example, on $1,000,000, a 7.6% loss meant a loss  of $76,000 in 3 weeks!  

Using the Dow as an example , on $1,000,000,a  4% loss meant  a loss just today of $40,000?

Are you mentally prepared for that?

Were you mentally prepared for that?

STRUCTURED SETTLEMENTS PROVIDE A GUARANTEED OUTCOME FOR YOUR INCOME

I disagree with "Evita Peron" on one point, in the case of structured settlements, certainty generally doesn't disappear.

Think about this:

1. You can have your structured settlements funded with a specially customized annuity (or annuities) from an insurance company with over $300 billion in assets like New York Life Insurance Company which has been providing financial security for 165 years and has weathered numerous national and global financial crises. More recently New York Life insurance Company weathered the financial storm of 2008 with no drop in its highest ratings from AM Best, Moodys, Standard & Poors or, Fitch.
2. Alternatively, or in conjunction with the above in #1, you can have your structured settlements funded with United States Treasury obligations, currently rated AAA. If you have concerns about inflation such United States Treasury Funded Structured Settlements can be funded with Treasury Inflation Protection Securities (TIPS). 
3. And, if you want there are other large regulated insurance companies, with similarly long histories to help protect your income and longevity risk. You can also diversify across a number of companies and between annuities and TIPS.
4. No structured annuity issuers have been taken over by a state insurance regulator during this financial crisis.
5. Compare this to banks. While banks have FDIC protection on deposits (subject to certain limits), think about how many banks have failed in the last 3 years.

WHY GAMBLE IF YOU DON'T HAVE TO?

**opening stanzas from "You Must Love Me", Evita, Andrew Lloyd Webber and TIm Rice

How Constructive Receipt Doctrine Affects Structured Settlements

by John Darer® CLU ChFC CSSC RSP CLTC

 

If you would like to read more on the subject...

Constructive Receipt is Game Over for Structured Settlements (4structures.com) January 11, 2024

Structured Settlements and the Big Mediation MIstake  September 29, 2009

Structured Attorney Fees 101 and Constructive Receipt  October 17, 2009

Structured Settlement Tips For Lawyers

Constructive Receipt in Wikipedia

How Not To Kill Your Client's Structured Settlement By Fumbling At The Goal Line

by John Darer CLU ChFC CSSC

Epitaph for a would-be structured settlement:

Documentation that says in pertinent part " For the consideration of Five Hundred Thousand ($500,000.00) the receipt and sufficiency of which is hereby acknowledged, plaintiff hereby releases, remises...

" Plaintiff has been advised by counsel...

Followed by client's signature

Action Followed by fax to defense counsel.

CONSTRUCTIVE RECEIPT...Two big words.  Add one fatal tax principle.  Possible E&O Claim.

Practice Tip: If your client is going to structure then the consideration must include the periodic payments as consideration, not the cost of the payments.

Structured Settlement Payments: The Label "Guarantee" Comes With Caveat

by John Darer CLU ChFC CSSC RSP

Be careful how you use the word "guarantee" when expressing structured settlement payments in settlement agreements, qualified assignment agreements or sales presentations.

While a number of people and at least one life insurance company's quoting software continue use the term "guaranteed" in connection with period certain elements of a structured settlement quote, one must consider that lifetime payments ARE "guaranteed", contractually guaranteed by the life insurer issuing the annuity, to be paid for the duration of the annuitant's life.

Period certain payments and guaranteed lump sum payments are payments that will be paid whether or not the annuitant survives the payment schedule.

A number of settlement firms, including ours, wisely recommend defining the term "guaranteed", if it is used in settlement documents.

To avoid confusion and/or misinterpretation a possible better way to differentiate such payments would be to express them as  "life contingent" and/or "non life contingent" payments.

Types of Structured Settlement Payments

Structured Settlement Customer Service Telephone Contacts

by John Darer CLU ChFC CSSC RSP

4structures.com, LLC has a convenient listing of Structured Settlement Annuity Issuers and Their Customer Service Telephone Numbers all in one spot.

The 4structures.com listing includes current structured settlement annuity issuers as well as those insurance companies no longer writing structured settlement annuities. The list may be helpful to you if you already have a structured settlement, structured sale or structured attorney fee annuity and need some immediate help :

1. Change of Beneficiary for your structured settlement or structured sale annuity payments
2. Change of Address for your structured settlement, structured sale or structured attorney fee payments
3. Change of Bank for the direct deposit or electronic funds transfer (EFT) of your structured settlement, structured sale or structured attorney fee payments.
4. Check the status on a payment that may have been lost in the mail.
5. Check to see when your next scheduled payment is due
6. Other general questions

To access the listing of Structured Settlement Annuity Issuers and Their Customer Service Telephone Numbers simply click here

The structured settlement broker or settlement planner who helped set up your structured settlement, or other qualified structured settlment brokers and settlement planners, may also be able to help with additional financial needs you wish to discuss.

Please note that if you have sold the rights to any of your structured settlement payments at anytime in the past and have entered into a "servicing agreement", or the payments are otherwise being "serviced" by the factoring company then you may need to contact that factoring company to get information. We have become aware of circumstances where the factoring company has only purchased a small portion of the structured settlement payment rights yet is found to be "servicing" all of the structured settlement payments. This may not be in the annuitant's best interest.