Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary, Now in 16th Year!

California Settlement Planner's Scary Declaration to Court In Support of Convoluted QSF and "In Force" Annuities Strategy

by John Darer CLU ChFC MSSC CeFT RSP CLTC

A deep dive into just how settlement planners have marketed other people's structured settlement payments as investments, to trial lawyers, their injured clients, conservators, trustees and the Courts, has revealed some pretty scary stuff that should have given judges, lawyers, investors , conservators and guardians ad litem, in my opinion.

California Settlement Planner Declared to the Court That Investing in " In Force" Annuities Would Not Change the Funding Asset

Some settlement planners pitch alternative investments to structured settlements but attempt to characterize them as annuities, perhaps because it is a term familiar to people and the all important judge who must approve a minor's or incompetent's settlement. However this is highly misleading and apes the language used by certain factoring industry predators to peddle such investments. 

An internet search uncovered a California settlement planner's Declaration in Support of Petition for Authority to Purchase In-Force Annuities to the Superior Court of the State of California was submitted by a San Francisco law firm representing the Conservator of a disabled person, declared, under penalty of perjury,  that "the best alternative I found was not to change the funding asset, but to purchase that asset at a significant discount in the form of '"in-force" annuities". Make no mistake, what the settlement planner declared to the court as annuities are not annuities. 

The California settlement planner included a fairly in depth analysis that purports to show, under penalty of perjury, that purportedly "not changing the funding asset" will save money over using a newly issued structured settlement annuities. 

Compared to a structured settlement, is "not changing the funding asset" a true statement?

It is notable and significant to observe that the California settlement planner chose to caption the word "in-force" and not annuities in the under penalty of perjury declaration. You will see why that is significant as you read further. The settlement planner repeats this emphasis throughout the settlement planner's under penalty of perjury declaration submitted to the California Superior Court.

The California settlement planner went on to declare, under penalty of perjury:

"In-force" annuities are the byproduct of a structured settlement factoring transaction which is the court ordered transfer of existing future structured settlement payments ( or, more accurately, rights to receive the future periodic structured settlement payments) to a purchaser (or investor). These transactions occur when people who currently receive structured settlement payments find themselves in a position of hardship. The hardship reasons are varied, but include unforeseen medical expenses, the need for improved housing or transportation, and education expenses. The seller must lack viable alternatives to meet these financial needs before a transfer will be authorized by a court.

So the settlement planner undermined the inaccuracy of his under penalty of perjury declaration with the aforementioned follow up statement.  There is a change in the funding asset!  Let's examine why.

Factored Structured Settlement Payments  (Acquired or Assigned Structured Settlement Payment Rights) Are Not Annuities

The California settlement planner was at the time of his declaration, and still is at time of posting, a licensed insurance agent in the State of California.  Per California Insurance Code 10509.913 (a) “Annuity” means an annuity that is an insurance product under California law that is individually solicited, regardless of whether or not the product is classified as an individual or group annuity. This definition has been in effect since 2011, preceding the date of the California settlement planner's declaration under penalty of perjury.

Factored structured settlement payment streams are not annuities or insurance products.  If you invest in one of these financial  instruments, you are not buying an insurance product, you are buying the rights to someone else's structured settlement payments. It's possible that you are out on a limb of an extended branch of a multi-transaction, transaction chain. Regardless of the step, they are often misleadingly marketed to the public as annuities by factoring companies, tertiary market companies and certain settlement planners. On April 6, 2019, the National Association of Insurance Commissioners finalized its Statutory Issue Paper No. 160 which expressly provides that acquired structured settlement income streams are neither annuities or insurance products. 

[ Source: NAIC Statutory Issue Paper No. 160 p6 Section 6, footnote which states clearly  " This guidance is specific to acquired structured settlement income streams (legal right to receive future payments from a structured settlement) and does not capture accounting and reporting guidance for the acquisition of any insurance product (e.g., life settlement, annuities, etc." ]

Upon information and belief, the California settlement planner often sourced factored structured settlement payment streams from Oregon based  Somerset.  In November 2016, as part of its announcement suspending sales of the structured settlement derivatives, Somerset said on its website secondarymarketannuties.com:

"When you purchase an SMA that is a Factored Structured Settlement, (FSS) you are purchasing the rights to receive payments from a structured settlement that are funded by an annuity rather than the annuity itself. The entity that issues the annuity (and therefore responsible to make such payments) is usually a highly-rated insurance company. It is important to understand that while the payments are funded by annuities, FSS’s are not annuities"  [emphasis added].  

The Life and Health Insurance Guaranty Association Model Act introduced in 2018, states unequivocally at Section 3 A (5)(c)  This Act shall not provide coverage to a person who acquires rights to receive payments through a structured settlement factoring transaction as defined in IRC 26 USC 5891(c)(3)(A), regardless of whether the transaction occurred before or after such section became effective. The drafting note to the 2018 amendments describes the rationale as follows:

The exclusion from coverage in Section 3A(5)(c) of any person who has purchased from an original structured settlement annuity payee his
or her rights to receive structured settlement annuity benefits and the exclusion of such benefits from covered benefits under Section 3B(2)(n) recognize that the protections afforded by guaranty associations are intended for insurance consumers, such as the original payees of structured settlement annuities. Guaranty association protection does not extend to sophisticated investors who acquire rights to receive structured settlement annuity benefits in the secondary market. These exclusions, however, do not apply to structured settlement annuity benefits that are transferred to children, present or former spouses or other dependents as part of domestic relations settlements or orders, or to other transferees (including donees) who acquire rights to receive structured settlement annuity benefits without providing any monetary consideration. Thus, Section 3A(5)(c) and Section 3B(2)(n) clarify that guaranty association coverage protects structured settlement annuity benefits to which the original payee and his or her family members retain the rights.

And wouldn't it get even more murky if you are acquiring a reassigned structured settlement payment rights down the transaction chain from the originating structured settlement factoring company to another investor, or from an assigned investor to other investors? 

"The Only Way to Create a Tax Free Periodic Payment Obligation Funded by "In-force" Annuities is through a 468B Qualified Settlement Fund"

"The only feasible method to create a tax-free periodic payment obligation funded by "in-force" annuities is through the use of a 468B Qualified Settlement Fund (QSF)" declared the California settlement planner under penalty of perjury to the California Superior Court. 

(1) The  Qualified Funding Asset Question

Critical to the establishment of a structured settlement is a promise to pay future periodic payments in exchange for a release. The future periodic payment obligation is then typically assigned to a qualified assignment company, subject to IRC 130(c) along with funding for the annuity and an assignment fee which are paid to the qualified assignment company. The assignment company takes on the obligations and buys a qualified funding asset, which as set forth in IRC 130(d) can be an annuity or obligations of the United States. Furthermore "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

It's seems obvious that a factored structured settlement is not an annuity or a United States Treasury Bond and as a consequence is not a qualified funding asset in the plain reading of IRC 130(d). When structured settlement payment rights are acquired it is only the rights that are transferred not the annuity itself.  But it may not seem obvious to the untrained, unwary or those not paying close enough attention if the salesperson is maintaining that it is an annuity, under penalty of perjury. The military have an acronym for it, "SNAFU"

(2) The Qualified Settlement Fund "Shtick"

A qualified settlement fund has been referred to by sales people and others as a "tax-free way station", " a place to "'park' money", by the septic term, " a temporary holding tank", and on a structured settlement annuity company blog  "a safe harbor for claimants with unlimited time to resolve their own issues before any form of distribution".  

I raise this because in the settlement planner's declaration, that he stated to the California Superior Court that " in order to locate (and purchase) the best " in force" annuities in the most efficient manner possible", he "would recommend that the QSF Administrator be authorized to purchase "in force" annuities...". 

The settlement planner's declaration amplified, recommended to the Court that " in order to locate (and purchase) the best " in force" annuities in the most efficient manner possible", he "would recommend that the QSF Administrator be authorized to purchase "in force" annuities that meet certain criteria:

A.  The annuities are issued from a life company with a A or better rating from A.M. Best Company 

B. The overall annuities are allocated over a minimum of 3 life companies with no more than $1,000,000 per life company;
C. The overall annuities will have a weighted average duration between 10-20 years; and

D. The effective rate of return for the overall purchase of in-force annuities must meet or exceed 4.25%

This part of the settlement planner's declaration conflicts with his statement earlier in the declaration, an admission that what he calls " in force" annuities are a byproduct of a structured settlement factoring transaction.

• Factored structured settlements are not annuities
• Factored structured settlements are not overall annuities
• The settlement planner completely omitted the inherent and sometimes significant transactional risk in the purchase of factored structured settlement payment streams.
• The settlement planner recommends to the court that the QSF Administrator be authorized to buy the factored structured settlement payment streams. How does that impact constructive receipt or economic benefit?

According to the under perjury declaration by the California Settlement Planner, the QSF Administrator was to be authorized to purchase "in force" annuities... which would then be "reinvested" in the claimant's Special Needs Trust at an assumed internal rate of return of 2%.

The qualified settlement fund appears to involve a single disabled individual. 

So as articulated in the declaration, the proposed QSF, under this convoluted concept, would act as an intermediary under the auspices of the California Superior Court to buy and hold factored structured settlement payment streams that are labeled annuities but are not annuities?  Exactly how would those payments be tax-free as damages?

When a tradition a structured settlement is established in a personal injury settlement, the transaction begins with a promise to pay in a release.  This is critical. The promise to pay could be made by the Defendant, the Defendant's Insurer, or in the case of a QSF, the QSF Trustee/Administrator and future periodic payments represent damages that are exempt under IRC 104(a)(2).

Step 2 in establishing a traditional structured settlement would be a qualified assignment, whereby the qualified assignment company assumes the obligation to pay from the defendant, insurer or QSF and purchases a qualified funding asset.  Where the damages are taxable, or where they are tax exempt but do not qualify under IRC 130 (such a wrongful imprisonment), a non-qualified assignment is used. Many non-qualified assignment companies are offshore, in Barbados or Ireland. The few that are in the domestic U.S. rely on the use of the immediate annuity exclusion in IRC 72(u), or in two instances, the use of a funding agreement issued by an insurance company, or periodic payment reinsurance where the ceding entity is an insurance company.

Step 3 traditionally involves the purchase of the funding asset by the assignment company to fund its obligation to pay (in this case would be to the Special Needs Trust). Most often the asset is a traditional structured settlement annuity. A real annuity, not a factored payment structured settlement payment stream mislabeled as one.

If there is no assignment, and none is mentioned in the declaration to the Court under penalty of perjury,

1. Then is one to presume that the QSF is to stay open until the payment obligation is exhausted?  Robert W. Wood, author of the treatise Qualified Settlement Funds and Section 468N opined on June 23, 2014 that (1) QSFs may sometimes be used inappropriately to defer receipt of monies for protracted periods; (2) It seems more likely that the IRS would establish some sort of anti abuse rule addressing the inappropriate use of QSFs to defer income. (3) To be cautious one should try to establish QSFs where there are multiple claimants 
2. If so, the continued viability of the QSF administrator is and should be an important consideration for the lawyer, judge, guardian or fiduciary. 
3. Then there is the tax issue related to interest income earned by the QSF while holding the factored structured settlement payment streams. According to 26 § 1.468B-2 Taxation of qualified settlement funds and related administrative requirements, a qualified settlement fund is a United States person and is subject to tax on its modified gross income for any taxable year at a rate equal to the maximum rate in effect for that taxable year under section 1(e).

Why Weren't Transaction Risks of Factored Structured Settlement Payment Streams Mentioned?

The Victims of Terrorism Tax Relief Act of 2001, the now 50 state Structured Settlement Protection Acts and subsequent reforms of those acts were  reaction to market conduct. It could be reasonably foreseen that there could be litigation and there has been.

It's a Thing

The California's settlement planner's believed source for factored structured settlement payment streams had investors in the Access Funding lead paint cases where payments were suspended pending the outcome of litigation. Investors in factored payment streams originated by Pinnacle Capital and  Sempra Finance face heavy losses in the notorious Barber case where a  minor's structured settlement was pillaged starting when he was only 10 year sold. One investor alone may lose in excess of $500,000. In the Wall case, investors lost their entire investment of $153,000 plus legal fees, plus the legal fees of their adversary, Altium Group.

Conclusion

In closing, I recognize that some of the support for the positions taken here post date the date of the California Settlement Planner's declaration, that in of itself is not exculpatory.  In 2012, the year the Declaration was submitted to the California Superior Court in the county of San Francisco. In 2012 I wrote "Before recycled structured settlement payment rights become the "Tupperware" of the financial services industry,  it is worth making a few points for individual investors" having observed the following recounting by Patrick Hindert from the Evolve QSF Symposium Memphis TN September 27-28 2012.

A Periodic Payment Plan funded with "recycled" structured settlement payment rights, providing promises to pay periodic payments acquired in the secondary market have:

• No tax authority
• No regulatory oversight
• No credit/performance enhancements
• No state ‘guarantee fund’ protection
• No liquidity
• Many risks associated with enforcing and monitoring receivables acquired through structured settlement payment rights ‘transfers’
• An unrated (‘naked’) promise by delegee/obligor (i.e. ‘general unsecured creditor’)
• Non-transferable

The California settlement planner reads this blog.  In January 11, 2012, 4 months before the date of the California settlement planner's declaration, I published Secondary Market for Structured Settlement Payments: Labeling is Questioned.

I encourage lawyers, settlement planners, judges , guardians ad litem and fiduciaries to become fully informed about the risks of investing in factored structured settlement payments streams.  Raise a jaundiced eyebrow when you see a salesman in the cloak of a settlement planner try to misdirect you into believing you are investing/buying an annuity. The fact that they are not annuities is very important as is an understanding of the transactional risks. There's clearly more to it than meets the eye. There are probably more than a few plaintiffs who have been sold these instruments and judges who have approved them, without having had complete and full disclosure of all the risks. 

 

 

 

 

 

 

JG Wentworth's Cynical Use of Google Ads to Brandjack Structured Settlement Company

by Structured Settlement Watchdog

J.G. Wentworth has multiple Google Paid Ads which appear to be an attempt to bogart the brand of one of the primary market's largest structured settlement consulting firms.  The evidence from multiple searches, using multiple search terms at different times suggests that this is no accident. 

The subject primary market structured settlement company has been notified along with preserved proof of search engine results pages with date and time recorded.

The J.G.Wentworth Hypocrisy

JG Wentworth is a structured settlement factoring company, sometimes known as the 800 lb Gorilla of the structured settlement factoring industry

When taken into historical context, JG Wentworth seems to be engaging in hypocritical behavior.  Three years prior to its first of two bankruptcies and its acquisition of Peachtree, in 2006 JG Wentworth sued Peachtree over similar conduct that JG Wentworth appears to be now engaging in.

On April 10, 2006, plaintiff J.G. Wentworth filed an amended complaint against defendant Peachtree Settlement Funding alleging that defendant engaged in acts of trademark infringement, false representation, trademark dilution, and injury to business reputation in violation of Sections 32(1) and 43(a) of the Lanham Act, 15 U.S.C. §§ 1114(1) and 1125(a) (2006). JG Wentworth also asserted Pennsylvania state law claims of trademark infringement and unfair competition.  [See Wentworth v. Settlement Funding LLC, CIVIL ACTION NO. 06-0597 (E.D. Pa. Jan. 4, 2007 ]

J.G. Wentworth's claims in that lawsuit arose from Defendant Peachtree's alleged use of J.G. Wentworth's trademarks in two ways: (1) through Google's AdWords program; and (2) in the "meta tags" for defendant's website. J.G. Wentworth alleged that these uses of plaintiff's name ensures that a link to defendant's website will appear immediately proximate to a link to defendant's website when individuals  conduct internet searches for "J.G. Wentworth" or "JG Wentworth."   

It should be noted that a live link to the JG Wentworth website appears in the brandjacked Google Ad.

Google Ads  (f/k/a Google Adwords)

Through Google Ads (formerly known as Google AdWords), a business such as J G Wentworth must pay to have a Google ad for its business displayed to customers who search for relevant terms on Google Search and Google Maps. Google Ads is a key digital marketing tool for any business that is looking to get meaningful ad copy in front of its target audience. The Google search engine then will present an ordered list of relevant websites identified by the Google database with the most relevant website listed first. The Google search engine will also present a separate list of websites in a "Sponsored Links" section, either at the top or at the bottom of the Search Engine Results Page (SERP).

J.G. Wentworth asserted in its 2006 Complaint against Peachtree asserts that Peachtree's alleged uses of J.G. Wentworth's marks through the AdWords program and in keyword meta tags constitute infringing acts that are intended to confuse consumers and to divert potential consumers away from plaintiff's website. J.G. Wentworth contended in 2006 that by using plaintiff's marks in these ways defendant steals plaintiff's potential customers and erodes the distinctiveness of plaintiff's marks, thus causing a significant loss of profits to plaintiff. J.G Wentworth further alleged that defendant intermittently complies with plaintiff's demands to cease all use of its marks, and this compliance evinces a practice of knowing infringement on the part of defendant.

[  See Wentworth v. Settlement Funding LLC, CIVIL ACTION NO. 06-0597 (E.D. Pa. Jan. 4, 2007]

Why is J.G. Wentworth Conducting Itself In a Manner That It Sued Someone Else Over?

I'm wondering if J.G. Wentworth is feeling the heat from CrowFly's saturation of their space?  Not a day goes by when you don't see a CrowFly ad at the top of the Google Ad rotation.  Surely the secondary market's "800 lbs gorilla"  has enough bananas and should not have to resort to smoke and mirrors to generate leads. 

 

Las Vegas Notary Claims to Have "Notarized Annuity Contract for Structured (Settlement) Funding"

by Structured Settlement Watchdog

A Las Vegas notary public advertises their services by giving off the impression that they actually notarize annuity contracts for structured funding. I have created the meme below from an image that appeared on their website for this commentary.

What is Structured Settlement Funding?

Funding is a term used by structured settlement factoring companies to describe the financial consideration paid to a structured settlement payee in exchange for the rights to certain structured settlement payments.  The transaction is known a structured settlement factoring transaction and its definition is set forth in Section 5891 of the Internal Revenue Code of 1986, as amended.

On the other hand...

Annuity contracts are issued by insurance companies and sold to consumers by licensed and appointed insurance agents or brokers.  A mobile or onsite notary does not notarize annuities issued by any of the structured settlement annuity contracts I've seen over the last 27 years.  Hmm!

Las Vegas notary claims to have "notarized annuity contract for structured (settlement) funding"

Structured Settlement Cash Now Sharks Prey on 18-24 Year Olds' With Structured Settlements Using Fanciful Investment Schemes

by Structured Settlement Watchdog

If you recently turned 18-24 and have a structured settlement, beware creatures of the deep discount. Some structured settlement purchasers are like razor toothed bull sharks prowling the reef or surf line, waiting for the "just old enough" dinner bell to ring. 

Structured settlement cash now sharks nosh on young adults' structured settlements

Some structured settlement purchasers prey on legal but unsophisticated wide eyed young adults with "bull shark" sales pitches that involve pairing a purchaser of structured settlement payment rights and an investment adviser. In one matter I recently learned of, a young adult is being pitched to sell $2,000,000 in payments for $500,000 and some investment adviser purports to be able to turn those pennies on the dollar into $5,000,000.

Before you get bamboozled into a pennies on the dollar disaster consider the following:

The S&P 500, as an index, is a statistical measure of the performance of America’s 500 largest stocks. In this context, the S&P 500 is a common benchmark against which portfolio performance can be evaluated. According to Motley Fool, "when it comes to the major U.S. stock indexes, none is more highly regarded as a barometer of the overall stock market’s performance and an indicator of how large corporations are performing than the S&P 500 index".

If you invested in the S&P 500 on January 2, 2001 and left it in the entire time period, without succumbing to the market's gyrations for 20 years, until December 31, 2020, your rate of return would be 7.47%, according to the J.P. Morgan Asset Management 2021 Retirement Guide published March 6, 2021.  If you missed the 60 biggest trading days over the 20 years, you return would have been negative, to the tune of -6.81%.  These returns are before taxes. 

How Compound Interest Works

So, if we use the 7.47% for an example and plug that into a compound interest calculator, along with the $500,000 proceeds from the recent proposed sale for 20 years, the calculator shows that you could accumulate $2,112.102 over 20 years, not taking into account federal, state and possibly local income taxes that might be due over the time period. So under that scenario the person might end up with less after taxes while exposing themselves to more risk.

What is really nuts, in my opinion is when structured settlement factoring companies pair with a investment advisor and project "from the moon" investment assumptions.

Three stories involving New Yorkers

Melissa Diego, a Latinx victim of con men Dan Cevallos and Eddie Rodriguez of Advance Funding 

Cedric Thomas, a then young person of color victimized by 365 Advance/Novation Funding. Had a nice six figure  income tax free "salary" from his AIG structured settlement before being taken by 365 Advance/Novation in October 2015 for a $1.5 million profit spread, bearing a disgusting 15.24% effective discount rate  The money was spent on money losing properties and a Maserati. 

'Michael Monagan, almost a victim of a pennies on the dollar to investment scheme where the financial adviser projected 12%, without taking into account taxes. 

Structured Settlement Cash Now Shark Warnings in English, Spanish, French, Creole, Portuguese, Swahili, Latin, Yiddish and "Ebonics"

• Beware the Structured Settlement Cash Now Sharks!
• Cuidado con el efectivo de liquidación estructurada ahora tiburones
• Méfiez-vous de l’argent maintenant requins!
• fe atansyon lajan kach kounye a reken
• cuidado dinheiro agora tubarões
• Jihadharini na pesa taslimu sasa papa 
• Cave ergo Stingrays cash est structured settlement 
• hit eykh di straktsherd oysglaykh gelt itst sharx
• Yo! bewis da structured settlement cash now sharks   [ Source: Ebonics translator ]   

 

Annuity.Org Confuses Settlement Purchasers With Insurance Companies

by Structured Settlement Watchdog

How Do Structured Settlement Purchasing Companies Work? 

Seems like a simple enough question, but not so straightforward for Annuity.org. 

"When you contact a purchasing company, a representative will gather your information and calculate a quote based on how much cash you need and the number of payments you want to sell"

NON SEQUITUR-ALERT!

"Insurance companies take into account several factors when determining your quote, including:   

• The value of your structured settlement annuity
• When your payments are disbursed
• The number of payments you want to sell
• Current market rates
• The rating of the insurance company that issued your annuity
• Fees or extra costs the insurance company may charge to initiate a transfer"

NON SEQUITUR ALERT!

"That’s because the purchasing company has legal and administrative costs to cover. Also, these companies exist to make a profit. High discount rates decrease the cash value of your settlement.

If you accept their quote, the purchasing company will send you a contract detailing the offer. Once the contract is signed, the company files necessary court documents and arranges a hearing."

via Imgflip

 

The critiqued "masterpiece" was noted by Annuity.org to be written by Rachel Christian, edited by Kim Borwick and financially reviewed by Janet Berry-Johnson CPA, yet despite 3 stage  "quality control" and citing 6 sources, this slipped through the cracks. 

My interest is seeing that consumers have the clearest path to accurate information about structured settlements. 

Peachtree Targets Dreamers With "Trojan Horse" Value Proposition

by Structured Settlement Watchdog

In a week in which it has been observed highlighting its settlement "intersectionality" ** via Google Adwords, Peachtree Financial urges dreamers with structured settlements, "Don't Just Dream About Remodeling Your Home Or Paying Off Debt. Get A Lump Sum of Cash! You're Waiting For Your Structured Settlement Payments. Get Started"

Translation  Don't Just Dream About Selling Your Structured Settlement For Pennies on the Dollar to remodel your home!  Sell your structured settlement payments to Peachtree Financial for pennies on the dollar to remodel your home.

Say it costs $25,000 to remodel your kitchen, you're going to have to sell more income payments, or more of a lump sum than you need to raise that cash.  Do you think that makes a whole lot of sense?

** "settlement consultant" we've identified in a post last week"

"Don't Just Dream About Selling Your Structured Settlement For Pennies on the Dollar!"

 

 

Structured Settlement Watchdog Bites Annuity.Org For Taking Advantage of Their Own Ignorance of US Law

by Structured Settlement Watchdog

Annuity.org may be good at SEO, but for the reasons backed by the examples and anecdotes often cited in this blog, Annuity.org often comes up short on the

"Fact checked" my ass

facts.

CBC Settlement Funding shill Annuity.Org published bogus information that was purportedly fact checked and financially by a PhD only last month. In  "Why Is Court Approval Necessary?" Annuty.org writes:

"Before the industry was regulated, some factoring companies took advantage of people who were not informed of the nuances of selling their structured settlements. To prevent this from happening, the United States government passed several laws — such as the Federal Periodic Payment Settlement Act of 1982 —that mandate court approval for the sale process.  mandating court approval ensures the sale is in the consumer’s best interest and a factoring company is not taking advantage of the person’s ignorance".

 

How do consumers save themselves from Annuity.org's ignorance?

 

Here are 5 ways that the Annuity.org and its "fact checkers" got it horribly wrong

• The Periodic Payment Settlement Act of 1982 says nothing about "the sale process".
• The relevant act for the company that Annuity.org is shilling for is the Victims of Terrorism Tax Relief Act of 2001  (VTTRA)
• The United States Government does not pass laws, Congress does.
• Congress, is part of the legislative branch of the United States government and is one of three branches of government The other branches are the Executive branch  (the President, Vice-President and the Cabinet))  and the Judicial branch  (Court system)
• Mandating court approval (as part of VTTRA and state structured settlement protection acts)is a guardrail but does not absolutely "ensure that the sale is in the consumer’s best interest and a factoring company is not taking advantage of the person’s ignorance".

 

 

 

 

Structured Settlement Investors' Bad Hair Day in Barber Case as PA Superior Court Quashes Appeal

by Structured Settlement Watchdog

It's not looking good for factoring companies and investors in the Zachary Barber case  (in substance "Happy Birthday You're 18 and Your Structure is Gone"), where a May 14, 2021 published decision denied their motion to quash

1. Confirmed Allegheny County, the original forum where the structured settlement was approved as proper forum decisions related to the structured settlement.
2. Details Rubber Stamped Orders that did not comply with the Pennsylvania Structured Settlement Protection Act
3. Confirmed that payments continue to be paid into the Court (and not to investors, or Zach until the matter is adjudicated)

ZACHARY BARBER, JEFFREY BARBER, ADMINISTRATOR OF THE ESTATE OF LINDA LEE JENKINS A/K/A/ LINDA LEE BARBER, DECEASED
v. BRUCE STANKO, NORTH HILLS PHARMACY SERVICES, LLC; PACERCHECK, INC.; ET AL
APPEAL OF: SEMPRA FINANCE, LLC ("SEMPRA") : IN THE SUPERIOR COURT OF PENNSYLVANIA  No. 615 WDA 2020
Appeal from the Order Entered June 5, 2020 In the Court of Common Pleas of Allegheny County Orphans' Court at No(s): No. 4037 of 2005

It raises the obvious questions over how many other cases are out there in Pennsylvania where one, or both or other factoring companies may be implicated in the future with the engagement in similar behavior in Pennsylvania?

According to the published decision, written by Judge Pellegrini, Pinnacle Capital, LLC (Pinnacle), Sempra Finance, LLC (Sempra), Habitus Funding (Habitus) and Michael J. Pickett (Pickett) appealed from a June 22, 2020 order of the Court of Common Pleas of Allegheny County (Allegheny County Orphans’ Court) that effectively denied motions to dissolve an injunction involving a January 31, 2020 order requiring all (structured settlement) annuity payments to Zachary Barber (Zachary) provided for in its 2005 Settlement Approval Order be paid into court until allegation of statutory violations, forum shopping and fraud presented in the underlying proceeding had been determined.  

[ as noted in the Court's decision, Pickett was the assignee (investor)in the Pinnacle originated payments and Habitus the assignee (investor) in the Sempra Finance originated payments.]

Judge Comes Out Strong For the Intent of Structured Settlements

Structured settlements were rare until a series of IRS rulings in the late 1970s declared that periodic payments in structured settlements would not be subject to federal income tax. Congress effectively codified these administrative rulings with the passage of the Periodic Payment Settlement Act of 1982. See PUBLIC LAW 97-473—JAN. 14, 1983.2 The passage of this Act incentivized plaintiffs to forgo a lump-sum payment in favor of a structured settlement to provide tort victims with long-term economic security by providing guaranteed income with spendthrift protection.

Judicial Concerns About Factoring Predators and Congressional Intent

While structured settlements provided those benefits, payees of structured settlements were precluded from securing a lump-sum payment by cashing in their remaining payments to take care of current needs or wants, real or imagined. Like all things involving substantial sums of money and wants and desires, there developed an industry to allow plaintiffs to “change their minds” and transfer their payments to a factoring company who offered less than the present value of those payments. The practice of structured settlement transfers raised a concern that personal injury claimants are being exploited by factoring companies that take advantage of vulnerable and unsophisticated claimants. See Johnson v. Structured Asset Services, LLC, 148 S.W.3d 711, 728 (Tex.App.2004) (“Because the underlying purpose of a structured settlement is not only to compensate an injured party but also to protect that party from his own improvidence, a number of commentators, courts, and legislatures have become concerned by the growing number of companies, sometimes called ‘factoring companies,’ that purchase structured settlements from a personal injury victim by paying him immediate cash for the right to future payments under the settlement.”).

On account of these concerns, Congress amended the Internal Revenue Code in 2002 to impose “a tax equal to 40 percent of the factoring discount” upon any person or entity “who acquires directly or indirectly structured settlement payments rights in a structured settlement factoring transaction....” 26 U.S.C. § 5891(a).3 However, a statutory exception to that tax has been created for any transfer of structured settlement payment rights that is approved in advance by a qualified court order. See 26 U.S.C. § 5891(b)(1). To constitute a “qualified order” under Section 5891, the order must expressly find that the proposed transfer does not contravene any federal or state law, regulation or order, and that the sale “is in the best interest of the payee, taking into account the welfare and support of the payee's dependents....” 26 U.S.C. § 5891(b)(2)(A)(i)-(ii). To avoid paying a 40 percent tax on the factoring discount amount, any company wishing to purchase a payee’s structured settlement rights must secure a court order concluding that the transfer is in the payee’s best interests.

Pennsylvania Structured Settlement Protection Act

The Court stated "Like almost all states, Pennsylvania has adopted the SSPA to functionally allow the transfer of structured settlement payments. It provides, among other things, that, “[n]o transfer of structured settlement payment rights shall be effective ... unless the payee has filed a petition requesting such transfer and the petition has been granted by final order or decree of a court of competent jurisdiction based on such court’s express written findings that .... [t]he payee has established that the transfer is in the best interests of the payee or his dependents.” 40 P.S. § 4003(a)(3)."

Pennsylvania SSPA Places the Common Pleas Court in Presumptive Position of Guardian of A Person

According to the decision  "It has been said that the SSPA places the common pleas court in “position of a guardian of a person who stands in the presumptive position of the defenseless recipient of a benefit. It is for the Court to determine, as a guardian would, on an independent basis, whether the transaction serves the best interests of an unsophisticated (if not incompetent) person” and “is to ensure that an otherwise financially defenseless and possibly injured individual would receive a regular, sustaining source of income.” In re Jacobs, 936 A.2d 1156, 1160 (Pa. Super. 2007).

Requiring a judge to serve as guardian to protect the interests places the judge in unfamiliar territory. Generally, the petition to transfer payment is unopposed with plaintiff-payee wanting to transfer payments so that it can receive payments for what he or she considers in its best interests, whether it is or not, and the factoring company wanting it approved so it can make the Requiring a judge to serve as guardian to protect the interests places the judge in unfamiliar territory. Generally, the petition to transfer payment is unopposed with plaintiff-payee wanting to transfer payments so that it can receive payments for what he or she considers in its best interests, whether it is or not, and the factoring company wanting it approved so it can make the most money. That requires the trial judge to make an independent determination of whether the sale is in the best interests of the plaintiff-payee based on economic factors that it is not within its ken and with parties who are not that forthcoming. Moreover, this determination is made even more difficult because the proceedings are non-adversarial, with no factual development and competing positions to inform its judgment as would be the usual. It depends on the forthrightness and good faith of counsel to provide all the information available for the judge to make an informed decision on what is in the best interests of the plaintiff-payee to avoid fraud on the court.

While 40 P.S. § 4003 sets forth several conditions that must be met before a transfer can be approved, other sections are pertinent here. Section 4004 of the SSPA, 40 P.S. § 4004, provides that the petition to transfer structured settlement payments shall be filed where the payee is domiciled; another of those conditions requires that the transfer also must be “expressly approved in writing by ... any court or responsible administrative authority that previously approved the structured settlement.” 40 P.S. § 4003(a)(5)(i)(B). This approval is required because they are commonly used to resolve tort claims of minors, as well as adults who have suffered injuries that have rendered them legally incompetent, before any transfer can be effectuated.

No Separate Counsel Was Afforded to or on Behalf of then Minor Zachary Barber Even Though There Was a Conflict of Interest

Even though there was an apparent conflict between Zachary and Father’s interest, Zachary, the payee, was not appointed separate representation in any of proceedings seeking to sell his annuities to fund Father’s obligations

Under the SSPA, “the courts were given the mandate to supervise all aspects of settlements in which a minor is a party in interest[.]” Power by Power v. Tomarchio, 701 A.2d 1371, 1374 (Pa. Super. 1997) (emphasis in original); see also In re Benninger, 357 B.R. 337, 351 (Bankr. W.D. Pa. 2006) (the Structured Settlement Approval Act “is designed to protect beneficiaries of structured settlements from being taken advantage of by others.”)

To ensure that beneficiaries of structured settlements rights are protected, especially minors, the SSPA requires the approval of the court who initially approved the structured settlement must be obtained before the transfer of any payment is effective. As previously mentioned, 40 P.S. § 4003(a)(5)(i)(B) provides that: No transfer of structured settlement payment rights shall be effective and no structured settlement obligor or annuity issuer shall be required to make any payment to any transferee of structured settlement payment rights unless the payee has filed a petition requesting such transfer and the petition has been granted by final order or decree of a court of competent jurisdiction based on such court’s express written findings that: 

(B) any court or responsible administrative authority that previously approved the structured settlement; (Emphasis added.)
It appears that in all instances, approval from the court or agency that approved a previous structured settlement is needed because, necessarily, the proposed transfer would be contravention of previous orders; otherwise a petition to transfer benefits would not be needed.

Moreover, neither the Butler nor Beaver County courts made any finding that such transfers were not in contravention of the terms of the 2005 Settlement Approval Order. While they included boilerplate language contained in 26 U.S.C. § 5891, this language is found in the section about whether the court’s orders were “Qualified Orders” for tax purposes and is not a finding regarding the 2005 Settlement Approval Order. See 26 U.S.C. § 5891. This is not surprising because it appears that neither Butler nor Beaver County were made aware of the 2005 Settlement Approval Order. Because Section 4003(a)(5)(i)(B) applied and it requires that the court that approved the structured settlement agreement must approve in writing the proposed transfer, the Allegheny County Orphans’ Court was required to approve any changes in payments made under the 2005 Settlement Approval Order. See In re Am. Dredging Co., 2011 WL 4971829, at *2 (E.D. Pa. Oct. 18, 2011) (finding that sale of portion of settlement for a lesser lump sum than would have been realized if paid at the set disbursement date “would contravene the terms of that structured settlement agreement. Accordingly, pursuant to the language of the statute, [the court that approved the original settlement] must expressly approve[] in writing the transfer of structured settlement rights before the [another] court may grant its approval.”).

Requiring the court that initially approved the structured settlement to approve any change in its terms advances the SSPA’s purpose to protect beneficiaries of structured settlements from being taken advantage of by others because those courts were aware of the reasons why a settlement was not paid in a lump sum but structured. Additionally, approvals of the court that initially approved of a structured settlement to a minor are especially important because that court can determine if the transfer of payments would serve the interest of the minor and order, if necessary, that a guardian represent the minor’s interests. In this case, the Allegheny County Orphans’ Court did not approve, as required by 40 P.S. §4003 (a)5(i), any of the transfer of payments purportedly authorized by the Butler and Beaver County courts due to Zachary to Pinnacle, Sempra, Habitus and Pickett, with his Father keeping the proceeds of those sales. Zachary contends that Father fraudulently realized the profits for himself in violation of the 2005 Settlement Approval Order’s terms.

In light of these accusations, the Allegheny County Orphans’ Court entered “[t]he January 31, 2020 Order directing future payments to be made to the Prothonotary … out of an abundance of caution for the sole purpose of safeguarding the minor’s funds until this matter could be properly adjudicated.” (Orphans’ Court Opinion, 9/20/20, at 6). In other words, it was not issuing a preliminary injunction, but keeping the 2005 Settlement Approval Order in place until it could determine who was entitled to the payments to be made thereunder.17 See Commonwealth v. Shaffer, 712 A.2d 749, 751 (Pa. 1998) (“[I]t is axiomatic that a court has inherent power to enforce its own orders of court and this court will not interfere with this enforcement absent an abuse of discretion.”).
B. 
Moreover, we note briefly that Pinnacle and Pickett alternatively argue that “Sempra’s appeal of the coordination order … did not require the [court] to stay this matter in its entirety.” (Pinnacle’s Brief, at 26); (see Pickett’s Brief, at 20).
Rule 1701 provides, in pertinent part, that: (a) General rule.--Except as otherwise prescribed by these rules, after an appeal is taken or review of a quasijudicial order is sought, the trial court or other government unit may no longer proceed further in the matter. (b) Authority of a trial court or other government unit after appeal.--After an appeal is taken or review of a quasijudicial order is sought, the trial court or other government unit may: 

(1) Take such action as may be necessary to preserve the status quo[; and]
(2) Enforce any order entered in the matter[.]
(c) Limited to matters in dispute.--Where only a particular item, claim, or assessment adjudged in the matter is involved in an appeal … the appeal … shall operate to prevent the trial court … from proceeding further with only such item, claim, or assessment, unless otherwise ordered by the trial court … as necessary to preserve the rights of the appellant.
Pa.R.A.P. 1701(a), (b)(1)-(2), (c).

The Allegheny Count Orphans’ Court did not abuse its discretion to stay all proceedings to preserve Zachary’s rights in the structured settlement.The coordination order from which Sempra appealed, although not directly involving Pinnacle or Pickett, went to the larger issue of whether the Butler and Beaver County orders were effective because Pinnacle and Sempra had not received the approval of the Allegheny Court Orphans’ Court as required by P.S. § 4003 (a)(5)(i) before a change in payments set forth in the 2005 Settlement Approval Order can occur, as well as fraud, forum-shopping and fraud on the court. Hence, the Allegheny County Orphans’ Court did not abuse  its discretion in staying all proceedings in this matter, including its January 31, 2020 order that annuity payments be deposited with the Prothonotary, pending full adjudication of all allegations, rather than attempting to address them piecemeal. 

The Court concluded that  "because the January 31, 2020 order was not a preliminary injunction, the June 22, 2020 order, the order from which this appeal is taken, could not “continue” it, and is neither a final appealable order nor appealable pursuant to 311(a)(4), and we quash".

Download Opinion - Barber case Affirmed

Download Opinion - Quashed Appeals of Pinnacle Capital LLC, Michael Pickett and Habitus Funding

 

 

The Greatest Gift The IRS Ever Gave to Injured Individuals | It's Structured Settlement Silly Season Again

by Structured Settlement Watchdog

We are approaching the 4th anniversary of one of the silliest statements made by a structured settlement consulting firm. And the firm has doubled down on the silliness.

Silly Structured Settlement Statements ( say that 10 times really fast).  Breathe deeply.  OK let's move on...

• Structures are "The Greatest Gift the IRS ever gave to injured individuals"  May 2017
• "Structures are not only the greatest gift the IRS provided to injured to injured individuals" but also the goose and its golden eggs"   March 2021

The statements by the structured settlement consulting firm demonstrate an unfortunate lack of familiarity with the roles of Congress, the power granted to Congress to levy taxes by the United States Constitution and the role of the Internal Revenue Service (IRS)

1. In the United States, the Congress passes tax laws and requires taxpayers to comply.
2. The taxpayer’s role is to understand and meet his or her tax obligations.
3. The IRS role is to help the large majority of compliant taxpayers with the tax law, while ensuring that the minority who are unwilling to comply pay their fair share.  [ Source: IRS.gov  The Agency Its  Mission and Statutory Authority]
   

Who are you going to thank?

 

It's Thursday and J G Wentworth/Peachtree Go Fluid as a "Structured Settlement Broker"

by Structured Settlement Watchdog

Another day in Chesterbrook and JG Wentworth has chosen to identify as a  "structured settlement broker" and claims to be the industry leader?  Its sister company, Peachtree Financial has today claimed to identify as  a "settlement broker".  Yesterday they identified as "settlement consultant".  Both JG Wentworth and Peachtree are no longer a member of the National Association of Settlement Purchasers so it's all seems rather fluid at the moment.   But can these pennies on the dollar merchants truly be considered structured settlement brokers?  The pennies on the dollar has to do with the purchase of factored structured settlement payment rights, not structured settlements or structured settlement annuities.