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The Joint Committee on Taxation "Surprise Party" Favors Structured Settlements

 by John Darer® CLU ChFC MSSC RSP CLTC

Surprise! Surprise! The Joint Committee on Taxation (JCT) released its Estimates of Federal Tax Expenditures and the estimated tax revenue loss for structured settlement tax subsidy may not be as big as previously thought, observes Patrick Hindert of S2KM. He writes:

"The first surprise: for what appears to be the first time, the JCT staff actually calculates an estimated tax revenue loss for the "exclusion of investment income from structured settlement arrangements" in its annual JCT Report.

The second surprise: the JCT Report estimates the structured settlement tax revenue loss to be "de minimis" - meaning less that $50 million for Fiscal Years 2010-2014 or less than $12.5 million per year."

"Party pooper" Hindert notes that the revenue loss "appears especially small compared with statements from structured settlement and some settlement planning consultants aggressively promoting structured settlement tax savings for injury victims". Is he (1) implying that the tax subsidy is not what it is cracked up to be, or  (2) is he implying that not enough people are benefitting from the tax subsidy, or (3) is "Hedwig" simply using this as another gratuitous reason to trash structured settlement and settlement planning consultants?

In his 2009 paper titled "Justifying the Structured Settlement Tax Subsidy: The Use of Lump Sum Settlement Monies", heavily promoted by Hindert,- NYU LLM tax candidate Jeremy Babener estimated the value of the subsidy to be between $360 million and $840 million per year. His paper suggested that an empirical study to justify the "structured settlement tax subsidy" might be necessary to support the overwhelming anecdotal evidence. I don't think I'm alone in observing that Hindert aggressively used the Babener paper to aggressively promote strategic reevaluation of the structured settlement industry.

 Hindert then explores how Babener derived his numbers (should one read that as " how can one backpedal credibly" ?) In recent history Hindert made an outrageous miscalculation of the value of the potential damages* in the Spencer v Hartford case in order to trash the structured settlement industry).

There is a long standing exclusion for personal injury damages. The Revenue Act of 1918 is the origin of the exclusion for personal injury** damages presently encapsulated in IRC Section 104(a)(2).

When one boils down a properly constructed personal injury structured settlement transaction, each of the future periodic payments is considered payment of damages under IRC 104(a)(2).

The current JCT estimate for the overall damages exclusion under 104(a)(2) 2010-2014 is $7.9 billion.  THERE'S  "the beef".

 

 

 

 Anyone ELSE want to take a swing at the "structured settlement tax subsidy" piñata?

 

 

* see Spencer v Hartford -2 April 7, 2009. Hindert estimated $712MM. The settlement paid was for about 1/10th that number just over one year later.

** current exclusion is "the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness"

Definition of Structured Settlement Mischaracterized

"Structured settlement" is defined for tax purposes in IRC Section 5891(c)(1) according to Patrick HIndert TSSG Managing Director and co-author Structured Settlements and Periodic Payment Judgments.  (from a November 2010 Powerpoint posted on the Internet as of 1/14/2011 6pm EST). But is it?

FACT:The definition that appears in IRC 5891(c)(1) is immediately preceded by the notation " for the purpose of this section (i.e. for the purposes of this section only)

FACT: IRC 5891 sets forth a 40% excise tax imposed on purchasers of structured settlement payment rights which is imposed on the factoring discount if court approval is not obtained before structured settlement payment rights are transferred. To wit...

IRC 5891(a) Imposition of tax

"There is hereby imposed on any person who acquires directly or indirectly structured settlement payment rights in a structured settlement factoring transaction a tax equal to 40 percent of the factoring discount as determined under subsection (c)(4) with respect to such factoring transaction".

Hindert's assertion appears to be based on the following with respect to the definition of  "structured settlement" at IRC 5891(c)(1)

1. It is a definition
2. It does appear in the Internal Revenue Code
3. It is the only definition of "structured settlement" that appears in the Internal Reveneue Code, despite the express disclaimer of what the definition is exclusive to.
4. The internal Revenue Code is the main body of domestic statutory tax law of the United States of America.

Once again, the definition of structured settlement that appears there is clearly denoted to be for that section only. Had it been intended to be a general definition there would have been no disclaimer. Moreover, there are financial transactions or products currently referred to as "structured settlements" that do not fall within the expressly limited definition that appears at IRC 5891 (C)(1).

8 years ago Hindert, by way of the SSP, attempted to sell an illogical mischaracteriziaton of IRC 5891(c)(2) of the Internal Revenue Code as granting an absolute right for plaintiffs to receive structured settlement payments, as opposed to payment rights that are created by way of the structured settlement (that are eligible to be transferred with tax preference, subject to certain conditions, by virtue of IRC 5891). Whether or not the former is a meritorious outcome is not the subject of this debate.

As you can see from the structured settlement flow chart below, the rights to receive payments under a structured settlement are created in step 1, when the plaintiff releases the Defendant/Insurer or Qualified Settlement Fund Trustee in exchange for a promise to make future periodiic payments. Without the consideration being for periodic payments there would be no obligation to make such payments and therefore step 2 cannot occur, since there are no payment rights created and there would be no payment obligation to transfer to the qualified assignee.

 

 

 

Premature Hindertulation Raises Sticky Questions About Seminal Text

Patrick Hindert's latest pedantic emission on Business Standards and Practices-2 attacks the NSSTA Certified Structured Settlement Consultant certification hosted at University of Notre. He states:

"Advanced training" for those structured settlement broker/consultant/agents who are members of NSSTA ("America's largest association of structured settlement professionals") may include a one-time one weekend "certification" program (CSSC) at the University of Notre Dame plus continuing education credits at NSSTA-sponsored education conferences. "

While the structured settlement watchdog has himself rightfully roasted members of the structured settlement industry who have mischaracterized their CSSC credential, Hindert's comments simply raise the question of Patrick Hindert's own credibility.

The CSSC program has been ably run by Karen Meyers, a former associate of Hindert, for many years. The curriculum for what Hindert describes as a "weekend course" requires approximately 40 hours of pre-reads, the bulk of which is from Structured Settlements and Periodic Payment Judgments by Patrick Hindert, Jules Dehner and Dan Hindert.

If Hindert doesn't respect a course that is built substantially around his co-authored text then perhaps the course can be improved upon with another text or texts. For example there are texts by Paul Lesti ( published by Clark Boardman Callahan), and Matt Garretson/Kornblum ( published by Thomson West) which together, or in conjunction with others could present a meaningful improvement. Hindert has brought this to a head, where do we go from here?

The structured settlement watchdog puts the subject up for debate:

Should the treatment for the premature Hindertulation be a total pull out by NSSTA and Notre Dame from using Structured Settlements and Periodic Payment Judgments in its CSSC curriculum?

Comments?

 

Spencer v Hartford Begats "468B Risk Management" Panacea for Defendants from Plaintiff Advisors?

He who made a gross miscalculation of the amount of damages (as a scare tactic) in Spencer v Hartford and "made" associate law professor Adam Scales "a household name", is now so emboldened by the proposed settlement to suggest that such case be "prostituted" and used as a threat to scare defendants into 468B trusts.

It's not like we haven't seen the scare tactic before. Look at the cottage industry that sprung up after Grillo v Pettiete et al. Cause No.96-145090-92 and Grillo v Henry Cause 96-167943-96, 96th District Court, Tarrant County, TX, whereafter plaintiff attorneys were lobbied by certain advisers over the perceived threat of legal malpractice. Sure plaintiffs should have proper advice. ANYONE should seek advice from someone credentialed and qualified to give it before entering into important financial decisions. But that case is still cited even though it is almost 18 years old. Given that there's a "huge threat" why have there been no other cases published and cited?

An IRC 468B Qualified Settlement Fund is a very useful tool for the right case. Recommending wholesale usage of the 468B QSF, particularly on smaller cases (often adds a needless cost that comes out of the plaintiffs' bottom line) is professionally irresponsible, in my opinion. It makes little sense to use a 468B QSF where a $50,000 structure is under consideration. Ironically the cost of the annuity for lead plaintiff in Spencer v Hartford,  Oshanya Spencer, was $52,000, with another lead plaintiff having an amount in the same range.

Make no mistake Defendants and Insurers, Patrick Hindert seems a trojan horse.

(1)In April 2009 he was even implying that the Federal pull its TARP Funds from The Hartford.  See Spencer v Hartford-3. Could that possibly be interpreted as having at heart the job security of thousands of insurance company employees ( many of whom are Connecticut residents and others who had nothing to do with the Spencer case), the financial security of the hundreds of thousands of structured settlement annuitants, retirees and life insurance policyholders of the Hartford?

(2) His unbalanced coverage of the financial crisis and attack on AIG at that time was "legendary".  Upon information and belief he has recently solicited the company for business. Read  AIG Structured Settlement Timeline: Hindert's Jelly Donut Missing The Jelly and Structured Settlements...The Day of "The Jackal"

Assuming the settlement in Spencer v Hartford was or is subject to a confidentiality agreement and/or under seal) and unless he was privy to internal settlement discussions, one wonders how Patrick HIndert could possibly know the specific reasons that Hartford decided to settle, other than to buy their peace.

 

 

 

 

 

 

 

 

 

NSSTA & SSP Annual Meetings: Pedantic Pat's Droning "Emission" Contains Glaring "Omission"

Like a campy horror show, Pedantic Patrick Hindert posted an unprecedented 9th blog post about the SSP and NSSTA 2010 annual meetings. While Hindert continues to fill his commentary with factual but predictable filler and drivel like "approximately 10 people attended portions of the SSP and NSSTA meetings", HIndert continues to avoid the controversial and big news that the Society of Settlement Planners named a factoring representative to its Board of Directors.

Ironically it was Hindert who expressed (in previous blog postings going back years) that factoring is the key to structured settlement industry growth. Hindert challenged this author to a debate on the topic in May 2008 and then famously chickened out when I accepted. Now that the dog can have his day he is famously avoiding his own scent mark. See Patrick Hindert Called On The Carpet For Specifics

What I really want to know is does Hindert see having representatives of factoring entities (which buy structured settlements from tort victims) on the Board of a trade association (whose members place structured settlements) as a positive thing or negative thing? Why? Moreover, now that the industry's cherry "has been popped" as it were, is it appropriate for the credibility of the group, that the subject member on the Board is apparently the only member (and apparently can be the only member) when there may be other factoring entities who offer alternatives in educating the public.

He does a better job in posing post-conference leadership questions:

• How will SSP's and NSSTA's new leaders respond to industry changes, challenges and opportunities?
• When and how will SSP and NSSTA transition their educational strategies to embrace the Internet?
• What shared interests exist between SSP and NSSTA to improve and grow the structured settlement industry?

NSSTA 2010 Annual Meeting- Did Dan Clark Drop F- Bomb Or Not?

Some say that Patrick Hindert must have been hallucinating for alleging that motivational speaker Dan Clark dropped an F-Bomb during his presentation at the 2010. NSSTA annual meeting.

It seems to be very much the case of "What-u Talking About"?

Hindert, the Executive Director of Forge Consulting subsidiary,  The Settlement Services Group, made this allegation during his pedantic "pop off"  SSP and NSSTA 2010 Annual Meetings- Part 8.

This author did not attend the NSSTA annual meeting so cannot specifically say, but former NSSTA President Joe O'Reily had words for Hindert in a comment left on Hindert's blog today:

"Patrick, NSSTA, including myself as a member and Past-President, Chair of the Association's 25th Anniversary year, as well as Dan Clark's presenter at the 2010 NSSTA Annual Meeting, deserves necessary scrutiny as we look at our past practices and plans for our future. Dan Clark's presentation at NSSTA's Annual reflected his consistent message to all his audiences - are you the failing Tampa Bay Buccaneers of the 1980's or the World Champion Dallas Cowboys of the period? He presented the exact team analogy to NSSTA's Leadership Seminar audience in New Orleans in January, 2010 - at a time when he knew little of NSSTA, the industry and its issues. I attended both conferences. His message was simple and clear to me - are you part of the evolution and change necessary to any successful business/industry/team - or are you part of the problem/solution within a changing environment? To me, Dan's message was not criticism of NSSTA - as you state in your Blog - but an inspirational "kick-in-the-pants" to reexamine ourselves from within, individually and collectively, a message he consistently states to all his audiences and people. While we have been developing our business model for thirty-five years, since inception of structured settlements as a claim settlement tool, we continue to evolve - similar to the evolution of our nation's Democratic principles - our Founding Fathers didn't anticipate the changes an emerging nation's resilience required - thus the resulting amendments to our Constitution, over many years. Your words do not fall on deaf ears with me. NSSTA and our entire settlement industry needs to continue evolvement as a strong and continuing representative of those disadvantaged by physical personal injury in the settlement arena. There's no one but us who can do it on their behalf. There's no National Association of Injured Victims. It’s only “US”, as well those associations connected with NSSTA to the personal injury marketplace. We need to do this together. NSSTA's protections of the federal tax codes favoring structured settlements are without peer. That was clearly evident at the NSSTA 2010 Annual with the program of congressional representatives and settlement planning speakers, i.e. Joe DiGangi and Karen Myers, among others - people I respect and admire. We remain protected as a tax-advantaged product. NSSTA maintains protection of the tax-code(s) on behalf of the injured - and no one else. NSSTA and its member-contributed PAC dollars is an island unto itself and for that NSSTA and its members are to be commended. Your airing, and blogging of criticisms of NSSTA's leadership activities, necessarily causes us to look at ourselves from that broad brush - what we have done in the past and what we need to do going forward , and for that, you have my continuing respect as a friend, thinker, and critic and I thank you. We require continuing scrutiny - and you provide that -to NSSTA, the SSP and NASP. As a thinker and independent NSSTA critic, I encourage you to be a continuing part of the evolving solution to our issues and, seeming, problems. The positive-end-result is our collective goal. Please continue to be a part of the solution. Let's work together, from within and without, to achieve the best possible result for present and future structured settlement recipients. Joe O'Reilly, CSSC

Well said Joe!

Patrick Hindert has still not commented on the naming of Jack Meligan, Michael Upchurch along with the VERY SIGNIFICANT naming of a factoring company representative to the Society of Settlement Planners Board of Directors.

 

 

Relevance and Social Media Tagging

by John Darer

Could S2KM's Patrick Hindert do any more to ride the creases of a dead man's shroud?

Patrick Hindert posted an online interview with deceased Paralympian Randy Snow in August 2008.  Then when Randy Snow met his untimely demise in November 2009,  Hindert did not make a peep-not a single word to honor this extraordinary individual.

Now in reprint of Evan Krames presentation at the March 2010 ASNP meeting entitled "25 Questions to Evaluate Pooled (Special Needs) Trusts ", he creepily tags Randy Snow among several other social media tags irrelevant to the subject of the post:

• Earl S. Nesbitt, lawyer to the factoring trade association
• Robert W. Wood,  a tax attorney
• NASP, the trade association for cash now pushers and settlement purchasers
• Structured Settlement Surveys
• Structured Settlement Secondary Market 
• Single Claimant 468B
• Structured Settlement Thought Leadership Conference  (run by cash now pusher JG Wentworth)
• structured settlement credo
• NYU Law student Jeremy Babener
• Medicare Secondary Payer Rule (anyone using pooled trusts for MSAs?

I didn't write HIndert's topic sentences, he did

 " Among the strategic consequences of health care reform:

 An estimated 16 million more Medicaid participants - and therefore:

• More special needs trusts;
• More special needs attorneys;
• More structured settlement annuities payable to trustees".

Is making a stink of this "trivial and inconsequential"?  

Consider that inappropriate "kitchen sink" tagging serves to act as a drag on the speed that Internet users can find the information they seek (and it reduces the credibility of your site for search engines). For example If you were looking for something about Randy Snow and ended up with Hindert's latest posting it would be like dressing up in black tie for Phantom of the Opera

and getting a full frontal of Jason Voorhees instead

Paralympian Randy Snow Dies...Patrick Hindert Silent November 26, 2009

 

468B Single Claimant Qualified Settlement Fund OFF Treasury Priority Guidance Plan After 6 Years

by John Darer CLU ChFC CSSC RSP

Has there been too much "crying wolf" about Treasury guidance concerning the Single Claimant Qualified Settlement Fund?

Here's my February 9, 2009 post  "Qualified Settlement Fund Use in Single Claimant Cases"

Make no mistake, the announcement that "the tax treatment of single-claimant 468B qualified settlement funds (QSF) has been eliminated from the list of tax priorities in the Priority Guidance Plan for 2009-2010 on November 24, 2009 by the United States Treasury Department and the Internal Revenue Service" is a real "howler" to some.

As S2KM and TSSG's Patrick Hindert admits "the purpose of the Priority Guidance Plan is to focus United States government resources "on guidance items that are most important to taxpayers and tax administration."

Patrick Hindert's fading star is never more evident in a blog post commentary dated November 28, 2009, about the aforementioned announcement entitled "U.S.Treasury Priority Guidance Plan 2009-2010".

1. He rehashes old arguments that the U.S. Treasury has apparently decided not to address, after 6 years of being on the priority guidance plan.
2. He cites a 3rd year law student with no bona fides as a tax authority and labels him a "QSF analyst".
3. He cites attorney Dick Risk who he says "interprets the decision to remove the single claimant 468B project from the Priority Guidance Plan as evidence that sufficient guidance favoring single claimant 468B QSFs already exists. Risk points to I.R.C. § 7805(d) which requires the Treasury Secretary to “prescribe all needful rules and regulations for the enforcement of [the Internal Revenue Code].” Risk concludes that Treasury’s decision is an acknowledgment that additional guidance is not “needful.”  Wonder why Risk and others have spent 6 years writing why Treasury should issue guidance?

All the above brought to you by some of the same "cast of characters" who previously tried to broaden the definition of structured settlement in IRC 5891(c)(1) to say that it ostensibly establishes rights of plaintiffs to receive structured settlements, despite the Tax Code expressly stating that the definition solely applies to that specific Tax Code section.

This author is not denying that there are merits to the idea of a single claimant 468B qualified settlement fund under certain circumstances. Its proponents however have failed strategically. Perhaps it's time to go back to the stable and saddle up a NEW horse.

Hindert's shameless in desperately trying to opine that there's wiggle room in a statement by San Francisco tax attorney Robert W. Wood. Wood in a recent text wherein Wood suggests that single claimant QSFs be avoided without further clarification. Hindert cites to Wood's "alleged belief" that the regulations "seem to allow the possibility of the single claimant QSF". This lack of academic foundation is both astonishing and disingenuous given that only months ago HIndert was "talking trash" behind Jeremy Babener's dissipation paper. While said paper has been interpreted as an attack on the structured settlement tax subsidy based on alleged lack of empirical evidence to prove 90% of injury victims blow their money in 5 years, Hindert seems to abandon empirical evidence when it suits him.

Pay no attention to this "blatteroon".

 

Web 2.0 is a Big Web Two Point No for Patrick Hindert

As seen on Google search (11/25/2009)

Patrick Hindert (patrickhindert) on Twitter
"Twitter is without a doubt the best way to share and discover what is happening right now".
http://twitter.com/patrickhindert : twitter.com/patrickhindert

Number of Tweets by Patrick Hindert since April 2009  3  Followers 8

So by Hindert's own standards the best way to discover what is happening right now IS NOT to follow Patrick Hindert. 

 

Word has it that Hindert's mentor Indiana professor Denham Grey is spilling "folksonomy soup" over his wayward pupil.

 

Spencer v Hartford Financial Services Group

In posting Spencer v Hartford 4, Patrick Hindert, the Executive Director of TSSG informs us of the schedule of further proceedings in the case. I guess he just wanted to exercise his fingers because you can be sure few people who need or care about the schedule are going to be going to Beyond Structured Settlements to make sure they arent' missing a critical deadline. The trial is set for Fall 2010.

For our readers and those who have no time for pedantics, we have a more viable alternative to stay on top of the Spencer case. It's called PACER.

The PACER System offers an inexpensive, fast, and comprehensive case information service to any individual with a personal computer (PC) and Internet access who is seeking information about Spencer v Hartford Financial Services Group.

An added plus for those who read Hindert's blog is that it's free of the comment spam that often pervades Beyond Structured Settlements.

Public Access to Court Electronic Records (PACER) is described is an electronic public access service that allows users to obtain case and docket information from Federal Appellate, District and Bankruptcy courts, and the U.S. Party/Case Index via the Internet. Links to all courts are provided from the web site. Electronic access is available by registering with the PACER Service Center, the judiciary's centralized registration, billing, and technical support center.

PACER is a service of the United States Judiciary.

I think most practitioners in the settlement industry would agree that the aspect of PAST Hartford Financial Services Group business practices, with respect to the often draconian, at times non competitive structured settlements offered to claimants and plaintiffs against Hartford insureds, were extremely unpopular.

The Hartford program at the time was unique in that despite the credit of the company being downgraded from A+ , until close to the end, if a plaintiff wanted a structured settlement from a Hartford insured, it had to be more of less exclusively funded with Hartford Life Insurance Company.

Up until a certain point following the commencement of litigation in Spencer v Hartford, those fundings were allegedly at a discount to that offered to claimant and litigants who were not litigating against Hartford insured tortfeasors.

Hartford Life Insurance Company made a business decsion to no longer write structured settlements as of November 2009. In September 2009, it was announced that structured settlements emanating from the resolution of a claim or lawsuit against a Hartford insured no longer had to be quoted with Hartford Life Insurance Company.

John Darer and Mark Wahlstrom covered the Hartford Life withdrawal on The Legal Broadcast Network on October 28, 2009