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

Structured Settlements Into Settlement Trust As Shield Against Cash Now Vultures?

by John Darer CLU ChFC MSSC RSP CLTC

Does having structured settlement payments paid into a settlement preservation trust provide better protection than simply relying on state structured settlement

Cash Now Symphony Featuring The Hyena and The Vultures, 'Scavengers of the Worst Kind".   With cash now predators, your structured settlement is either ripped or pecked to death

protection statutes?

How it works

• Payee of the structured settlement is the plaintiff's trust instead of the plaintiff
• A professional trustee is used.
• Court scraping cash now vultures must deal with an intermediary with a fiduciary duty to act in the payee's best interest.
• The professional trustee may be consulted by the payee to discuss the payee's needs, investments, business ideas and loans in the context of fiduciary duty and discuss the best way to address those needs without the only solution being the sale of structured settlement payment rights.
• A professional trustee carries errors and omissions insurance.

What is a Fiduciary?

A fiduciary duty is the highest standard of care.  The person who has a fiduciary duty is called the fiduciary, and the person to whom he owes the duty, is typically referred to as the principal or the beneficiary. If an individual breaches the fiduciary duties, he or she would need to account for the ill-gotten profit. His or her beneficiaries are entitled to damages, even if they suffered no harm. 

Fiduciary duties exist to encourage specialization and induce people to enter into a fiduciary relationship.  By imposing these duties, the law reduces the risk of abuse of a beneficiary by the fiduciary.  As a result, potential beneficiaries can have greater confidence in seeking out a fiduciary.  [ Source: Legal Institute-Cornell University Law School]

Aren't there extra costs associated with having a trust?

Yes, all trustees charge a fee to act as a trustee (fiduciary). Let's assume, for example that the trustee fee is 75 basis points (.75pct) per $1,000,000, that's $7,500 annually.

Arguably a trustee fee is small in comparison to a very bad structured settlement factoring such as the one that Cedric Martez Thomas entered into with false advertisers Novation Funding LLC, where there is no other way to describe it but the seller got raped.

Cedric Martez Thomas is a New York native who did a horrible deal with Novation Funding LLC in Okeechobee County Florida in October 2015. He sold $6,600,000 for a little over $1,000,000 from his AIG structured settlement.  Cedric Thomas could have received more than $2,400,000-$2,500,000 in cash for the benefits he sold according to two structured settlement purchasers that I contacted at the time of his deal. Cedric used the "under inflated balloon" he received from Novation to buy about $700,000 of West Palm Beach area Florida real estate, according to my research, which is not far from the offices of Novation Funding LLC.  Novation continually advertises that they give the maximum payouts and such claims using its DBA Novation Settlement Solutions, are totally false and misleading on the basis of this deal. Because there are no laws that govern the solicitation of structured settlement annuitants by companies such as Novation Funding LLC, and no requirement that such companies be licensed or hold errors and omissions insurance for any financial advice that they may have provided, annuitants can be victimized.

An annuitant can instead interface with a trustee, who again has a fiduciary duty to him or her and discuss these types of deals

The trustee would certainly shop the market place for the best deal if such a deal was in the trust beneficiaries best interest.  For this reason, I doubt that any trustee would have approved Cedric Martez Thjoams' deal with Novation Funding LLC. 

Why aren't the structured settlement protection statutes enough?

In theory yes but recent history has proven that in reality not.  State statutes have not universally kept up with current business practices. Relying on inexperienced unlicensed solicitors, whose compensation is based on a large variable discount rate spread, to provide financial advice is a recipe for disaster.  Deal after deal has been approved in some of the worst cases of abuse where the judge's best interest decision was highly questionable.

Inserting a trustee into the mix assures that a competent fiduciary is accountable to the trust beneficiary. 

Should you use a settlement trust with every structured settlement?

No.  But if there is a concern about stronger protection from the cash now vultures, the use of a trust in conjunction with a structured settlement is one option. The needs of the client are primary when using this or any type of settlement strategy.  The size of the case will come into play as well.

It's a Matter of Trust!

"The closer you get to the fire the more you get burned
But that won't happen to us
Because it's always been a matter of trust"  -Billy Joel

Looking for First Capital Surety & Trust Company?

Are you looking for First Capital Surety & Trust Company?   First Capital Surety & Trust Company was a previous name of what is now known as Capital First Trust Company, a popular trustee for settlement trusts used by settlement planners to help manage personal injury recoveries.

Capital First Trust Company (“Capital First”) is an independent state-chartered trust company with its charter situs being South Dakota. Capital First’s business is to serve as trustee and trust administrator for Settlement Trusts and Wealth Management Trusts, i.e. financial and estate planning trusts. Pursuant to South Dakota statute, Capital First may administer trusts in all fifty states and is trustee for more than 1,100 trusts.  Capital First Trust Company has its administrative offices in Milwaukee, Wisconsin.  

If you have a trust that was originally set up with First Capital Surety & Trust Company and have questions, you may reach out to your original settlement planner if you are still in touch, contact me at 888-325-8640, or call Capital First Trust Company at 800-521-2359.

Looking for Morgan Chase Trust Company?

by John Darer CLU ChFC MSSC RSP CLTC

Are you looking for Morgan Chase Trust Company?   Morgan Chase Trust Company was a previous name of what is now known as Capital First Trust Company, a popular trustee for settlement trusts used by settlement planners to help manage personal injury recoveries.

Capital First Trust Company (“Capital First”) is an independent state-chartered trust company with its charter situs being South Dakota. Capital First’s business is to serve as trustee and trust administrator for Settlement Trusts and Wealth Management Trusts, i.e. financial and estate planning trusts. Pursuant to South Dakota statute, Capital First may administer trusts in all fifty states and is trustee for more than 1,100 trusts.  Capital First Trust Company has its administrative offices in Milwaukee, Wisconsin.  

If you have a trust that was originally set up with Morgan Chase Trust Company and have questions, you may reach out to your original settlement planner if you are still in touch, contact me at 888-325-8640 or call Capital First Trust Company at 800-521-2359.

Settlement Trust Company First Capital Surety & Trust is Rebranded as Capital First Trust Company

by John Darer CLU ChFC MSSC RSP CLTC

Who is Capital First Trust Company?

Capital First Trust Company is an independent, South Dakota-state chartered trust company with its principal office in Sioux Falls, South Dakota and an office located in Milwaukee, Wisconsin. Capital First was originallly known as First Capital Surety & Trust before an July 28, 2016 rebrand. Capital First Trust Company focuses on Personal Injury Settlement Trusts, Special Needs Trusts, and Advisor Directed Trusts. 

The rebranding made sense, descriptive of the nature of settlement trusts and the need of many personal injury settlement recipients to preserve capital.

CAPITAL FIRST=PRESERVE CAPITAL

What is Capital First Trust Company's Business?

Capital First’s business is to serve as trustee and trust administrator for Settlement Trusts and Wealth Management Trusts, i.e. financial and estate planning trusts. Pursuant to South Dakota statute, Capital First may administer trusts in all fifty states and is trustee for more than 1,450 trusts.  Trusts can be invested in common trust funds or, in the case of directed trusts,  a trust’s assets are invested and managed by an entity other than Capital First, such as an RIA, broker dealer, financial planner or other investment service provider.

• Supplemental Needs Trust
• Medicare Set Aside
• Settlement Preservation Trust
• Life Insurance trusts (ILIT)

Where is Capital First Trust Company Located?

Capital First Trust Company 230 West Florida , Suite 400 Milwaukee, WI 53204

Last updated September 15, 2024

Special Needs Trust With Structured Settlement Yes or No?

by John Darer® CLU ChFC MSSC RSP CLTC

A structured settlement whose payments represent damages on account of personal physical injury, physical sickness, workers compensation or wrongful death, provides income that is tax free to the recipient of the structured settlement payments. [see IRC 104(a)(1) amd IRC 104(a)(2) as applicable].

Structured settlements may be an appropriate vehicle to be used in conjunction with a Special Needs trust (generally referred to as  a Supplemental Needs Trust in New York) to provide investment stablity and reduced expenses of the recovery.

On its website, one of my industry colleagues also purports that using a structured settlement will be useful in "preventing the taxation of interest income within the SNT".  This is untrue.

A structured settlement has absolutely no bearing on the taxation of interest income within the Special Needs Trust. Absent an investment in tax exempt investments, once structured settlement payments are deposited in to the SNT,  the interest subsequently earned on the structured settlement payments is taxable. 

The use of a structured settlement created outside a Special Needs Trust with payments feeding into the SNT,  may be helpful when comparing the potential outcome of the  investment of a comparable amount to the cost of the structured settlement by the trustee of the SNT in a permissible taxable investment.

 

Securant Sells Settlement Trust Group to Midland States Bank

Securant Bank has agreed to sell its Settlement Trust Group to Midland States Bank
based out of Effingham Illinois.

Midland States has been recognized as the 12th fastest growing wealth management division in the United States by Investment Professionals Inc. (IPI).  In an August 2012 press release, Midland states that IPI’s annual commissioned report measures and benchmarks wealth management performance of banks throughout the U.S. In the IPI commissioned report, the Michael White Associates consulting firm analyzed data from 7,600 commercial banks and bank holding companies as of December 31, 2011. As of June 2012, Midland States had $1.5 billion in assets, with over $800 million in assets under management,  the majority of which were trusts. 

 

Securant Bank & Trust Troubling Stats | 4th Biggest Loss of Wisconsin Banks

Wisconsin Banks continued their steady improvement in the second quarter of 2012, but Securant Bank and Trust, whose trust operations are promoted by certain settlement planners and national marketing organizations,  continues to suffer some of the worst losses, according to this article in Milwaukee Wisconsin Journal Sentinel on August 28, 2012. The Journal Sentinel cited an August 28th report released by the Federal Deposit Insurance Corporation (FDIC).

This author conducted some additional research and discovered some absolutely shocking financials

A. Troubled Assets increased by 25% from $16.14M  Q1 2011 to  $20.58M  Q1 2012. Securant's troubled asset ratio has steadily increased in the last 5 years and now exceeeds 105. The national median is about 17% of Securant's trouble asset ratio.

Troubled Asset Ratio is derived by adding the amounts of loans past due 90 days or more,  loans in non-accrual status and other real estate owned (primarily properties obtained through foreclosure-see below) and dividing that amount by the  bank's capital and loan loss reserves. It is reported as a percentage.

See How Healthy Is Your Bank? Securant Bank & Trust     

Source: banktracker.investgativereportingworkshop.org American University

B. Other Real Estate Owned doubled year over year!

C. Capital Decreased by about one third from $19.75M to $12.97M

D. Assets shrunk by 12%

Related Reading

"When a Bank Fails , Are Trust Assets At Risk?

Securant Bank & Trust's Texas Sized Texas Ratio; Very Weak Weiss Rating "E" ek!"

 

 

Settlement Preservation Trust v Special Needs Trust

by John Darer CLU ChFC MSSC CeFT RSP CLTC

The Difference Between a Settlement Preservation Trust and a Special Needs Trust

What is a Special Needs Trust? What Is a Settlement Preservation Trust? Are they from the same genus, like Charles Darwin's finches? Apparently a Florida based settlement planning firm thinks so and states on the Internet that "a Settlement Preservation Trust is a type of Special Needs Trust". Is It?

Darwin Finch

Let's take a look at the answer.

A Special Needs Trust is primarily governed by federal law under 42 U.S.C. § 1396p (d) (4) and its primary purpose, in a settlement context, is to preserve the plaintiff's/ trust beneficiary's eligibility for Medicaid, SSI and other governmental programs

The special needs trust must be carefully drafted to comply with Medicaid and SSI rules in order to preserve the eligibility. A Special Needs Trust is designed to supplement rather than supplant government benefits.

A Settlement Preservation Trust, also known as a Settlement Planning Trust or Settlement Management Trust is an alternative less restrictive recovery management device that can be used on a stand-alone basis, or in combination with one or more structured settlement annuities.

A Settlement Preservation Trust can provide:

1. Spendthrift protection
2. An alternate means of generating periodic payments to a plaintiff
3. Controlled liquidity
4. Flexibility
5. If used in combination with a structured settlement, a receptacle to receive periodic payments from the structured settlement annuity for further recovery management and measured distribution if desired.

Examples of Use of a Settlement Preservation Trust

• A Settlement Preservation Trust can be drafted to anticipate that the beneficiary may need governmental benefits in the future.
• A Settlement Preservation Trust doesn't doesn't typically have a Medicaid payback provision.
• A Settlement Preservation Trust may be set up for a limited purpose like assuring funds invested ( or part of a structured settlement that makes a series of lump sum payments) intended for college will indeed be available for college for the children of a deceased plaintiff.

More information on Settlement Preservation Trust

Structured Settlements and Settlement Planning For Minors and Children

Photo: Wikipedia

Securant Bank & Trust's "Texas Sized" Texas Ratio; Very Weak Weiss Rating "E"-ek!

There has been alot of bad press for Securant Bank & Trust in the last few months as key ratios and a third party rating agency put the bank in a very weak position. Given that Securant's Trust Group is featured on the websites of one or more national structured settlement firms (each of which paints a sunny picture of the institution) the timing of this post seems appropriate.

First the bad news  (Sources: FDIC and BestCash Cow.com)

Texas-sized Texas Ratio

As of December 31, 2011, Securant Bank & Trust had $11,677,000 in non-current loans and $6,706,000 in owned real estate. To cover these potential losses it had $14,972,000 in equity and $7,432,000 in loans loss reserves. That gives it a Texas Ratio of 82.05%. compared to a U.S. Bank Average of 19.96%.  The closer the Texas Ratio is to 100% and over, the less capital and reserves a bank has to absorb its loan losses. Securants' Texas ratio rocketed from to over 80% in less than 3 years.

Negative Return on Equity

Securant Bank & Trust has a Return on Equity of -27.9% versus the U.S. Bank average of 6.78%. Return on equity measures how efficiently a bank is making money from its capital. A bank with a consistently high ROE can be considered well run. A bank with a consistently low ROE can be considered poorly run.  

Lower Than Average Capitalization

Securant Bank & Trust has a Capitalization of 6.6% versus the US Bank average of 11.18%. Capitalization measures how much equity capital a bank has to underpin loans and other assets on its balance sheet. The higher the capitalization number the more secure a bank is considered.

Balance Sheet Analysis

As of December 31, 2011, Securant Bank & Trust had assets of $226,697,000, loans of $168,816,000, and deposits of $197,826,000. Long-term increases in deposits shows a bank's ability to raise funds to grow its loans and assets.  A major structured settlement firm uses old data in it marketing materials concerning sEcurant Bank & Trust stating that its assets exceed $250 million, a level it has not reached since 2009.

Weiss Rating E (Very Weak Financial Strength)  March 5, 2012 Review. Securant has  held a C or worse rating for 7 years and a D or worse for the last 4 years

Should you Be Worried If You Have a Trust with Securant Bank & Trust?

In my February 18, 2011 post "When a Bank Fails , Are Trust Assets At Risk?  I discussed the effect of  bank failures on trust assets after Wisconsin based Securant Bank & Trust  was subject to an FDIC consent Order in August 2010. The banks finances have worsened since, as is clearly evident from the above. 

For clients and trust beneficiaries, it is my understanding that unless the client’s assets are invested in the stock of a failed bank or in its money market funds beyond any insurance, or the assets are improperly titled, there should be no risk of asset loss and no problem other than inconvenience to a client of a trust department of a failed bank. Assets of a trust department are not assets of the bank

Indeed the marketing materials of Securant Bank and Trust posted on an industry website state that trust assets are custodied at another institution, U.S. Bank*.

Nevertheless, settlement consultants face an obvious challenge in marketing a brand with such negatives. For those that push it, isn't it ironic that in some quarters an A (Excellent) A.M.Best rating for insurance company is problematic, yet an "E"-ek Weiss rating here is acceptable?

Errors and Omissions insurers are now excluding coverage for placing certain financial products with institutions that do not meet certain rating thresholds.

* U.S. Bank is the name of a financial institution. The averages referred to above are based on a national average of banks across the USA.

 

 

 

 

Settlement Trust Fees: "How Much is That Trustee In The Window"?

by John Darer® CLU ChFC MSSC RSP CLTC

Do you know how to compare the fees charged for a settlement preservation trust, settlement planning trust, recovery management trust or a special needs trusts? How do you distinguish the cost structure of two or more trustees? In this and future posts and podcasts we will examine aspects of the decision to select a trustee for your trust. This post helps to sort through the fees and charges that could be directly or indirectly incurred by trust beneficiaries.

Yes, "How Much is That Trustee in the Window"?  Start humming while you're reading...

 

 

There is no question that where they make sense and , if necessary, have been court approved, settlement trusts add value to the settlement planning process. They can provide spendthrift protection, liquidity, flexibility, are an alternate means to create periodic payments when constructive receipt has occurred and, if used in conjunction with a structured settlement, may act as a receptacle to receive periodic payments on behalf of the trust beneficiary to protect them from from hangers-on.

Trust fees fall into these three general categories:

1.Account Level Trustee Fees

Cost associated with the trustee discharging his/her/ its fiduciary duties. What is being advertised in published fee schedule and reflected on account statements in transaction activity. These are fees that you can figuratively see, smell and touch. Is there a minimum annual fee?

2. Investment Costs  (note: could be one , all or some)

Costs inherent in the investment choices made with the trust assets, whether through common trust funds, mutual funds or money managers assigned to a specific asset class.

A. Outside advisory fees

Cost associated with hiring outside advisors and experts ( is it out of trustee's pocket or out of client's pocket)

B. underlying investment vehicles loads, investment charges, within the vehicle and netted out of performance...not on account level.

Note: account level investment charge would show up on statements

C. account level fee charged by trustee or investment advisor

3. Additional Miscellaneous charges

• Fee to prepare tax return
• Special asset charges
• Check charges
• Front end load just to set up trust (have seen them range from 2%-4%) One vendor refers to this charge as a "funding fee" 
• Fees to manage real estate