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

John Darer Reviews Structured Settlements: The Ultimate in Predictable Income

Structured settlement expert and Registered Settlement Planner John Darer reviews what is a structured settlement.

Is Attorney Fee Deferral / Structured Attorney Fee Malpractice Looming?

Having been contacted for a number of second opinions recently , I am increasingly troubled by the number of cases where I've observed that those who hold themselves out as competent advisers to plaintiffs are convincing (or attempting to convince) a plaintiff attorney to take an ultra short term structured legal fee over say 2-3 years, the result being that the attorney actually loses money because of the very low to non existent ultra short term rates. The only person that appears to be making money is the structured settlement broker and that's NOT right!

If the attorney wants to structure $1,000,000 the broker will make or split commissions of close to $40,000. So on a 2 year structure where the the total gross payout shows attorney comes out lower than what the attorney has allocated to the deferral is mostly a losing proposition, enriching the insurance agent at the expense of the attorney. The picture is dramatically worse after one takes into account the taxes that the attorney must pay in the tax year he/she receives the money.

In theory, structured attorney fees are advantageous because during the deferral period, there is implicit interest on that portion of the gross amount that would otherwise have gone to the IRS. While the plaintiff attorney may ultimately pay taxes on that money the net after tax amount MAY possibly be better than simply paying the taxes in year 1. It depends on the cash flow. One should not always fear paying one of life's "certainties".

One structured annuity company told this author today that it WILL NOT accept money to fund a structured attorney fee with one of its annuities in which the projected total payout is less than the premium paid to the company.

Until short term interest rates make a meaningful rise to support better pricing, an ultra short term structure would only have a modicum of benefit if the incremental amount being deferred pushes the attorney into a different tax bracket, or if a large gap in the case pipeline presents a near term projected income void that needs filling and the lawyer or firm is willing to accept losing money for the peace of mind.

For a few years a number of industry colleagues have been marketing "companion" loan deals against structured attorney fees. The gist of it is (1) the attorney structured fees over a period of time; (2) shortly thereafter, in an actually separate transaction, the attorney takes a loan from a specialty finance company which is in substance "appears" to be tied in someway to the structured attorney fee. The sales pitch is that you avoid taxes recognition of income now, but "get use of a percentage of the money" via the loan. The transaction obviously depends on a healthy spread to work financially. Where are those spreads coming from today?

There are still plenty of good reasons to structure attorney fees.  

Systematic structuring of attorney fees through laddering annuities and other attorney fee deferral solutions can smooth out highs and lows of interest rates, and payouts.

Attorneys who wish a consultation on structured attorney fees please contact this author, John Darer, at (888)325-8640,  (203)325-8640 from within Connecticut

 

 

 

Short Term Structured Settlements... Don't Get Snookered

Plaintiff attorneys should use caution when encountering a latter day defense tactic that still  occasionally pops up in negotiations, involving pressuring the plaintiff into a structured settlement with payment terms of only a few years in the current environment.  Such moves were popular a few years ago. Whatever the packaging, the primary motivation was to help the adjuster get credit and help the settlement broker make a living. Generally the negotiations involved an agreement to structure an arbitrary amount of money a certain way that held no rhyme or reason when it came to the plaintiff's needs.

If there's something of value to offer that's one thing.  At one point in time there WAS a value to short term structures. There will likely be again in the future when interest rates and tax rates rise. But now? Structured settlements under two years duration offer spendthrift protection but little else in today's market. That may mean something to somebody, but the caveat is that it might cost you or your client money. There are other solutions that may offer more in the short term.Take a look at short term taxable Treasury Rates-they stink!

3 month T-Bill  .14%
6 month T-Bill  .20%
1 year T-Bill     .36%
2 year T-Notes  .90%  Source: Bloomberg.com September 13, 2009


Take a structure purchased now that pays a single lump sum on January 15, 2010 and you live large  on January 15, 2009 with approximately 4.25% less than dough was put in for you. But it's "tax free" LOL...just kidding on the LOL!

A Structured settlement is an excellent long term financial planning vehicle. There many other applications where it truly has great value.

While it is certainly its prerogative to construct an offer of its choosing, extremely short term structures using the above tactic is discouraged. Care must be taken by the defense to gain the best understanding it can of the plaintiff's needs. A better understanding leads to more thoughtful, therefore more attractive offers.

Lawyers Who Moonlight as Structured Settlement Experts

You have to love the "locker room" banter you're starting to hear from handful of lawyers who are moonlighting as structured settlement experts.  "Swinging  it around" 
to measure up as structured settlement experts by advertising the "size" of their experience as trial lawyers is one M.O.  While I have encountered a few practicing lawyers who know quite a bit about structures, or have the potential,  in my experience most lawyers will readily admit that they retain independent settlement consultants because they (lawyers) don't have the expertise, training, licensing or E&O in the area. It's a smart move. An oral surgeon may not be the best person to remove your balky gall bladder.

In this blog we've already skewered the use of absolutes such as "exclusive" and "unmatched". A few months ago I highlighted a structured settlement firm that had a pitiful credit score from Dun & Brad Street yet was still advertising "unmatched financial resources". That beleaguered firm has still not supplied proof to support its advertising claim.

So I come across the website of Structured Settlement Solutions, which is somehow related to the Fearer Nye and Chadwick law firm in Illinois. On a structured settlement website these guys advertise over 50,000 injury victims and 3,000 trials yada yada yawn. An excessive number of "notches on your bedpost" doesn't necessarily mean you're a good lover. What makes your 25 years practicing personal injury law and more relevant than in excess of 25 years in the financial services industry? Furthermore, to what extent is an "actively practicing personal injury lawyer" perceived as a potential business threat to the actively practicing personal injury lawyers he is targeting?The number of litigated cases has little to do with what you can do for plaintiffs as settlement planning consultants. It's a whole different ball game.

Welcome to the field fellas... now get with the program! I don't see anything on the company website that the "lead structure consultant" holds any professional designations of relevance to the financial or settlement planning profession such as CLU, ChFC, CFP, CSSC, CASL or RSP.

Structured Settlement Solutions also makes dubious claims that a plaintiff's structure firm benefits the plaintiff by:

• Maximum rate of return  (see bullet #3, these two points don't always go hand in hand, For example if you use a United States Treasury Structured Settlement you are probably interested in maximum safety and inflation protection provided by TIPS and may sacifice "maximum rate of return")

• Protection from volatile markets (most structured settlements do that- variable stuctured settlements obviously do not)

• Avoidance of unnecessary risk (that's why a plaintiff chooses to do a structure in the first place!)

• Diversification of investments 

There are certainly merits to a plaintiff or plaintiff attorney retaining his or her own settlement consultant, but there is nothing unique about what is being said.

The following appears in the FAQ on injurysettlementsolutions.com:

They Ask: "What are the advantages to using your company?

They claim: Our combination of personal injury law experience and structured settlement experience is unmatched in the industry".

Comment: Does the unmatched relate to personal injury law, structured settlement, both equally, or in combination. Lots of room for confusion and speculation for the consumer. Over reliant on its litigation experience, I'd submit that the firm has little experience in the structured settlement marketplace as a structured settlement producer or as a settlement planner. I haven't seen them at any industry meetings in the last 15 years or so.

They Ask: Given the volatility of the economy are structured settlements safe?

They Claim: History has shown that companies selling structured settlement products are extremely safe and secure. Although there is risk with every financial product, the risk to owners of these financial products is minimal.

Comment: Of course the owners of most structured settlements are qualified assignment companies not the plaintiffs who are structured settlement recipients, annuitants or payees.

They Ask: What states or jurisdictions does your company serve?

They Claim:  "We provide services to the entire United States and all jurisdictions".

Comment: Preliminary research shows that the "lead structure consultant" holds an insurance license in Illinois since December 19, 2007, but DOES NOT hold a life insurance license in Connecticut (where i reside), or in Texas where he is a member of the bar. There is no pro hac vice for selling insurance products like structured settlement annuities. You need a professional license! On the other hand if you want to go to solicit for a "cash now pusher" you don't (for now).

The links page seems like it was bogarted from Structured Settlement Services. Same links, same order except  for Lawyers Weekly USA. Further these folks must be too busy trying all those thousands of cases to pay attention, because the links page includes the same archaic reference "Association of Trial Lawyers of America" as Structured Settlement Services. How many years ago did that organization change its name to American Association for Justice?

Finally on the subject of attorney fee structures, the firm demonstrates that it is adept at the Middle English by using the achaic "payed". Exactly how many years to get all those notches on the legal bed post?

"and the use of proffitt thereof comings shalbe payed to my saied Sister Jone..." William Shakespeare 1616

I guess the moral of this story is "Don't FEARer the Reaper"!