by John Darer CLU ChFC MSSC CeFT RSP CLTC
"Realty Check Ahead" are the words of Patrick Hindert J.D., co-author of Structured Settlements and Periodic Payment Judgments, which is widely considered the seminal text on structured settlements.The words appear on the Independent Life Chronicle blog September 29, 2020 and appear to be Hindert's first foray into the waters of investing in structured settlement payment rights.
The principal risk to downstream investors who purchase previously-factored payment rights is that a court can later vacate the original transfer of payment rights.
Possible reasons: the tort victim/rights holder lacked authority to transfer those rights in the first instance or because court approval of the underlying transfer was later vacated for some other reason (such as contravention of other applicable law).
Possible result: the downstream investors lose their purchased asset.
I understand that Hindert and his co-authors are updating their seminal text an dit will include a section discussing such investments and the attendant risks.
Hindert acknowledges that some secondary market brokers and settlement planners offer these “re-cycled” future payment rights to separate claimants in the context of personal injury settlements. Hindert acknowledges that some package and promote re-cycled structured settlement payment rights as tax-free “in-force annuities.” Significantly Hindert warns, these investments are not annuities and they are not structured settlements as that term is defined in IRC section 5891(c)(1).
The National Association of Insurance Commissioners its Statutory Issue Paper Number 160 expressly stated that acquired structured settlement payment rights are not an annuity or insurance product.
Hindert cites the SEC's Investor Bulletin that includes a number of warnings and resource links and concludes with the following admonition:
"Whether you are thinking about selling a … structured settlement, or buying one from someone else, remember that the risks in doing so are substantial and the safety net if things go wrong may not be very strong. Don’t shy away from asking probing questions—and shop around. there may be less risky alternatives to help you achieve your financial objectives."
Indeed by adopting the Life & Health Guaranty Associations Model Act, 31 states expressly exclude such investments from state insurance guaranty fund protection. For more details please read my August 1, 2020 Settlement News Network blog Are Structured Settlement Investments Covered by State Guaranty Funds?
- Given that Patrick Hindert is yet another authority who questions the marketing of factored structured settlement payment streams and, that the National Association of Settlement Purchasers named Patrick Hindert, as the 2012 recipient of its Alexander Hamilton Award, one would hope that NASP and its members take note.
- One hopes that Genex Capital, a NASP member in 2012 and a company which has relentlessly promoted factored structured settlement payment streams as "Assured Annuities" takes note.
- One hopes that John Bair, CEO of Milestone Consulting and co-founder of a structured settlement factoring origination firm, which on April 20, 2020 published a sales pitch to buy factored structured settlement payment streams using the term annuity, steps up to the plate and stops doing so.