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

United States Owned Structured Settlement Annuity Saves The Day in TX for Estate over Ex-Hubby

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Not reviewing and/or updating and confirming the beneficiary designation on your structured settlement can have unintended  consequences as I wrote October 30, 2018 in Unintended Consequences Can Result From Not Updating Beneficiary When Life Changes.

It could mean leaving the residuals to your long gone ex-spouse, over your children or parents.

Review your beneficiary with any life change

The United States District Court for the Southern District of Texas (Houston Division) was tasked with resolving competing claims in an interpleader for remaining certain payments after the death of a North Carolina woman in 2017.

Background

In 1987, Jennifer Lauren Wheatley settled a medical malpractice lawsuit against the United States through a settlement stipulation. The settlement provided in part that the United States would purchase an annuity that would pay Wheatley $1,000 “per month, increasing at 4% compounded annually, for life, commencing at age 18, guaranteed for 30 years.” Pursuant to the settlement, as is common practice with settlements with the government, the United States entered into an annuity contract (the “policy” or “annuity policy”) in 1988 with John Hancock Life Insurance Company.

In the typical structured settlement there is a qualified assignment of the future periodic payment obligation, pursuant to IRC 130. The qualified assignee is the applicant and owner of the structured annuity policy that is purchased of the so-called qualified funding asset.

The annuity policy provided for both lump sum payments and monthly payments. Only the monthly payments are at issue in this case. Per the original terms of the annuity policy, Wheatley was the annuitant who was to receive the monthly payments throughout her lifetime. Wheatley’s “executors or administrators” were designated as the beneficiary who would receive the monthly payments after Wheatley’s death. 

Change of Beneficiary Filed Without Policyowner's Consent, But John Hancock Accepted

In December 2008, Wheatley submitted a Beneficiary Designation-LIFE form (the “change of beneficiary form”) to John Hancock. This change of beneficiary form revoked previous beneficiary designations and named Ward, Wheatley’s spouse at the time, as the primary beneficiary.  The secondary beneficiary was Annie M. Hall, Wheatley’s then mother-in-law. John Hancock confirmed this change in beneficiary in January 2009. 

Wheatley died in October 2017, before the end of the period certain on the annuity. Her father was appointed Adminstrator of her Estate by the General Court of Justice of Guilford County, North Carolina. 

Shortly thereafter, John Hancock began receiving conflicting claims to the annuity proceeds. In November 2017, John Hancock received a letter from the Estate Defendants claiming that they were entitled to payments from the annuity. Then, in May 2018, John Hancock received a claim form from Wheatley's ex Jeremy G. Ward also seeking payment as the beneficiary of the annuity for the period from December 2017 through May 2018. John Hancock remitted $12,468.06 to Ward for the monthly payments under the annuity from December 2017 through May 2018 (the “Disbursed Payments”).John Hancock continued receiving correspondence from the Estate Defendants claiming that they were the entitled beneficiaries because the United States as the designated owner of the annuity was required to approve any change of beneficiary, and it did not consent to Wheatley’s 2008 change of beneficiary.

Due to the conflicting claims, John Hancock began withholding the monthly payments in June 2018. John Hancock filed the present statutory interpleader action in this Court pursuant to 28 U.S.C. § 1335 in August 2018. John Hancock is currently paying the monthly annuity funds to the Court pursuant to 28 U.S.C. § 1335.The Estate Defendants and Ward both asserted counterclaims and crossclaims in their Answers. The Estate Defendants asserted counterclaims for declaratory judgment, breach of contract, and negligence against John Hancock arising from the wrongful payment of the Disbursed Payments, and a crossclaim for declaratory judgment as to the Disbursed Payments against Ward.. The Estate Defendants subsequently requested leave to amend their Answer to include a fourth counterclaim against John Hancock for failure to pay and a delay in payment of the annuity benefits under Texas Insurance Code § 542.058 and attorneys fees.

The annuity policy unambiguously requires the owner’s written consent to change beneficiary designations. Under the policy, a “beneficiary” is “a person who is to receive, after the death of the annuitant, any annuity payments due.” The policy explicitly provides a mechanism for changing the beneficiary: in its “Change of beneficiary” provision, the policy states that “[d]uring the annuitant’s lifetime you can change the beneficiary; you must give us [John Hancock] notice in written form satisfactory to us.”  “[Y]ou” is defined as the owner of the annuity policy. Furthermore, the application for the annuity, which is deemed to be part of the annuity policy,

Source: Memorandum Decision and Order November 13, 2019 in JOHN HANCOCK LIFE INSURANCE CO. Plaintiff, VS. THE ESTATE OF JENNIFER LAUREN WHEATLEY, et al,Defendants.  US District Court Southern District of Texas 4:18-cv-02689

Lessons to Be Learned

1. Periodically review and if necessary, update beneficiaries on insurance policies, annuities and other financial accounts with any life change. 
2. If you are receiving structured settlement payments, you are NEVER the owner of the annuity or other asset funding the obligation to make the structured settlement payments to you. You only have the right to receive the periodic payments. This is for tax purposes. The owner is most often a qualified assignment company or a non qualified assignment company.  With United States government cases under the Federal Tort Claims Act  (FTCA), the United States is usually the owner.
3. In assigned cases the owner, the assignee, gives you the ability to update/change your beneficiary but submitting request using their form.
4. If your structured settlement payments arise out of legal settlement with the United States, you must get the consent of the United States, as owner to change the beneficiary. Address the procedure upfront when you settle the case.

 

 

Does a Court Have to Set Up a Structured Settlement to Avoid Taxes?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Courts do not set up structured settlements. Therefore a Court does not have to set up a structured settlement to avoid taxes

Don't get Verklempt! Structured settlements are tax exempt for payment of damages under IRC Sections 104, 130 and 139F. Court approval is not necessary for the tax exemption

In some cases, a Court must approve a settlement, regardless of whether it includes a structured settlement.  Here are some examples of where court approval of a settlement is generally required:

1. Settlements involving payments to minors
2. Settlements involving payments to incompetents
3. Wrongful death settlements

Damages are a sum of money paid as compensation for a loss or an injury. It is the type of damages that govern the taxation.

These types of damages are tax exempt:

Internal Revenue Code Section 104(a)

(1)

amounts received under workmen’s compensation acts as compensation for personal injuries or sickness;

(2)

the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as perioidic payments) on account of personal physical injuries or physical sickness;

 

Internal Revenue Code Section 139F

    (a) In the case of any wrongfully incarcerated individual, gross income shall not include any civil damages, restitution, or other monetary award (including     compensatory or statutory damages and restitution imposed in a criminal matter) relating to the incarceration of such individual for the covered offense     for which such individual was convicted.

 

 

 

Structured Settlement Industry Production Soars Above $6B | 2018 Was Highest in a Decade

by John Darer CLU ChFC MSSC CEFT RSP CLTC

By all accounts, 2018 was the best production year for the structured settlement industry primary market for a decade.  Here are the highlights:

• Total premium $6,019,384,091.  That was an increase of 8.45% over 2017.
• Three insurers received in excess of $1B in premiums
• Prudential did just under $1B, tripling 2017 production.
• USAA more than doubled its 2017 production.
• Leading underwriter Berkshire Hathaway, which had a dip in 2017, returned to its customary level.
• The number of cases structured increased by 4.27%, the best since 2013 and the second best increase in the last decade.

Numbers are even more impressive given  the few hurdles straddled in 2018

• These results are quite a statement given that a major player in the non qualified structured settlement market Liberty Life Assurance Company of Boston ceased writing in February 2018. Liberty represented more than $522M in premiums in 2017.
• Metropolitan Tower Life Insurance Company, which began offering a non qualified structured settlement solution in January picked up some of the slack. More good news to come later this year when Met rolls out a structured installment sale funding  solution.
• The "agita" over Berkshire Hathaway's good faith attempt to look after consumers with its Hardship Exchange Program turned out to be a tempest in a teapot.
• The AIG Structured Settlement Class Action, which was dismissed with prejudice in September 2018 was a complete non factor despite the best efforts of a few would be "saboteurs" from within the industry and without. While the plaintiffs have appealed, the plaintiffs appeal is as unimpressive as original complaint and the amended complaint.  

If any year proved the value of structured settlements it was 2018. The stock market achieved a schizoid level of volatility. Such times makes people appreciate the advantage of "going with the flow". The structured settlement flow.

 

US Court of Appeals Affirms Summary Judgment | USA Does Not Have To Fund ELNY Insolvency Shortfall

by John Darer CLU ChFC MSSC CeFT RSP CLTC

The United States Court of Appeals has decided that The United States DOES NOT have to make up an insurer shortfall to an annuitant 33 years after personal injury litigation was settled against the United States Department of the Army.

The original personal injury litigation involved a birthing injury sustained at a US Army Hospital in 1979. A compromise settlement included the purchase of 4 annuities all of which were placed with Executive Life Insurance Company of New York  (ELNY), which went into rehabilitation in 1992 and was eventually liquidated in 2013.

The Shaws filed suit against the government in the United States Court of Federal Claims (“Claims Court”) alleging a breach of their settlement agreement and seeking damages measured by the difference between the original payments and the reduced payments.

It's a hard "Nutt" to crack

The Claims Court found no breach and granted summary judgment in the government’s favor. Because the agreement did not make the government a guarantor of the annuity payments.

In its August 20, 2018 decision in KAREN L. SHAW, INDIVIDUALLY, AND KAREN L. SHAW, AS GUARDIAN OF THE PERSON OF RICHARD SCOTT SHAW, AN INCOMPETENT, RAYMOND A. SHAW, INDIVIDUALLY, Plaintiffs-Appellants v. UNITED STATES, Defendant-Appellee  2017-2136  Appeal from the United States Court of Federal Claims in No. 1:14-cv-00783-MMS, Judge Margaret M.Sweeney, the United States Court of Appeals concluded:

"Thus, the Shaws’ agreement, even more than the one at issue in Nutt, unambiguously cabined the government’s obligations to the initial lump-sum payments and the purchase of the annuity and did not obligate it to guarantee the future payments by the annuities. We reach this conclusion even in the absence of language, present in future payments will be paid. This minimum payout provides payments to the heirs of the now-dead payee Nutt, concerning the insurer’s rating and the government’s role in the event of the insurer’s default, which supported but was not necessary to the result in Nutt. See Nutt, 837 F.3d at 1298. Because the agreement is unambiguous in this respect, we need not consider the extrinsic evidence offered by the Shaws". Download Shaw - 49 - Affirmed (precedential) USCA 8-20-2018 #ELNY

Also citing to Nutt, in its decision in Trevor Langkamp v The United States  No. 15-764C  filed March 20, 2017,  which also cited to Nutt, the Court of Federal Claims concluded "that the plain language of the Settlement Agreement at issue in this dispute demonstrates that the government contracted to purchase annuities to make the future, periodic monthly and lump-sum payments required under that agreement.  The plain language of this agreement also demonstrates that the government did not unequivocally guarantee that it would make these payments in the event of a default by the annuity company.  And so, the undisputed material facts in this matter show that the government is not liable to plaintiff for the remaining annuity payments required under the agreement".Download 59 - Langkamp - Decision  #ELNY

 

 

Structured Settlements | The Year in Review 2017

by John Darer CLU ChFC MSSC CeFT RSP CLTC

It has been quite a year, punctuated by the tax reform bill which leaves fundamental structured settlement tax rules intact. On a personal level I earned the Certified Financial Transitionist (CeFT) professional designation, my seventh, and am one of only two settlement advisers in the structured settlement industry who have earned the CeFT.  A CeFT is trained and certified in the human experience of adapting to financial change which is experienced by many settlement recipients.

Following is a digest of the Year in Review which includes some potentially game changing news resulting from outrageous conduct in the structured settlement secondary and tertiary market.

January 2017

The United States Department of Justice challenges another attempt to factor a United States owned structured settlement annuity and wins  [Bexar County Texas on Behalf of Jose L. Cruz, Case Number 2016-CI20542] 

The chips in Annuity Sold's Richart Ruddie's Google de-indexing scam begin to fall on the fraudster. Richart Ruddie's plan, which drew the interest of the Washington Post, law professor Eugene Volokh and the Public Citizen law firm, exposed how Ruddie arranged to have defamation suits filed in various state and federal courts around the country, submitting forged consent orders signed by non-existent defendants. Ruddie's firm charged money to customers of his reputation management company, Profile Defenders, to effectively scam Google into de-indexing, while inveigling other firms associated with him and Owings Mills high school buddy Ryan Blank, Annuity Sold a structured settlement factoring intermediary from Owings Mills MD and RIR 1984 LLC in the Rhode Island scam. On January 31, 2017, a Rhode Island Federal Judge vacated the Order in Bradley Smith, Plaintiff v Deborah Garcia, Defendant and Myvesta Foundation Defendant-Intervenor  C.A. 16-144S.

Lawsuit against AIG  

February 2017  

A chilling story about how an investor lost $152,833.37 in retirement savings invested in structured settlement derivatives due to a fraud by an imposter seller.  The structured settlement derivatives were marketed to the investor as "high yield low risk financial products" using the scam label "secondary market annuity"

Retiree investors in structured settlement derivatives  marketed to them using the scam label " secondary market annuities"received correspondence from INF Settlement Trust, the servicing company that Access Funding used, stating that "payments assigned to you have become part of a court action initiated in the state of Maryland. We have been informed by one or more of the insurance companies' legal counsel involved that they consider this a competing claim, For this reason they have decided to withhold payments until the issue is resolved in court".  It was evident on review that none of the marketing materials covered transactional risk.

March 2017

 

 

Prudential Financial, whose Prudential Insurance Company of America issues structured settlement annuities, is named the  most admired life insurance company in the world, in the 2017 Fortune World Most Admired Companies survey. 

 

Berkshire Hathaway, which includes global reinsurer National Indemnity Company, structured settlement annuity issuing life insurers Berkshire Hathaway Life Insurance Company of Nebraska and First Berkshire Hathaway Life and Columbia Insurance Company, guarantor of its qualified assignee BHG Structured Settlements, Inc. is named the most admired P&C company in the world and the 4th most admired in the world of the top 500 companies, an outstanding achievement.

The United States Court of Federal Claims decided that the United States DOES NOT have to make up a shortfall to an annuitant of an Executive Life Insurance Company of New York annuity, more than 30 years after personal injury litigation settlement against the United States Department of the Army. [see Trevor Langkamp v The United States   No. 15-764C  filed March 20, 2017]

Peachtree  (a JG Wentworth company) alleges that Rapid Settlements (now RSL Funding) peruses court filings to intercept and "poach" its clients by providing a more generous offer before the court can approve the arrangement with Peachtree. According to Judge Jolly, the third-party complaint alleges that Peachtree and J.G. Wentworth conspired to artificially depress prices in the structured settlement (secondary) market. Squawking to the 5th Circuit didn't amount to a Peach pittance as the court dismissed for lack of jurisdiction.

Felon Thomas Rubino,  a former paralegal with Paris & Chaikin who was indicted by a New York Grand Jury on 234 counts of forgery Download Thomas Rubino Paris Chakin paralegal Grand Jury indictment, forged 76 judge's signatures on 117 structured settlement transfer documents to the detriment of the clients of New York law firm, Paris & Chaikin and led to multiple law suits against his former employers, was sentenced to only 6 months in jail, when prosecutors recommended 2 to 6 years. 

Fraudster Richart Ruddie has settled the civil case for $71,000 and Ruddie was in the process of plea bargaining with the Rhode Island United States Attorney in the criminal investigation into his phony lawsuit scam of the Rhode Island District Court.

Recycled Structured Settlement Income Stream Exchange founder Todd Dyer is sentenced to 15 Years in Jail for Fraud.  Dyer's rap sheet included Todd  Dyer previously serving time for his involvement in a Ponzi scheme

In its March 31, 2017 decision in Karen L. Shaw et al v The United States  (no. 14-783C),  the Federal Court Claims concluded, in another Executive Life Insurance Company of New York related case that the plain language of the January 24, 1985 Settlement Agreement demonstrates that the government did not unequivocally guarantee that it would make annuity payments in the event of a default by the annuity company.

April 2017

Berskshire Hathaway CEO Warren Buffet underscored the company's support for structured settlements, saying that "more people want to put their structured settlements with Berkshire Hathaway than anyone else". Buffet estimated that Berkshire takes in about $20-30 million every week in structured settlement premium

A name partner in the Scottsdale Arizona law firm of Kelly Warner, which represented Richart Ruddie in the 2012 Walters v. Coopers Picks LLC case where Richart Ruddie, now of Annuity Sold (JRR Funding, Einstein Structured Settlements, SEO Profile Defenders etc) was sued for Conspiracy and Deceptive Trade Practices. During his research, UCLA Law Professor Eugene Volokh found multiple lawsuits that were filed by Daniel Warner and Aaron Kelly that appear to have fake, non-existent defendants & have fake notarizations

Ruddie's Owings Mills based factoring intermediary Annuity Sold,  hires Brian Pettiford, operating under the alias  of Mark Belford, a former Seneca One "Annuity Specialist", who was sued in a Civil RICO case in 2010 over a Financial Sham in which he improperly used the Trump name in marketing properties in Puerto Rico.  Pettiford (Belford) also was tagged with a $1.2M financial judgment against him in 2015 along with former co-worker Khojo Poole.

On April 9, 2017, the New York State Senate passed a budget that includes a $163-million annual initiative to offer free full-time undergraduate tuition at public colleges and universities to students with an annual family income of $125,000 or less  [ see  NY Settlement Planning Options | Free Tuition at NY State Colleges for Qualifying Families (Excelisor Scholarship) 

The Consumer Financial Protection Bureau issued a Warning to Consumers About Selling Their Structured Settlements in response to "What should I know before giving up my monthly disability, personal injury or structured settlement payments in exchange for a one-time lump sum payment.

May 2017

MetLife announced on May 3, 2017 that Metropolitan Tower Life Insurance Company  ("MetLife Tower Life"), a Delaware company and wholly owned subsidiary, fomerly known as Metropolitan Insurance and Annuity Company, will become the primary underwriting company for structured settlement annuities.  Metropolitan LIfe Insurance Company remains an option.

Berkshire Hathaway Life Insurance Company of Nebraska announced the roll out of a pilot awareness campaign for its Hardship Exchange Program (HEP). Berkshire Hathaway has picked up the mantel on dealing with factoring and bridging the brand retention gap that exists for structured settlement annuity issuers when annuitants sell structured settlement payments rights.

Vacated structured settlement transfer order insurance becomes available, inspired by financial losses by investors. Investors in structured settlement derivatives can now avail themselves of an insurance product placed through certain underwriters at Lloyds of London, that provides some limited protection against the transaction risk of overturning approved structured settlement transfer orders. For investors, the policy is first taken out by the structured settlement factoring company and then the investor is added, at an extra cost at the point of sale on a pay as you go basis.

June 2017

TD Ameritrade's  Manchester NH branch steered a disabled couple looking for a managed account to chat rooms where they lost about half a million dollars from a disability settlement, according to the clients’ FINRA arbitration filing and a report in Financial Planning magazine.

The latest attempt to factor a United States government owned structured settlement,  by a Delaware company called Standard Management Services, Inc.  was swiftly denied by Sarasota Florida Circuit Judge Kimberly C. Bonner. [See  In Re: Standard Management Services, inc.,a Delaware Corporation, Petitioner v Peter MacLay and New York Life Insurance Company Respondents   12th Circuit FL Case No.:58-2017 CA 000050 SC}July 2017

 Wesley Michael Woodyard, 65, a former structured settlement broker with Ringler Associates from Dallas, was sentenced to 87 months in prison this morning. Woodyard was arrested last year in Minnesota after a year on the lam.  Woodyard was convicted for his role in defrauding ACE and other insurers for excess of $4 million.  The agency with whom Woodyard was affiliated, previously settled with the insurers.

A 2014 Oregon lawsuit brought against Ringler Associates and its former President Paul Hoffman has settled. This author understands that the monetary aspect of the settlement was modest. Moreover, the Stipulation of Voluntary Dismissal with prejudice makes it clear that a class action was never certified.

August 2017

Best Review's August 2017 issue shows that based on 2016 data, structured settlement annuity issuers are part of 50% of the Top 12 US insurance holding companies Maryland Court denied Access Funding’s long-pending motions to dismiss in a one-page order stating that the motions were denied and that a memorandum explaining the denial would follow

Discovery reveals smoking gun in lawsuit v Aviva termination of Capital Maintenance Agreement

September 2017

A class action lawsuit filed September 14, 2017, alleges Portsmouth Virginia Circuit Court judges were complicit in an "Annuity Fraud Enterprise" scheme, in which a Virginia lawyer and 79th District delegate Stephen E. Heretick was the central figure, representing JG Wentworth, Seneca One, 321 Henderson Receivables and other settlement purchasers, that allegedly violated the rights of thousands of structured settlement annuitants. { see Larry G. Dockery, On behalf of himself and all others similarly situated, Plaintiffs v Stephen E. Heretick, 321 Henderson Receivables, LLC, JG Wentworth Receivables, LLC,  Seneca One Finance, Inc., Structured Settlement Investments, LP,  Structured Settlement Purchaser John Doe Inc. Purchaser Defendants 1-100 and John Doe Individual Defendants 1-100 and  New York Life Insurance Company, Metropolitan Life Insurance Company, Symetra et al*.  United States District Court Eastern District of Pennsylvania Case 2:2017:cv-04114-MMB]

Explosive lawsuit filed by Seneca One against against another factoring company, alleges siginificant shady business practices including among other things that Defendants, Jeremy Wuight and US Annuity Services engaged in, backdating the disclosure statements, creating fake documentation, forum shopping, altering contracts,fake cancellation letters,using affiliated entities to deceive customers, paid imposters to provide false testimony in court,copied and pasted notary stamps, forgery, concealed identity through the use of aliases  [see Seneca One Finance , Inc. v Jeremy Wright and US Annuity Services, LLC and John Does 1-5*  Circuit Court Montgomery County MD Case 436464V] 

The September 21, 2017 episode of The Blacklist, an American crime thriller television series on NBC has a plotline that is clearly inspired by the Access Funding exploitation of lead paint victims with structured settlements from Baltimore City.

October 2017

Independent Life Insurance Company, a Texas based life insurer, exclusively focused on providing annuities for the structured settlement market opens for business

The United States Tax Court concluded in T.C. Memo 2017-191 that the settlement proceeds compensated a plaintiff for damages she suffered on account of disability-based discrimination, reprisal for engaging in protected Equal Employment Opportunity (EEOC) activity, and an improper medical inquiry; no portion of the settlement proceeds represented damages on account of personal injury or physical sickness. The Court held that petitioners may not exclude any portion of the settlement proceeds from gross income. LAURA STEPP AND KALEB STEPP, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent No. 13384-14 UNITED STATES TAX COURT filed September 27, 2017

Defendants Athene London Assignment Corporation (f/k/a Aviva London Assignment Corporation), Athene Holding Ltd. (“AHL”) , and Athene Annuity and Life Company (successor to Aviva Life Insurance Company) (collectively, “Athene Defendants”) and Plaintiff John W.Griffiths reached a class-wide settlement in the class action lawsuit over the termination of the Aviva Capital Maintenance Agreement in conjunction with the sale of Aviva USA to Athene in 2013

IFS attempt to trademark the slang term "Structures" is denied by the United States Patent and Trademark Office which after IFS' appeal, issued a Suspension Letter of IFS subsidiary Structures, Inc's application to trademark the word " Structures" (the details of which were in yesterday's post).The suspension letter indicates that the USPTO found the IFS subsidiary's argument unpersuasive and has maintained and continued its refusal   The USPTO felt that structures and the 4structures.com LLC registered trademark  4structures®  create the same overall commercial impression of a STRUCTURES proprietary brand rendering confusion likely in this instance

After two years of inexplicable delays...

Terrence Taylor will get his day in court, after a favorable judicial ruling in the Portsmouth Circuit Court on October 27, 2017.  The ruling also permits New York Life to bring in investors  as additional parties and to go forward with its interpleader action, while litigation over the legitimacy of his structured settlement transfers goes forward. Despite Virginia state laws and Federal tax laws that required that transfers of structured settlement payment rights are in the best interest of the payee and any applicable dependents,  judges in Portsmouth Virginia routinely allocated only a few minutes for each case reviewed, according to sampling of docket reports available on line. The result was that Taylor was allowed to complete an astounding 11 transfer orders in 2 years. There are implications for SMA investors, if there is an interpleader. The investors bought structured settlement derivatives originated by 123 Lump Sum and Isettlements from Terrence Taylor's structured settlement.

 

November 2017-December 2017

Houston Personal Injury Lawyer Buys Client's Structure 1 Year After Settlement and Shafts Client in Awful Deal 

The Ninth Circuit Court of Appeals has affirmed a Tax Court decision, that concluded that a settlement was not excludable from the gross income because neither the settlement agreement nor the facts and circumstances of the case demonstrate that the settlement was based on a plaintiff's physical injury or physical sickness, or her loss of consortium arising from her husband's physical injury or physical sickness.  [eeJOSE M. DULANTO; ANA M. DULANTO, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT Tax Ct. No. 19123-12 MEMORANDUM Appeal from a Decision of the United States Tax Court Submitted November 15, 2017]

Qualified Settlement Fund | Lack of Disputes or Controversy Catches Attention of US Government

In Greenwald v Caballero-Goehringer,  Delaware Superior Court C.A. No. K14C-04-027 JJC.  a  Delaware Superior Court judge rejected an attempt to portray structured settlement payment rights as an annuity in a minor's prove up hearing.

Multiple Factoring Companies File Chapter 11 Bankruptcy

JG Wentworth  November 2017

The JG Wentworth Chapter 11 bankruptcy filing is the second in 8 years, this time leaving common shareholders on the short end of the stick, just 4 years after going public. Questions remain about the how rapidly the company stock plummeted after its IPO.

Black Square Financial  November 2017

Ex Client First Funding employees accused of  doing deals with customers and from data obtained when the defendants worked at Client First.   Client First gets large judgment, but Black Square files Chapter 11 to wipe out the debt. 

Woodbridge Structured Funding /Woodbridge Wealth December 2017

Woodbridge files Chapter 11 on December 4, following which on December 20, 2017, the SEC filed a complaint against Robert Shapiro and Woodbridge alleging that Shapiro and Woodbridge used investors’ money to pay other investors, and paid $64.5 million in commissions to sales agents who pitched the investments as “low risk” and “conservative.”   Among the named Defendants is Woodbridge Structured Funding, LLC, which bought structured settlement payment rights and sold them to investors in the $1.2B Ponzi Scheme.  The SEC alleges that many of Woodbridge's sales agents were not associated with registered broker-dealers or investment advisory firms. The SEC also alleges, chillingly, that several of these sales agents, including some of the highest producers, had been censored or barred by the SEC, FINRA or state sales regulators. Woodbridge did not disclose this to investors. 

MetLife Announced a New Domestic Non Qualified Assignment Option to Begin in January 2018   December 2017

Houston Plaintiff Lawyer's Company's Purchase of Client's Structure | The Ethics of "Crossing The Streams"   December 2017

 

 

 

 

 

 

 

 

Fixed Annuity Sales Hit 25 Year Record of 6 Straight Quarters Greater than VA Sales

by John Darer® CLU ChFC MSSC RSP CLTC

Fixed annuity sales declined in the second quarter of 2017. Sales were down 7 percent to $29.2 billion. All fixed product lines sales, except structured settlements, experienced declines. In the first half of 2017, fixed sales fell 11 percent to $56.7 billion.

401(k) specialist attributes the drop to Fiduciary Rule fallout. First half sales haven’t been this low since 2001, LIMRA Secure Retirement Institute reports in its Second Quarter 2017 U.S. Retail Annuity Sales Survey. Second quarter results for total annuity sales were $53.9 billion, a slight uptick from the first quarter, but an 8 percent decline from this quarter last year. This is the fifth consecutive quarter of decline in overall annuity sales. It is also the sixth straight quarter fixed sales have outperformed VA sales, which hasn’t happened in almost 25 years.

It' s not surprising that structured settlements have not declined  when compared to other business segments, because the main reasons why people do structured settlements include:

 

and, and , and, and... 

• Preventing a premature dissipation of funds
• Safe, secure stream of payments (i.e. " the job you can never be fired from)
• Customizable to the needs of the payee 
• Minimize concerns and costs of managing money

Structured Settlement Cash Now Company Blanked in Sarasota by Uncle Sam

by Structured Settlement Watchdog

The United States Department of Justice has proven to be a superior bulwark to structured settlement factoring 

The DOJ keeps racking up wins as it has for more than a decade. So when a structured settlement factoring company solicits a customer for assured annuity sale and the annuity is owned by the United States, as most structured settlements concluded under the Federal Tort Claims Act (FTCA) are, you have to wonder why the structured settlement cash now company wasted the client's time. The reason for denial is the same reasons that Uncle Sam has been rolling up the score, securing wins in Texas, Kentucky and in the 5th and 6th Federal Circuits.

"Bonner Vox"

The latest attempt by a Delaware company called Standard Management Services, Inc.  was swiftly denied by Sarasota Florida Circuit Judge Kimberly C. Bonner. [See  In Re: Standard Management Services, inc.,a Delaware Corporation, Petitioner v Peter MacLay and New York Life Insurance Company Respondents   12th Circuit FL Case No.:58-2017 CA 000050 SC}

Judge Bonner concluded (1) that the subject annuity prohibited assignment and (2) that the Sarasota Circuit lacked jurisdiction to grant the petition to transfer structured settlement payment rights. Download MacLay Order

An added wrinkle set forth in New York Life's response that led to the denial was that the United States Bankruptcy Court for the Middle District of Florida, Fort Myers Division issued an order May 22, 2000 stating " there shall be no further assignments or transfers unless approved by the United States of America". 

Mr. Maclay attempted to transfer his payments to Genex Capital Corporation in 2008 and was rebuked.  Maclay then sued the United States in the Federal Court of Claims seeking to get an order compelling the transfer and when faced with a substantially similar 2009 case (Annuity Transfers v USA 86 Fed Cl. 173) which was not favorable, Maclay voluntarily dismissed the suit against the US.  June 3, 2016, the United States Bankruptcy Court Middle District of Florida at Tampa denied Maclay's motion to compel the United States to accept an assignment and sale of structured settlement payments [Case 8:14-bk-8902-CED].

 

Federal Court of Claims Rules In Favor of United States on ELNY Shortfalls | But That's Not All!

by John Darer CLU ChFC MSSC RSP CLTC

The United States Court of Federal Claims has decided in yet another case that The United States DOES NOT have to make up a shortfall to an annuitant of Executive Life Insurance Company of New York more than 32 years after personal injury litigation was settled against the United States Department of the Army. In this case the short fall with two of annuities in the case was 62.4%.

Like its decision in Trevor Langkamp v The United States   No. 15-764C  filed March 20, 2017, the Court of Federal Claims, in its March 31, 2017 decision in Karen L. Shaw et al v The United States  (no. 14-783C),  the Court concluded, that the plain language of the Settlement Agreement demonstrates that the government did not unequivocally guarantee that it would make annuity payments in the event of a default by the annuity company.

The underlying Shaw case commenced in 1982 arose out of a child birthing injury July 4, 1979 at the Madison Army Medical Center in Tacoma Washington for which there was alleged medical malpractice. Plaintiffs obtained an $11.7M judgment that was reversed on appeal, subsequent to which the parties settled January 24, 1985. The settlement included several annuities and a reversionary medical trust funded by one of the annuities. 

No specific annuity carrier was selected. The Settlement Agreement said that "The United States represents to [Plaintiffs] that the insurance company it selects for the purchase of the annuities will be one which is generally regarded as very sound in the insurance industry and to be among the class or group of insurance companies which are rated Excellent or better by Best’s Guide to Life Insurance Companies, 1982 Edition, published by A.M. Best Company, Oldwick, New Jersey 07830".  

Download Shaw et al. v United States - Opinion Granting Govt's Motion for Summary Judgment & Dismissal

OBSERVATIONS

The Irony of "The Thundering Herd"

It's notable that the annuity agent on the Shaw case was Merrill Lynch Settlement Services, Inc. which appears to have utilized the cheapest annuity, ignoring some unavoidable facts, apparently including Merrill Lynch internal guidelines. To wit... as reported in the New York Times November 3, 1983: 

"In a memorandum sent to its account executives, Merrill Lynch Life Agency, a Merrill Lynch subsidiary that sells annuities and receives commissions from the issuing companies, said that after Dec. 1  (1983), it would no longer handle annuities issued by Charter Security Life, a subsidiary of the Charter Company, the Capital Life Insurance Company, Old Republic Life of New York, the John Alden Life Insurance Company and Executive Life."

An A.M. Best rating of A is an excellent rating, not the top tier rating at A.M. Best, which at the time was an A+ (Superior). At the time the Shaw case was concluded ELNY had an A+ rating from A.M. Best, despite the two well publicized recent failures of Baldwin United and Charter (which it is indisputable Merrill Lynch sold a lot of**), a raft of negative information that appeared about Executive Life in the New York Times, Wall Street Journal and other publications for several years preceding the placement.  Executive Life Insurance Company of New York was a subsidiary of First Executive, which the Journal reported in early 1984 had 40% of its assets in junk bonds.

**In January 1984 (one year before the Shaw annuity purchases), for the first time ever, Merrill Lynch & Company reported a quarterly deficit, the result of an $88 million write-off in the fourth quarter to cover losses to investors who bought Baldwin annuities through Merrill.

Important Lesson for Plaintiff Lawyers

Given that several of the annuities did not begin for 25 years, it certainly is appropriate to question why the plaintiff's lawyer left the table without nailing down an agreed annuity provider or providers. Does agreeing to an A.M. Best rating constitute adequate due diligence in a time frame when there were two well publicized failures? 

A January 29, 1984 New York Times article ANNUITIES: A NEW LIFE AFTER BALDWIN-UNITED'S FALL, published one year prior to the conclusion of the Shaw case, provides this very important and significant contemporaneous account:

"The reputation of annuities, it seems, should have been ruined forever after the downfall last year of the Baldwin-United Corporation left thousands of annuity holders unable to redeem their policies, or to collect on them, at least temporarily"..."Investors have turned away not only from Baldwin, but from other big sellers of single-premium policies, including the Charter Company and the First Executive Corporation. Instead, the new growth in the annuity business has benefited the old- line conservative companies, such as the Aetna Life and Casualty Company, the Equitable Life Assurance Society of the United States, the Travelers Corporation and the Prudential Insurance Company of America"

Settlements Are the Result of Negotiations

And the devil is in the details.

United States Does't Have to Make Up Short Fall From ELNY Insolvency | Court Grants Summary Judgment

by John Darer CLU ChFC MSSC RSP CLTC

The United States Court of Federal Claims has decided that The United States DOES NOT have to make up a shortfall to an annuitant more than 30 years after personal injury litigation was settled against the United States Department of the Army.

In its decision in Trevor Langkamp v The United States   No. 15-764C  filed March 20, 2017, the Court of Federal Claims concluded "that the plain language of the Settlement Agreement at issue in this dispute demonstrates that the government contracted to purchase annuities to make the future, periodic monthly and lump-sum payments required under that agreement.  The plain language of this agreement also demonstrates that the government did not unequivocally guarantee that it would make these payments in the event of a default by the annuity company.  And so, the undisputed material facts in this matter show that the government is not liable to plaintiff for the remaining annuity payments required under the agreement".Download 59 - Langkamp - Decision

In September 12, 2016 decision, cited by the Langkamp Court,  The United States Court of Appeals for the Federal Circuit recognized the principle of sovereign immunity compels a finding that the agreement at issue here does not obligate the government to guarantee future payments if the government has not unequivocally promised to do so. [Cynthia G. NUTT, individually as surviving spouse and as the Executrix of the Estate of James N. Nutt, Sr., Deceased, James N. Nutt, Jr., Individually, Plaintiffs-Appellants v. UNITED STATES, Defendant-Appellee  837 F.3d at 1298].

ELNY Lesson redux

In the November 15, 1984 settlement, the Settlement Agreement provided that "the aforesaid amount shall be paid as follows: $350.00 per month beginning by the beginning of January, 1985 through October 15, 1996, then $3,100.00 per month, 3 percent compounded annually for life, guaranteed for 15 years, beginning November 15, 1996, and Lump Sum Payments as follows:

$ 15,000.00 on December 15, 1996

$ 50,000.00 on December 15, 2000

$ 100,000.00 on December 15, 2008

$ 250,000.00 on December 15, 2018

$1,000,000.00 on December 15, 2028"

On November 30, 1984, an annuity was purchased for $160,574.55 (yes that's correct!) from Executive Life Insurance Company of New York to fund the payments.  That was:

1. 14 months following the bankruptcy of Baldwin United, according to the New York Times, "one of the largest financial collapses in American history"

2. One year after the November 5, 1983 story appeared in the New York Times detailing how several major wire houses yanked Executive Life, Charter Life from their product offerings and

3. 11 months after the Wall Street Journal published that EF Hutton was going to suspend sales of First Executive products representing about 1/4 of First Executive's sales.

4. Despite all the red flags, A.M. Best maintained an A+ rating on the company almost until it was taken into rehabilitation in 1991.

ELNY became insolvent and was eventually liquidated in 2013, after which the short fall s began.  In Langkamp's case, his monthly annuity was reduced by 42.39%, from $4,974.59 to $2,108.73;  the $250,000 lump sum reduced to $105,975.00 and the $1,000,000 lump sum reduced to $423,900.00.

One of the key structured settlement lessons learned from ELNY was coined by " The Grail Knight" in Indiana Jones and The Last Crusade.

When it comes to structured settlements, if you're "going long"  you should diversify

 

Image source: funny-pictures.picphotos.net-

Judge's Minor's Settlement Order Into Bank Account May Negatively Affect Student Loan Eligibility

by John Darer CLU ChFC MSSC RSP CLTC

Judges who reject a structured settlement for a young minor at an infant compromise hearing, in favor of sticking the proceeds in a local bank or banks to earn interest until minor is 18 when it is to be distributed in a lump sum, need to be mindful of how their decision can have an unfair potentially negative affect on student loan eligibility.

 

It would be an honor to go to college your Honor. Please don't hurt my eligibility to get student loans

How a Student's Assets Affect Financial Aid Eligibility

Student's Assets

• FAFSA

Assessed at up to 20%   (i.e. each $20,000 in assets held by the student will reduce financial aid eligibility by $4,000)

• CSS Profile

Assessed at up to 25%    (i.e. each $20,000 in assets held by the student will reduce financial aid eligibility by $5,000)

Note that assets held in a trust that designates the child as beneficiary will be available  even if the child has no ability to tap the money

Let me see now...

• Bank account earning low taxable interest
• Reduce my student loan eligibility

Where is the value proposition judge?

Read my December 7, 2016 blog  College Financial Aid and Settlement Planning | FAFSA and Profile for additional useful information