Stipulation of Settlement Language - Protecting The Claimant at Mediation

At mediation defendants like to try and force your clients to make decisions about Structured Settlements that will affect the rest of their lives, before your clients have had the chance to meet with their own expert and understand the pro’s and con’s.

Here is a simple strategy that enables you to take control and preserve all of your clients options while not committing them to any one path… .

To download the Stipulation of Settlement Language, head back over to your copy of the Ezine and click the link “Download the Stipulation of Settlement Language Here”.

The “Pacheco Case” - Quick Case Study

This case in New Mexico brought to light one of the tactics used by the defense to try and control the direction and flow of the injury victim’s settlement dollars. In this case, a casualty company tried to force the personal injury claimant to take a Structured Settlement annuity from THEIR wholly owned life insurance affiliate to the exclusion of ALL other annuity companies, and with THEIR hand-picked broker. The Plaintiff attorney ended up defeating the casualty company with court assistance.

Watch the short video to learn more about the details of the case, and how you can use this to protect your clients interests and limit your liability.

>> Download the Pacheco Emergency Motion and Order in PDF format <<

As you can see, retaining your own Settlement Expert (Plaintiff Loyal Settlement Planner) can be a very important aspect of ensuring that you and your client are protected.

If you have a case that you would like to discuss, please don’t hesitate to contact us at 800-666-5584 anytime.

New Defense Ploy to Control Injury Victim’s Settlement Dollars

What’s that old saying, “If it sounds too good to be true, it probably is to good to be true”?

Watch this short video and educate yourself on the latest defense tactic designed to get you to let down your guard when it comes to protecting your client and limiting your liability.

(press play to start the video. It may take a few seconds to load)

Do you have questions or would like to chat about a case you are working on right now? Give me a call at 800-666-5584 or by email through our contact form.

Tax Issues for Sex-Abuse Settlements - What Attorneys Need to Know

Image via Wikipedia

IRS Recognizes that the Observable Bodily Harm Requirement may be unfair as applied to Sex Abuse Cases

In 1996, the word “physical” was inserted into IRC 104(a)(2), which essentially mandated that for a settlement to be considered tax-exempt, and eligible for a tax-exempt structured settlement, it must have its origin in physical personal injury or physical sickness. For a settlement to have its origin in physical injury and thus be tax-exempt under IRC 104(a)(2), there must be some Observable Bodily Harm[1] (“OBH”). Some examples of OBH include bruises, scratches, swelling, cuts and bleeding.[2]

Since 1996, the taxation of damages received from sex abuse cases has been particularly problematic. Sex abuse cases inherently involve issues relating to the preservation of evidence of physical harm. By the time the abuse has been reported or the victim can articulate the abuse, any physical injuries may have healed leaving little or no evidence of physical injury. This can make it difficult to meet the OBH standard to satisfy the physical injury requirement of IRC 104(a)(2).

In a February 29, 2008, Internal Legal Memorandum (“ILM”)[3] authored by Michael J. Montemurro, Branch 4 Chief, Income Tax & Accounting Division of the Internal Revenue Service, the IRS recognized this inherent problem of proving OBH in sex abuse settlements.

The ILM reads in relevant part as follows:

“You have inquired about the tax treatment of payments made by Entity to settle claims of Tort asserted by C. C has alleged that Entity’s agent(s) X caused physical injury through Tort while he was a minor under the care of X. A substantial amount of time has elapsed since the alleged Tort occurred. C alleges that he continues to struggle with the trauma resulting from the alleged Tort.

Because of the passage of time and because C was a minor when the Tort allegedly occurred, C may have difficulty establishing the extent of his physical injuries. Under these circumstances, it is reasonable for the Service to presume that the settlement compensated C for personal physical injuries, and that all damages for emotional distress were attributable to the physical injuries. Consequently, the Service should concede that compensatory damages paid to settle the claim are excludable from gross income for federal income tax purposes.

In addition, the Service should not assert that information reporting is required for such payments under section 6041.”

This ILM should not be viewed as a permission slip to abandon good practices and it seeks to guide enforcement policy not to become binding authority.

Additionally, in this ILM C alleged physical injury through Tort as the foundation of his claim. Where Treasury appears to have relented is the OBH proof requirement. It does not excuse the OBH requirement, but recognizes that C may have difficulty establishing the extent of his physical injuries because of the passage of time.

This ILM properly recognizes the challenge of proving OBH inherent in some sex abuse cases due to the nature of the tort, the passage of time, delay in reporting the offense to a parent or authority figure, the youth of the victim, and the inability of the victim to articulate the nature of the abuse or injury due to the age of the victim or the trauma of the offense.

Michael J. Montemurro also confirmed at the Society of Settlement Planners 2008 Annual Educational Seminar in Washington D.C., that the Internal Revenue Service has not asserted in any litigation to date that payments for sexual abuse are taxable income.

The complaint or settlement demand documentation remains a critical piece of the puzzle.

If these documents allege only non-physical injuries such as the intentional or negligent infliction of emotional distress, classifying the damages as taxable is consistent with the pleadings. Therefore, it is important that the complaint or settlement demand documentation contain an allegation of physical injury as the origin of the claim to support the position that the settlement is tax-exempt as being based in physical injury.

Collecting and preserving proof of any physical injury is important if it is available as additional support just in case. Documentation of scratches, bruises, records of a credible pain response from microscopic tissue damage, medical opinions diagnosing an injury should still be collected and maintained in your file if such evidence exists.

When closing a sex abuse case, the negotiation and finalization of the settlement can also help ensure that the damages will be classified as unambiguously tax-exempt. Do the parties, and most particularly the payor, intend the payment as compensation for personal physical injuries?

If so, the settlement documentation should specifically state such intent.

A statement to the effect of, “The parties agree that all sums set forth herein constitute damages on account of personal physical injuries or physical sickness, within the meaning of Section 104(a)(2) of the Internal Revenue Code of 1986 as amended.”

While we still need to follow good business practices, it appears that sex abuse victims can take a sigh of relief when it comes to the taxation of sex abuse settlements when proof of the OBH has dissipated.

Footnotes:

[1] Common sense tells us that some physical injuries are only observable through a detailed medical exam such as a cervical strain (whiplash) from an auto-accident. Certainly, even though the injury is not easy to observe for a person without medical training, it may still be considered a physical injury. Additionally, there is some indication that a credible pain incident may qualify as a personal physical injury.
[1] PLR 200041022

**Be sure have an expert Plaintiff Loyal Settlement Planner on your side to protect your client’s interests, limit your liability, and counteract the settlement expert retained by the defense. Give us a call anytime at 800-666-5584.

What is medical underwriting, and why is it helpful to obtain a “rated age”?

ANSWERS TO 4 COMMONLY ASKED QUESTIONS

What is medical underwriting, and why is it helpful to obtain a “rated age”?

Medical underwriting is the process annuity companies use to evaluate the remaining life expectancy of an injured or medically impaired prospective annuitant. Life insurance companies offering lifetime annuities will evaluate an injured party’s medical records in an effort to determine the extent to which the injured party’s medical condition affects his/her remaining life expectancy.

This process is important in determining the premium charged for a lifetime annuity. The medical impairment rating, or “rated age“, can significantly improve the payout per premium dollar on a lifetime annuity, since the rated age, rather than the biological age of the annuitant is used to price the annuity. Any health impairments (obesity, smoking, high blood pressure, diabetes, etc), whether related to the injury or not, can and should be sent to the annuity companies for consideration as well.

Rated Ages “True or False”

True or False: A “rated age,” rather than a plaintiff’s biological age, is used to decrease the price of a lifetime annuity for an injured plaintiff.

• True: Rated ages can significantly improve the payout on a lifetime annuity. The annuity company uses the rated age to price the annuity, which decreases the cost of the lifetime annuity payments.

True or False: The annuity company underwriters will only evaluate the medical records for injuries that were a direct result of the injury claim.

• False: Any health impairments (obesity, smoking, high blood pressure, diabetes, etc), whether related to the injury or not, can and should be sent to the annuity companies for consideration.

True or False: Submitting medical records to obtain a rated age is labor intensive, and can significantly delay the settlement process.

• False: Most life insurance companies offering medical underwriting to structured settlement annuitants need only 10-30 faxed pages of relevant medical records, and generally respond with a rated age within 1-2 business days.

At what point in the case should I involve a settlement planner?

There is no hard and fast rule regarding when to involve a settlement planner. However, as a general rule, the earlier a settlement planner is involved the better. This increases the chance that your client will receive the best possible advice.

Traditionally, settlement planners have been called after the case has settled or at the point of settlement. Many attorneys don’t think to involve a settlement planner unless the client needs or wants a structured settlement annuity. In such a case, the settlement planner is involved as a matter of necessity to facilitate the purchase of the qualified structured settlement annuity.

This is an important function, but simply relying on your settlement planner to implement a qualified structured settlement annuity does little to really help the client address his/her future financial needs and goals.

While most planners are happy to be involved at any point in the process, clients are much better served when a settlement planner is involved early in the case. Arranging a pre-settlement meeting with a settlement planner allows the client time to discuss his/her post-settlement financial situation with a professional who can help them make the most of their settlement recovery. This allows your settlement planner to help your client develop a sound settlement plan and give your planner adequate time to help you prepare for mediation. It is best to arrange a meeting 30-60 days prior to mediation or arbitration.
Time before mediation allows your planner to complete the medical underwriting process, analyze and “annuitize” the Life Care Plan, and begin to develop the skeleton of a sound settlement plan. The financial decisions surrounding the client’s net settlement will likely be the most important financial decisions the client has ever made. This decision should not be rushed or decided in the closing minutes of a heated mediation conference. The financial decisions the client makes at the time of settlement may impact that client for the rest of his/her life, and require careful planning and consideration outside the heat and pressure of mediation.

The time prior to mediation can also be used to educate your clients on the settlement planning process — including the tax implications of the settlement recovery, the impact the settlement will have on current or future government entitlement eligibility, and the various funding options (structured settlements, settlement trusts, managed accounts, etc.). The earlier you involve your settlement planner in your cases, the better the chance that your client will implement a sound settlement plan that will make the most of the net settlement recovery.
Aren’t all structure brokers the same?

In short, no …. and yes. It’s true that most structure brokers can seem like commodities. Most brokers have access to all of the life insurance companies offering structured settlement annuities and most will get the same rates from those companies. So, in that sense, any structured settlement broker can quote an annuity and have access to the same companies and the same annuity rates.

However, it is extremely important to understand the most important differences among brokers, because there is a segment of the structured annuity industry that is quite different from the rest.

Certain structure brokers are actually “settlement planners” rather than just a “structure broker.”

These settlement planners take a holistic approach to the process of advising injured plaintiffs. They approach the settlement of a personal injury claim as an opportunity to create a personalized “settlement plan” unique to the needs and goals of each client. Such a settlement plan may or may not include the use of structured settlement annuity. Settlement planners serve as a fiduciary instead of a salesperson.

They add value to the professional relationship in contrast with their “in-and-out” transactional counterparts who merely push an annuity product that may or may not be suitable for the circumstances.

Settlement planners analyze each client’s post-injury life situation to find the optimal solution or mix of solutions. This may include assessing dissipation risk, analyzing liquidity needs, planning for government entitlements, estate planning, tax planning, and reviewing insurance needs. The solutions may involve special needs trusts, spendthrift trusts, investment accounts, credit repair services, or budgeting advice. It is important to ask the structured settlement broker of your choice what services he/she is willing to provide your client before and after settlement to make sure that your client is getting comprehensive advice and service, not just a structured settlement quote.

So yes…structure brokers are all the same.

And no…structure brokers can be very different.

Can you afford to allow your clients to deal with anyone other than a comprehensive Settlement Planner?

Medicare Set-Aside Arrangements for Third Party Settlements

While we have all heard about MSA’s for worker’s compensation cases, 3rd Party Liability Settlements are becoming an increasing area of interest for CMS (Centers for Medicare & Medicaid Services).   

You may not yet be aware, but on December 29, 2007, President Bush signed the Medicare Medicaid and SCHIP Extension Act of 2007 (“2007 Extension Act”), which will strengthen Medicare’s secondary payer rights under the Medicare Secondary Payer Statute. 

The 2007 Extension Act, which goes into effect on July 1, 2009, will require that Medicare be notified of all claims/settlements involving a Medicare beneficiary where a workers’ compensation, LIABILITY, no fault or self-insurance program exists. 
 
Failure to report in a “timely manner” can result in penalties, which among others can include a money penalty of $1,000 for each day of noncompliance for each individual for which the information required for submission should have been submitted.  The information that must be submitted must be done so within a time specified by the Secretary after the claim is resolved through a settlement, judgment, award or other payment (regardless of whether or not there is a determination or admission of liability).
 
The punitive nature of this new law will mandate that plaintiff attorneys start incorporating into their practices standard evaluation procedures to assess whether a Medicare Set-Aside Arrangement must be established on behalf of a client that is a Medicare beneficiary or likely to become a Medicare beneficiary.  Defendants will insist on establishing a Medicare Set-Aside Arrangements prior to settling a claim, where the facts warrant.  Some defendants, particularly self-insureds, already mandate such evaluations as part of settlement, and further mandate that the MSA will be funded in part by a tax exempt Structured Settlement Annuity as a cost-saving device.

Attached for your review please find this new law.
 
Even if your client is foregoing a Structured Settlement Annuity as part of a plan for their overall settlement, Plaintiff Attorneys will still need to retain a Plaintiff Loyal Settlement Planner to shop the MSA annuity and protect their client from possible “pricing” abuse. 
 
With the passing of the Medicare Medicaid and SCHIP Extension Act of 2007 (“2007 Extension Act”) on December 29, 2007, MSA’s on third party liability cases will become an ever present concern for your clients.

For help in determining your case’s exposure to this latest government requirement, contact me at 800-666-5584 or through my contact form.

Structured Settlements for Wrongful Termination

Using Structured Settlements to Effectively Help Those in a Wrongful Termination Case

When most people initially think of a Structured Settlement they immediately think of a personal injury case.  While Structured Settlements are mainly used in personal injury type cases, they are also extremely effective in other situations such as Wrongful Termination cases.

If you are a claimant in a Wrongful Termination case, or a plaintiff attorney… read on to learn the possible benefits of using Structured Settlements to help effectively plan for taxes and financial issues after the settlement.

Since we are settlement planners, out to help you find the right solution to your problem (even if it does NOT include structured settlement annuities), we want you to know that Structured Settlement Annuities are NOT right for everyone.  However, they are extremely effective when used in the right situations for the right people.

How Are Structured Settlements Effective in Wrongful Termination Cases?

The main benefits of using a Structured Settlement for a Wrongful Termination case include:

• You can defer the tax hit into future years
• Possibly reduce your overall tax hit on those proceeds because the funds may be received in a lower tax bracket later on
• A guaranteed stream of future income is created
• You avoid what can possibly be an ugly, nasty tax mess
• Possibly eliminate the AMT (Alternative Minimum Tax)

When used correctly, Structured Settlement annuities can help you obtain some very attractive tax and financial benefits that other options may not offer.

Why May You Want to Consider Structured Settlement Annuities in Your Wrongful Termination Case?

There are many reasons why Structured Settlement annuities may be a great option for you in your Wrongful Termination settlement.  The main reasons hinge around the tax consequences that you can possibly avoid by using Structured Settlement annuities to stretch out receiving your settlement proceeds over a period of years, rather than 100% in the year of the settlement.

If you anticipate receiving settlement proceeds from a case not involving personal physical injury, your settlement will likely be fully taxable in the year of settlement, and could push you into the highest tax bracket.

As if that thought isn’t depressing enough, consider this…

The Supreme Court decision in the Banks & Banaitis v. Commissioner cases held that “as a general rule, when a litigant’s recovery constitutes income, the litigant’s income includes the portion of the recovery paid to the attorney as a contingent fee.”

What this means to you as a plaintiff receiving a taxable damage settlement is that you must report the gross amount of the settlement as income, and then deduct the attorney’s fee “below the line.”

This often subjects you to the 2% floor on itemized deductions, and will likely phase-out your allowable deductions and can even trigger the Alternative Minimum Tax (AMT): a “perfect storm” of a tax nightmare.

How Do Structured Settlement Annuities Help Claimants Reach Their Goals?

Structured Settlement annuities simply allow you as a claimant in a Wrongful Termination case to stretch out the receipt of your settlement funds over a period of years rather than all at once.

By receiving your settlement funds over a period of years, you are able to better plan your financial and tax future.  If you do not need most of your settlement funds right away, Structured Settlement annuities are an effective vehicle that allows you to defer paying the tax in addition to earning a pre-tax return on the funds while they are in the guaranteed annuity.

Some simple planning “BEFORE the proceeds of the settlement have been negotiated and paid“, can often eliminate the AMT entirely and help save you a bundle in taxes.

What Is Your First Step?

As a plaintiff in a taxable damage case involving:

• Discrimination
• Bad faith
• Wrongful termination
• False imprisonment
• Construction defects
• Breach of contract
• …etc.

Your first step should be to contact a qualified Plaintiff Loyal Settlement Planner such as Settlement Professionals Inc, or have your attorney contact us to discuss your options.  It is important that a qualified Plaintiff Loyal Settlement Planner be involved BEFORE the proceeds of the settlement have been NEGOTIATED and PAID.  Once the proceeds are paid, it may be too late to effectively address your goals. 

Our approach is to help you do a comprehensive review of your short and long-term goals, and to tailor a Settlement Plan that helps you address each goal one by one.

Remember, we do not charge a fee for our Settlement Planning services so you have nothing to lose by calling to learn your Settlement options.

Contact us now to discuss your case and to determine whether some simple settlement planning will help your situation.

1-800-666-5584

Using HIPAA to Stop Abuse of Tort Victims During Settlement Negotiations

Recently a plaintiff attorney that we have worked closely with on multiple personal injury settlements had a case involving a situation where the defense abused the tort victims rights according to HIPAA.

In this video, I discuss this specific situation and give you specific ways that you can protect your client from abuse like this during settlement negotiations AND at trial.

In addition, you’ll learn how a client’s medical records can be used to help the defense profit from the settlement… and what you need to do to make sure this does not happen to your client.

>> Click Here To Download the Transcript <<

If you would like a copy of our proven HIPAA release forms, don’t hesitate to contact us today or call us at 800-666-5584.

Download the Transcript Here <<

Darer’s Ark Runs Aground

  “I never represented that I never, ever took a fee.”  - John Darer, Structured Settlements 4-Real, December 14th, 2007.

(Exactly, John.  Exactly my point…)

So answers John Darer of Structured Settlements 4 Real and builder of “Darer’s Ark” (aka: the Structured Settlement Clean Vendor List) to my allegation that John intended to deceive when he wrote his first line to the November 29th, 2007 email announcing his grass roots “Noah’s Ark” project.  

So now comes his answer, and that answer is that he stopped taking fees “in Spring of 2005.“  With that stunning admission, John Darer has lost his credibility with many who just assumed that from both his writings and recorded interviews, that this was a person who had never taken a referral fee on a factor case, and therefore had the moral integrity to be the self-appointed crusader that would stop the evil factoring companies.

So strong was his language, so persuasive his rhetoric, that one could be forgiven for just assuming that there was no way that John was himself guilty of the very things he was accusing others of doing.  It makes no real difference when he started, or stopped, or even whether he still is.  The simple admission that he has, is all we needed to know.  And now he has admitted to that.

Lying by Omission:  Lying by omission is when an important fact is omitted, deliberately leaving another person with a misconception. This includes failures to correct pre-existing misconceptions. - Wikipedia 2007 

Hypocrite: a person who pretends to be what he or she is not; one who pretends to be better than is really so, or to be pious, virtuous, etc. without really being so. - Webster’s New World Dictionary, Third College Edition 

John Darer has told us all we need to know about his integrity, credibility, and moral authority.  His admission is the only proof  needed, in answer to my allegation.

Now, maybe the rest of us can begin to civilly discuss the “factoring” issue.

I look forward to that.

Darer’s “Ark”? What A Hypocrite!

Rick Bishop and I (and we assume most of the structured settlement brokers and settlement planners in the country) received the most incredible email from John Darer of 4 Structures.com two weeks ago.

In case you haven’t seen it, here’s a copy of the email:

From: Structures@aol.com [mailto:Structures@aol.com]
Sent: Thursday, November 29, 2007 4:56 PM
To: rbishop@structurepro.com
Cc: Meligan@settlepro.com
Subject: Greetings
 
 
http://structuredsettlements.typepad.com/structured_settlements_4r/
2007/11/cleaning-up-the.html
 
Rick/Jack,
 
Sadly I’ve learned that a number of brokers in our industry are taking money from referrals to factoring companies. Sometimes a flat fee sometimes a %. Such behavior serves to add to the already deeply discounted bottom line that the tort victim receives on such deals. More importantly it sends the wrong message about our industry to the trial bar. While I would hope the behavior is in the minority it has come to my attention that the overwhelming majority of those referring such cases (at least to one particular vendor) have their hands out.  There is a sense of “follow the leader” among some.Plus the factoring companies are falling all over themselves with incentives.
 
I am starting a grass roots “Noah’s Ark” of brokers and settlement planners who DO NOT participate financially in such deals. This will be a published list to help differentiate for the lawyers and insurers those brokers/planners who DONT from those that DO. To get on the list each person will have to make a declaration a la the DOJ. A copy of the declaration is downloadable  in the blog post linked above for your review.
 
I hope I can count on your participation.
 
Kind regards, 
 

John D. Darer, CLU ChFC CSSC
43 Harbor Drive, Unit 309
Stamford, CT 06902

———————————————————————-

So, what’s my problem with this seemingly noble and altruistic attempt by the man who fancies himself a modern day Noah?  Actually, I have several.

John’s first sentence says “Sadly I’ve learned that a number of brokers in our industry are taking money from referrals to factoring companies.” 

To the casual reader of this statement, it might appear that John Darer JUST NOW learned of brokers taking money for referrals AND that same casual reader would probably assume that there IS NO WAY that John D. Darer has EVER taken money for a factoring referral, because no one in his RIGHT MIND would have the COJONES to write this first sentence in this manner and with this tone and inflection IF HE HAD EVER TAKEN MONEY FOR A REFERRAL TO FACTORING COMPANY!!  WOULD HE?? 

Dear readers, I am here to tell you THAT I HAVE FIRST HAND KNOWLEDGE AND CONFIRMATION THAT JOHN D. DARER HAS HIMSELF TAKEN MONEY FOR FACTORING REFERRALS.  LOTS OF MONEY.

John is probably not happy right now with my exposing his dirty little secret.  But men who live in glass houses….shouldn’t write emails that are designed to decieve.  Too many people living in the neighborhood know the truth.

John, as my 94 year old grandfather likes to say, you must have STONES THE SIZE OF BUICKS !  What, when you hatched this latest self-promotion stunt, you didn’t think that any of us here in this industry would have the courage to CALL YOU OUT on this?   You DIDN”T?    Well, wrongo buddy boy.   We all know the truth, and the truth is YOU HAVE ACCEPTED FEES ON FACTORING REFERRALS,  AND LOTS OF THEM!  AS NEAR AS WE CAN ALL TELL, YOU PROBABLY STARTED TAKING THESE FEES AS FAR BACK AS 3 TO 4 YEARS AGO!  (To be fair, industry sources believe that John has not taken any referral fees since the date of the above email).  That means, John, that you were taking money AT THE SAME TIME YOU WERE CRITICIZING THE FACTORING INDUSTRY and CRUSADING AS THE MAN WHO WOULD CLEAN UP OUR INDUSTRY!  What a GIGANTIC HYPOCRITE! 

Now let’s look at John’s third sentence: ”Such behavior serves to add to the already deeply discounted bottom line that the tort victim receives on such deals.”  WELL JOHN, YOU SHOULD KNOW, YOU HAVE DONE A LOT OF THESE DEALS IN YOUR NOT TO DISTANT PAST, HAVEN’T YOU?

You know, John, now that you have gone back to working on the Defense side of the Structured Settlement Market (Oh, I know, I know, you take cases from both sides now with no specific allegiance to either, except whomever you happen to be working with today) isn’t your job to HELP and ASSIST the defendant’s Casualty Company, or the Self-Insured Defendant, to CHISEL DOWN the TORT VICTIM’s claim, and spend the least amount possible?  That IS the job of any expert working for the defendant’s, isn’t it? 

So let me get this straight.  You think (now, because it is clear that at least up to 11/29/07 you didn’t think this way) that it is wrong for a financial professional to take a fee for referring someone to a factoring company because that adds “to the already deeply discounted bottom line” while at the same time (but obviously on separate cases) you are working to help defendants DEEPLY DISCOUNT tort victim’s settlements.  THE DEPTH OF YOUR HUBRIS KNOWS NO BOTTOM!

Fourth sentence: “More importantly it sends the wrong message about our industry to the trial bar.”  John, you are the one sending the wrong message.  Your email would have been accurate if it had started out by saying “For years I have accepted referral fees from factoring companies, while at the same time conducting a campaign against them.  This was HYPOCRITICAL of me.  I am hereby starting a sign-up sheet declaring that I will never again accept referral fees from factoring companies, and then turn and bite the hands that feed me.  Will you join me and sign my sheet?”  I can’t help but think that the trial bar also gets the wrong message about you and people like you who attempt to walk both sides of the street, that message being “money is green and my services are available to the highest bidder.”  This means an attorney can have you working for him on a case today, but tomorrow you may show up working against him on a different case.  I bet they love that.

Ok, enough about John and his ridiculous email and “Noah’s Ark” sign-up sheet.  What is my position on this topic?

I DO NOT take referral fees from factoring companies FROM MY PERSONAL CLIENTS.  If one of them should call requesting a referral, I consider it “post-settlement” planning, and I would try to help them find a way to solve their financial problem without resorting to selling all or part of their payments.  I have had exactly one of my client’s call me for help in this regard.  A 12-year old girl that developed inoperable brain cancer just 6 months after we had structured her claim for injuries suffered on her school’s playground equiptment.  Her parents sought and received court approval to cash in her annuity and take her to Disneyland.  I specifically asked the factoring company to quote this case with no referral fee.  We then refunded the commission earned on the placement of the original structured settlement annuity to help this poor family further.  (I don’t reveal that point here because I want anyone’s praise or thanks.  I am just preparing for what I expect will be John Darer’s response to my entire post, and I can see him asking that question.  So I have hopefully avoided his sanctimonius and accusatory finger on that one).

I DO take referral fees from factoring companies from OTHER PEOPLE’S clients, like John’s.  When a defense broker like John forces a structure on tort victim, using the financial power of the casualty company (which retained him) and promoting their agenda of approved annuity carrier(s), OR when that same tort victim hasn’t had the benefit of their own settlement planner helping them financially plan their settlement because the DOJ has forbidden plaintiff settlement planner participation in compensation (another of John’s illustrious clients), tort victims sometimes end up a few years down the road in a financial position that looks bleak due to a lack of liquidity.  If one of those OTHER PEOPLE’S clients ends up calling me, I engage in the same post-settlement planning mentioned above.  I approach the liquidity problem from the angle that we first need to exhaust all other remedies before the last resort of factoring and the permanent effect that has on a tort victim’s future payments.  BUT I DON’T WORK FOR FREE.  Why should I, when I am cleaning up some OTHER PEOPLE’S mess created by some other broker, like John?  So when appropriate and when there is no other viable solution, I will refer people to factoring companies.  In many of these cases, we have also had to assist these folks with obtaining replacement documents or doing other helpful tasks, so that they can even begin the process.  The point is, these cases can consume time for me and my staff, and I don’t apologize for getting paid a fee that, in most cases, does NOT cover the resources expended.

My good friend and associate Michele Whitmore said it very well in the following email response to another broker in our industry:

———————————————————————–

From: Michele [mailto:michele@settlementstrategies.com]
Sent: Wednesday, December 05, 2007 11:20 AM
Subject: RE: Factoring problem
 
David:
 
Thank you for forwarding JD’s message.
 
 It is my position that a responsible planner advisor should be a resource for the client in any and all transactions for which s/he is educated.  Cashing out an established structured annuity contract requires oversight by a financial professional in both the evaluation of the transaction’s details as well as other implications of such a decision in order to make a proper proposal before the court.  While I certainly won’t participate in any marketing to my clients, I will encourage them to call if they are considering a change to their policy.  Being paid for my services with the proper disclosures is business between myself and my clients. 
 
As far as the issue of factoring an annuity contract, I feel that liquidity in any financial position is good given the future is unpredictable.  My planning and advice always incorporates adequate cash reserves throughout the client’s life span, but there will always be circumstances that can occur that were not anticipated.  The right contract buy out under appropriate circumstances is a good thing.
 
I also know that there has been a lot of “over structuring” by this industry  by brokers who were inclined to consider their commission over the needs of the injured party.  Factoring with court approval may provide relief to some (albeit at a cost) whose settlements were mishandled.
 
John Darer has a very different position on the issue, but I don’t lose any sleep over it. 
 
Michele Whitmore
Settlement Strategies, Inc.
19412A E. Mann Creek Drive
Parker CO  80134
phone: (303) 841-0420
fax:     (303) 841-2910

—————————————————————– 

I suspect Michele’s professionally stated opinion is common amongst others in our industry.   And I concur with her when she says that she won’t participate in any marketing to her clients.  I will not do that either. 

And one final thing.  From late 1988 to late 1993, I was affiliated with a national Structured Settlement firm, SFA, that was predominately a defense oriented firm.  This was necessary as plaintiff specialist’s like me, were routinely denied access to the annuity markets, and suffered from an inability to fully serve tort victims.  During that time period, I handled cases for defendants and plaintiffs.  Fortunately, that was before exclusive rebate deals and approved annuity issuer lists became prevalent in this industry, and I never had to participate in either(to my knowledge) when working for a defendant.  My experiences from that side of the table were invaluable, however.  When I left in 1993 and resumed promoting my services to tort victims exclusively (the aforementioned denial of access having evaporated over the ensuing 5 years), my background assisted many of my client’s in obtaining a fairer settlement, and one where my client’s needs were met instead of the defendant’s, when it came to the financial aspects of their settlement.  I make no apologies for this, as it has shaped and formed me into the professional that I am today.  I consider it the “silver lining” to a dark time in our industry’s history.

So John, we are all expecting one of your classic responses to my post.  Go ahead, take your best shot.  We will be disapointed if you don’t try to make this personal by calling me a water buffalo, or pointing out my generous use of yellow highlights on my web page, or mimicking Roger Ebert and offering a critique of my latest video recordings.  Go ahead, try and change the subject and make this about me and not your email. 

 Just remember, you wrote it.  And everybody that reads this now knows the truth about you.  And they, like the rest of us, now can see you as someone who would rather polish his own ego, than engage in a civil discussion about substantive issues.    

Structured Settlement Approved Lists - Bad for plaintiffs and plaintiff attorneys

Approved lists - Why they are BAD FOR CLAIMANTS and worse for plaintiff attorneys 

Do you know about approved lists and how the defense uses them to limit the choices of your client?  These 3 brief video clips explain structured settlement approved lists and show you what you need to do to protect yourself as a plaintiff attorney and your client during the structured settlement process…

DOWNLOAD THE TRANSCRIPT: If you would rather read the PDF transcript of the video, click the link below to download it now.

>> CLICK TO DOWNLOAD THE TRANSCRIPT <<

Video #1: What are approved lists? The two types. 5 Minutes 30 seconds

*Please allow 10-15 seconds or so for the video to load

Video #2: Exactly how approved lists are bad for plaintiff attorneys and claimants… and how casualty companies use them to THEIR advantage - 4 Minutes 57 Seconds

Video #3: What can you as a plaintiff attorney do to protect yourself and your client from approved lists? - 6 Minutes 47 Seconds

If you would like us to send you the documents described in video 3, be sure to email us at:
info[at]settlepro[dot]com or call us at 800-666-5584.

Structured Settlement Industry News - 12/2007

Here is a bit of recent news that affects the Structured Settlement industry and your practice as a plaintiff attorney.

Kaiser’s nine-month profits more than double
Kaiser and their subsidiaries announced gigantic jumps in net income, operating income and investment income for the third quarter ending September and the year’s first three quarters, including startling increases sure to raise questions about the organization’s non-profit status… << read article at bizjournals 

SPI commentary:
What would one attribute a huge drop in professional liability reserves to?  One guess is that the steady drumbeat on Tort Reform coming from Washington D.C. these past 8 years has influenced the jury pool to the extent that there are more defense verdicts and lower damage awards, which translates into lower liability reserves needed…

New York announces plans for Executive Life Bailout
Insurance regulators in New York announced a rescue plan yesterday for the Executive Life Insurance Company of New York that should pay 100 cents on the dollar to the insurer’s 118,000 customers. But insurance professionals said the plan would make it impossible for customers to cash in their policies without incurring substantial penalties, known as surrender charges… << article at NY Times

SPI commentary:
Eliot Spitzer (NY Governor) and Insurance Superintendant Eric Dinallo announced this deal, which comes as GOOD news to roughly 11,000 Structured Settlement beneficiaries of ELNY.

One potential drawback is that in the future, casualty companies will point to the fact that their brethren contributed heavily to this agreement, as the reason why they must have their own brokers involved on their behalf in new Structured Settlements.

I suspect that the reason many casualty companies contributed dollars to this cause was because they were going to be liable for the entire shortfall on the Structured Settlement annuity block anyway.  Many of these casualty companies bought these annuities directly without assigning their liability to a third party, a common practice in the early years of structuring settlements. 

Whatever the reason, these casualty companies would not have done this unless it was a good deal for them.

Attorney Fee Structures - New program attorneys will want to know about

Have you structured your fees in the past, but now discover that you have a need for cash? Or, would you like to know about a strategy that allows you to structure a fee now… and then borrow against it to invest or use however you wish?

Take a look at the video below. I’ll explain a new program that is now available that will allow attorneys to leverage your fee structures so you can make them work for you from day one.

If you would like to chat about this program to see if it is right for you, don’t hesitate to give us a call at 800-666-5584 or shoot me an email at:

meligan[at]settlepro[dot]com

Learn more about Attorney Fee Structures << here

Negotiation Considerations and Conflicts of Interest in Structured Settlements

As you know, there are inherent conflicts of interest involved in Structured Settlement cases.

For over 20 years, my company and I have been educating Attorneys and Plaintiffs on the importance of seeking assistance from a Plaintiff Loyal Settlement Planner to ensure their interests are protected.

Recently, I came across one of my first articles on this subject that I wrote over 20 years ago. How time flies.

I want to pass this article on to everyone because this article still resonates in the industry as much today as it did 20 years ago.

The article is titled:

“Negotiation Consideration and Conflicts in Structured Settlements“

Article read time is less than 10 minutes, so feel free to download the article by clicking the link above.

Structured Settlement Case Studies - Two Successful Case Studies

Understanding the value of utilizing a Plaintiff’s Structured Settlement Specialist is the first step in adding a vital new component to your services.

Developing successful strategies for introducing this service into your proceedings is the difficult next step.

Here are a few tactical approaches to consider, and two recent case studies where the approach worked. I believe that this tactic I am outlining will become industry standard in the next few years.

Background

At the moment your client executes the Settlement Agreement & Release, s/he has agreed (with full knowledge and consent) to allow the Defendants and their insurers to assign their liability for the future periodic payments to a third party C usually an assignment company affiliated with the annuity carrier. Once this has happened Defendants, their attorneys, and their insurers are all released from any and all future liability.

If your clients have relied solely on the advice of a Settlement Specialist selected by the Defense, can you be absolutely sure they’ve received the best counsel possible?

If anything should ever go wrong with the settlement structure — such as the loss of tax-exempt status, or even the discovery later on by your clients that a better deal could have been made — what recourse will your clients have? It is likely that the recourse they would seek in these circumstances would be to return to you, looking for some form of relief.

As Plaintiff’s counsel, you may want to encourage your clients to consult with their own Settlement Specialist. 

One with a sole obligation to their needs in any given case.

You may also want to advise your clients to select the Structured Settlement Specialist and negotiate for the right to designate the method and the company used for the settlement payments. After all, your clients have to live with the results of these decisions for the rest of their lives.

Defendants naturally like to control as much of the process as possible. Your task is to get Defendants (and their insurers) to allow your client to choose the Specialist and the funding method.

Here are a few suggestions on how you can make that happen:

Control Strategies

Here is an excellent tactic developed by Richard G. Halpern of Richard G. Halpern & Associates in Garden Springs, New Jersey:

In your first (or next, as the case may be) demand letter, detail the Structured Settlement Specialist and funding method you and your client have determined are in your client’s best interests.

You may even want to include language similar to the following:

————————–

“We are aware that the Defendant traditionally dictates the settlement specialist and funding method. However, since your assignment of liability in the Final Settlement Agreement & Release will relieve you of any future legal or financial responsibility should your choices of Specialist or funding method prove flawed, I believe my client must be permitted to make the final selections. Therefore, the final Settlement Agreement must contain language designating (insert Specialist name here) as the Specialist and an annuity obtained from (insert carrier’s name) as the funding method. My client assumes all responsibility, risk, and liability for any future losses or adverse tax consequences. To this end, the following clause may be included in the Settlement Agreement:”

‘The parties to this Settlement Agreement acknowledge and affirm that the choice of the Structured Settlement Specialist and funding method were conditions of Settlement imposed by Plaintiff during negotiations. The Plaintiff shall bear full responsibility for the consequences of these choices.’  ”

————————–

Defense should now accept your choice of Specialist and funding method.

If they do not, and instead insist upon their choice of Specialist and funding method, you should insist that the following language be included in the final Settlement Agreement:

————————–

“The parties to this Settlement Agreement acknowledge and affirm that the choice of Structured Settlement Specialist and/or funding method were conditions of Settlement imposed by Defendant during negotiations. Defendant shall bear full responsibility for the consequences of these choices.”

————————–

You can point out that it is hardly in your client’s best interests to allow Defendant to dictate the Specialist and funding method when there is no recourse for your client should these choices turn out badly. If Defendant agrees, you have preserved legal recourse for your client and performed due diligence. It is unlikely that the Defense will agree to such language without a fight.

If the Defense fails to accept either proposal and offers to settle for cash, raise your demand by 15 percent to make up for the cost of losing the opportunity of tax-free structured benefits.

If the Defense responds by stiffening their position and replying they will not increase their cash offer, they may have demonstrated bad faith. Such a move would suggest that the Defense is placing their own interests (i.e. their insurance company’s interests) above those of the insured, who is their true client.

You may want to call this to the attention of the Defense, as well as the Court.

Following are two case studies in which just such a strategy was employed. While there was reluctance on the part of the Defense to allow Plaintiff to exercise control over the Specialist and funding method selection, in the end, the best possible settlement was reached for the Plaintiffs.

Case Study #1

In a number of cases, the development of a structured settlement has as much to do with the continuity of caregiving provided by a lost parent or spouse as securing the growth and investment potential of a settlement sum. The following case study perfectly illustrates the effectiveness of a properly structured settlement in providing some degree of solace to grieving loved ones left behind as a result of a tragic loss.

Background

Frank was an extremely successful, 45-year-old business executive with multiple business interests across several industries. During the test flight of a business jet Frank was considering purchasing, the plane crashed, killing Frank and the jet company’s test pilot. The investigation revealed that the crash was the result of totally negligent and illegal acts by the pilot. The liability in this case was complete. In other words, there were no arguments from the manufacturer of the jet.

Frank left behind a 15-year-old daughter. The mother of this child was a woman Frank never married and they were not living together at the time of the accident. The daughter lived with her mother, and Frank had provided regular and substantial child support to his daughter.

One other party of concern for the decedent was his 80-year-old mother. The mother is a remarkably vital woman in excellent mental and physical condition. She was currently managing her own substantial estate of between $500-600,000.

The economic loss reports at the time of Frank’s death indicated that he was earning more than $500,000 annually. The economic loss was calculated at $500,000-per year with a working life expectancy of another 15-20 years. The estimated loss to the estate in terms of Frank’s earning power was calculated at between $5-10 million.

The Planning Challenge

The bulk of Frank’s estate was left to the surviving 15-year-old daughter through a simple will with no Trust provisions. The daughter is currently displaying typical behavior for a girl of her age and for her circumstances. She tends to have wide mood and interest swings and displays some unstable psychological and emotional behavior. Frank had expressed to his business associates and to his sister (the personal representative in Frank’s estate) concern over this daughter ever receiving a large sum of money either due to his premature death or some other circumstance.

In a cash settlement, the proceeds to the estate would be held in conservatorship, but the daughter would have complete access to the funds at age the legal age of 18.

Adding to this challenge in the case were the concerns of the 80-year-old mother. While she is still very active, very capable and very comfortable with an estate of her own, it was Frank’s desire to leave something of his estate behind to assist his mother. Given her situation, tax considerations and the added burden of managing a substantial addition to her current estate were critical concerns.

The Solution

Plaintiff’s counsel approached us with the challenge of devising a structure for this settlement which would:

1. Protect the 15-year-old daughter from receiving a single, large sum (all of her settlement proceeds) before she was capable of handling and managing these funds
   while: 
2. Structuring the remaining settlement proceeds, earmarked for the mother, in a fashion where she would be unburdened by additional taxes and/or money management concerns

Using U.S. Treasury Bonds placed in a settlement trust, we structured the entire amount of the daughter’s portion of the estate (roughly $5 million).

Between now and when the daughter turns 18, a generous monthly allowance (for both her and her mother) for expenses to continue child support will be provided. At age 18, the daughter will receive a handsome lump sum for a car, clothes or whatever she chooses to spend it on. Also at age 18, the daughter will begin receiving annual payments for 8 years to cover the costs of college. The annual payments are geared to fund full room, board, books and tuition at a level comparable to the most prestigious Ivy League College. The 8-year annual payments are designed to provide adequate funding for four years of undergraduate studies and an additional 4 years, should she elect to pursue post-graduate studies.

For the 80-year-old mother, we decided to structure the entire amount of her proceeds from the settlement (roughly $1 million.) Typically, elderly beneficiaries are not seen as candidates for structuring, as they are not perceived to have long life expectancy compared to the investment vehicles available in a structured case. In this case, it was also atypical to consider structuring since the mother is already well off. But there was the concern for the mother in having to deal with the added management pressures (and additional income taxes) generated by the $1 million net settlement to her.

By structuring the mother’s payments annually over a 15-year plan, she will receive large annual payments, tax-free.

Should she die before the end of the 15-year structured payout, the remaining payments will flow to her named beneficiaries, also tax-free. This structure also is allowed to bypass the probate system.

The only remaining challenge in this structure is that of the additional estate taxes of whatever portion of the $1 million remains upon the death of the mother. The mother has a number of options, made easier by this structure. She can gift away some of these proceeds or establish a Charitable Remainder Trust to reduce her estate tax burden. She could even purchase additional life insurance products, obtaining them with discounted dollars, to pay estate taxes at the time of her death. The premiums could be paid for with funds from the annual payments within the structure.

Summary

With this structure, we achieved the two strongest desires of the decedent:

1. We ensured the safekeeping of the settlement proceeds for his daughter, allowing them to grow in a very secure investment tool (U.S. Treasury Bonds) while still providing a support allowance for her education, her future life and career plans, and retaining the tax-free status of the settlement sum.She was protected from the possibility of having to manage a substantial sum of money too early in her life.
2. At the same time, we were able to supply the decedent’s mother with an annual lump sum on top of her already comfortable lifestyle. These funds can later be passed on through the mother’s estate without income tax consequences for the beneficiaries and without the trauma and hassle of going through probate.

Case Study #2

In many instances, proceeds from a settlement must be called upon to provide a lifetime of support for victims and their families. Devising a structure in these cases becomes complicated when the victims face uncertainties about health care and an ability to provide their own livelihood. The following case is just one example:

Background

Loraine is a 4-year-old girl who was the victim of what is typically known as a bad birth experience (. She survived, but her birth resulted in terrific, debilitating injuries. Loraine’s mother also survived the ordeal, loves her daughter and is committed to taking care of her, but faces the prospect of a life of intensive caregiving for her daughter.

The case settled for $1.5 million.

In addition to the settlement proceeds, Loraine and her mother will receive support from Supplemental Social Insurance (SSI) and Medicaid. The local Shriner’s Hospital stepped forward to offer support and the bulk of Loraine’s hospital bills will be provided for until she turns 21.

The Planning Challenge

Plaintiff’s counsel approached us with the challenge of taking a settlement sum and structuring it to supply adequate support over the lifetime of care Loraine and her mother face. There was also the need to pay for some immediate requirements such as the incidental medical expenses not covered by SSI, Medicaid or the Shriners.

There were also immediate needs to situate Loraine and he mother in a proper home and to provide adequate transportation for Loraine’s mother to transport her disabled daughter. The settlement sum of $1.5 million is not an overly generous amount with which to plan a lifetime of support, complicated by the uncertain nature of medical expenses facing Loraine and her mother.

The Solution

After setting aside between $150-160,000 for the purchase of a house and suitable transportation, we structured a portion of the settlement proceeds to provide $2,000-per-month in income to cover the basic costs of everyday living and uncovered incidental medical expenses until Loraine turns 21. This will provide enough support for the incidentals not covered by Social Security, Medicaid or the Shriners without affecting the eligibility for any of these programs.

With the remaining $700,000 of settlement funds, we purchased two tax deferred annuities on Loraine’s behalf. We used separate, highly rated companies for the annuities in order to offer adequate diversification. The use of annuities offers the prospect of capturing the benefits of financial market gains while still maintaining the tax-free status of the settlement proceeds and securing the safety of the settlement’s principal.

These annuities will accumulate interest, tax-deferred, until Loraine or her trustees need to tap into them. After Loraine reaches the age of 21 (the time at which her $2,000 monthly payments end), she and her trustees may want to further annuitize one or both of these original annuities, extending the income. Any future income taxes assessed on the withdrawal of interest earnings from these annuities may be partially offset with the itemized deduction for medical expenses allowed to Loraine on her personal income tax return.

Typically, tax-deferred annuities would not be used for a younger person as there is a substantial excise tax penalty for drawing on the proceeds before the age of 59-1/2. They are generally used as an additional retirement savings tool.

There are, however, three exceptions to assessing an excise tax penalty on early withdrawal of annuity proceeds:

1. The death of the holder of the annuities
2. The total disability of the holder of the annuities
3. The lifetime annuitization of the full account value of the annuities. In the eyes of the law, Loraine is considered fully disabled, providing an exemption from excise penalties for early redemption of annuity proceeds.

Summary

With this strategy, we were able to devise an innovative financial plan which generates income and investment growth adequate to keep up with the anticipated medical expenses this young girl and her family face. The plan allows the flexibility for Loraine and her trustees to tap the majority of her funds at any time, without suffering adverse tax consequences, and without jeopardizing the ongoing income objectives of the structure.

To successfully take control of the structured settlement process, you must have a strategy for putting the ball in your court and putting the decision-making power into the hands of your client. Once you have that, you then need to employ the services of Structured Settlement Specialist trained and experienced enough to handle all the possible complications involved in planning a lifetime of financial security for you clients.

 ————–

These two case studies are just two of the many that have benefitted greatly by our Settlement Planning services.  By retaining our firm, the Plaintiff Attorneys for these cases were able to limit their liability and help their clients find solutions that were truly in THEIR BEST NEEDS… rather than the best needs of the Defense.

If you have a case, or would simply have a question, don’t hesitate to contact us anytime at 800-666-5584. 

We are here to help Plaintiff Attorneys limit their liability and protect their client during the financial aspects of a settlement.