Settlement Planning… When Can There Be Too Much Of A Good Thing?

Can there be too much of a good thing when it comes to planning the financial aspects of your clients settlement?

There sure can be.

In this short video Jack explains how placing too much of a claimants proceeds into Structured Settlement Annuities can be a bad thing and how too much placed into managed funds can be a bad thing as well.

Ultimately, balance is the key and Jack explains how to come at the proper balance so your client can get the best of both worlds.

(click the play button below.  The video is a quick view at about 4 minutes)

Click To Play

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

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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 <<

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.