Plaintiff’s Use of a Structured Settlement Specialist - A More Level Playing Field
Most people would never consider entering a real estate purchase transaction relying only on the seller’s attorney or broker for advice.
By the same measure, you would never suggest your clients rely solely on the advice of Defendant’s experts in deciding how best to settle a personal injury claim.
Then why allow your client to rely solely on the Defense’s expert when it comes to the issue of structuring a settlement?
Importance of Retaining a Plaintiff Loyal Settlement Planner
Structured settlements are still an important financial planning tool to be considered for managing portions of the proceeds from a personal injury lawsuit. In recent years, use of a settlement specialist by Plaintiff’s counsel has grown in popularity and in my opinion, will soon become the norm, instead of the exception.
During the course of most cases, both the Defense and the Plaintiff routinely gather the most competent team of experts to support their respective cases. It is a strategic imperative to balance the other side’s experts with your own. This same balance should be sought when counseling clients considering a structure for the proceeds from a case settlement or a jury award.
Advising the Defendant early on that your client intends to employ the services of their own Settlement Specialist can start to set a foundation for establishing this balance. If the Defendant and your client both have Specialists they trust, providing expert advice and direction, these two Specialists can share the responsibilities (and the fees) for recommending the best option for your client’s settlement dollars.
Often times, the financial proceeds from a case are the only solace your client may be able to fall back on, having already suffered serious injury.
The best service for your client in this situation may not necessarily come from depending on your adversary’s expert to take care of your client. After all, many structures are more complex than just designing an annuity package.
Who is better positioned to help your client navigate the financial decisions that must be made before, during, and after the settlement than an expert with duty solely to your client?
Considerations For Plaintiff Attorneys
There are a number of practical considerations for Plaintiff’s counsel to consider when recommending the services of a structured settlement specialist:
Liability Exposure
Consider the following three scenarios:
Scenario 1 - A client for whom you successfully negotiated a settlement returns to your office eighteen months after the final execution of the Settlement Agreement. The client is broke, distraught and desperate.
The client’s proceeds from the settlement have been lost to taxes, ill-advised investments, unchecked spending and requests from family members. During the course of the settlement negotiations, Defendants offered the services of their Settlement Specialist to structure the proceeds. However, your client wanted nothing to do with any expert related to the Defendant.
Having no Settlement Specialist of your own to consult, your client was left on their own to manage (in this case, tragically) their own affairs.
Scenario 2 - A former client walks into your office ten years after you negotiated a settlement on their behalf.
In this case, a substantial percentage of the settlement proceeds were structured, using the services of the Defendant’s approved Settlement Specialist. In this case, the client has subsequently learned that the structure they settled for was less-than-competitive and that in fact, higher yielding structure vehicles were available at the time of settlement that neither you or your client were aware of.
Scenario 3 - The heirs to a former client (seriously injured in an accident) return to your office shortly after the former client passes away.
You successfully negotiated a settlement for the client at that time and a substantial portion of the settlement proceeds were structured with the assistance of the Defense-appointed Specialist. The heirs have discovered, however, that there is not enough liquidity within the confines of the structure for them to pay estate taxes.
What would you say to these people? Plaintiff attorney liability exposure is a serious possibility in each of these scenarios, and they illustrate a primary reason why you should consider using the services of a Settlement Specialist.
Balance the Power
In any number of cases, during the negotiation of a settlement, Plaintiff’s counsel may believe that a Defendant’s Settlement Broker is working in a shared-interest capacity. As a professional on the Defense team, it is that Specialist’s job to foster a sense of cooperation. It is also that Defense expert’s professional duty to devise strategies that produce substantial savings to the Defendants and their insurer.
These are savings that could fall to (or at least be shared with) your client, the injured claimant, and you may not be aware of their potential.
The important thing to remember is that the strategies used by the Defense are countered by Plaintiff’s retention of his/her own Structured Settlement Specialist. By retaining a Specialist with a duty to your client, your client can be assured of receiving full value for all the hard-earned settlement dollars. You will also be assured of having a skilled advocate who is an accountable party to you and your client.
One final thing to consider in this area: in the unlikely event that something should go wrong with a structured settlement (e.g. a loss of tax-free treatment of payments,) your client has no recourse. The Defendant’s Broker is released with the execution of the Settlement Agreement, just as the Defendants, their insurers, their attorney(s), other agents and experts are.
By retaining a Structured Settlement Specialist, your client should be able to recover against their Specialist’s liability insurance. (Be sure to ask your Specialist to provide assurance of this coverage.)
Client Referrals - Building Your Business
Suggesting the retention of a Settlement Specialist by your client provides another value-added element to your services, especially if you recommend a Specialist with credentials and experience in a broad range of financial planning matters.
Your clients have an opportunity to receive a responsive package, tailored to meet their needs. You will then have clients who have a sense of security knowing that there is an expert on their side. You have clients who walk away from the process happy with your services.
Left on their own to navigate the difficult waters of financial management, many clients encounter serious problems in merely protecting the proceeds intended to provide a lifetime of financial security. Many Plaintiffs disburse all or part of their settlement proceeds in a short time following settlement. Afterwards, they are left pondering their fate. Comparisons between the financial positions they then find themselves in, and the position of the legal advisor who settled the case, are natural. (I have heard more than one practitioner refer to this as fee envy.)
A Plaintiff caught in this unhappy circumstance can quickly grow resentful of the fees rightfully earned by counsel, and can then become your firm’s worst public relations nightmare. And you’d never even know about it.
When you take the proactive step of suggesting your clients retain a professional who will handle all of the detail work on financial arrangements, you are adding to your competitive arsenal. You will also save yourself the potential of having to deal with ugly scenarios like the three previously illustrated.
You can find and recommend professionals with the qualifications to bring your clients financial peace of mind; whether it’s as simple as setting up a steady stream of adequate income, or as detailed as planning for estate, tax, liability insurance, and all other future financial issues. In my experience, having a settlement specialist working with you and your client results in a comprehensive, superior program.
Why the Defendant Should Allow This
The roles of Plaintiff and Defendant are naturally adversarial. The extension of that relationship is that any recommendation made by either counsel is also adversarial. There are, however, advantages for the Defendant in this situation in allowing Plaintiff to select a Settlement Specialist (and for that Specialist to subsequently select the funding mechanism for disbursing the settlement proceeds.)
The greatest advantage may be the Defendant’s avoidance of long-term liability for simply providing an approved Structured Settlement Broker to Plaintiff and precluding Plaintiff from bringing a Specialist into the transaction that has a duty to him/her. Many Defendants have decided they should distance themselves from a process that may no longer save them money, yet visits contingent liability upon them because of the implied due diligence in their approved broker and approved life carrier/annuity issuer lists.
In the early 1980’s, before IRC Section 130, Defendants and/or their insurers owned structured settlement annuities which only discharged their obligations pro tanto.
Naturally, the control of the structured settlement process belonged to the Defendant, the party at risk in the annuities.
In the years since IRC Section 130 became law, things have changed. Since the passage of Section 130, Defendants (and their insurers) may assign their liability for the payments they have promised to your clients to a third party company, one usually affiliated with the annuity carrier.
Since the Defendants and their advisors are completely released from all liability and responsibility once the settlement has been finalized, how can they also insist on naming the sole Broker and the funding method that will be critical to your client’s lifetime welfare? Your client is shouldering all the risk and the Defendants and/or their insurer none.
Defendants should not preclude your clients from seeking advice and professional counsel in this area and compensation should not have to be paid twice by your client for these services, either. Your client should be able to choose a Specialist who will offer advice on the right funding method for your client’s situation.
It’s your client’s future at stake and your client’s lifetime welfare
At the very minimum, both sides should have their respective experts in this area. It should further be negotiated and agreed that both Structured Settlement Specialists will equally split the compensation generated from the placement of the funding vehicles for the settlement.
What About Constructive Receipt?
Well, what about it? Let’s ask an expert:
The construction receipt doctrine is often the focus of discussion between Plaintiff and Defense counsel. If applicable, the doctrine would cause the Plaintiff to pay tax on the investment earnings in the annuity used to fund the settlement. However, the doctrine is seldom applicable in litigation.
According to David M. Higgins, founder of the Settlement Law Group in Los Angeles, and specialist in issues that arise in personal- injury settlements, The doctrine bars structured settlements only when the settlement is finalized and enforceable or when a judgment has been entered that is no longer subject to appeal.
The Internal Revenue Service ruled privately in 1983 and in 1990 that disclosure by the Defendant of the cost or present value of the annuity does not trigger the constructive receipt doctrine. Thus, bargaining can and should involve discussion of the amount the Defendant is expected to spend to purchase the annuity. Such bargaining will not create tax problems for the Plaintiff.
Occasionally, Defendants argue that participation in the settlement discussion or implementation, by the Plaintiff’s Structured Settlement Specialist, will trigger the construction receipt doctrine.
There is no legal basis for such an argument under the governing Treasury regulations (Treas. Reg. 1.145-2), according to Higgins.
Higgins drafted the relevant structured-settlement provisions of the Internal Revenue Code in 1982.
The Evolving Industry
Having represented both Defendants and Plaintiffs, I have found that this process is evolving, shifting away from some of its earlier trends. Some Defendants are distancing themselves from a system that no longer saves them money, yet may visit contingent liability upon them. Other Defendants are still attempting to control as much of the process as possible.
This evolution has opened a door of opportunity to Plaintiffs. They can now re-capture the original spirit of structured settlements, and Plaintiff’s counsel can give their clients added leverage during settlement strategies and in securing their clients’ future.
The leaders in this industry, Specialists who are on the frontlines of this evolution, are actively reaching out to work with Plaintiffs. They are bringing a depth and breadth of education, professional experience and background in comprehensive financial planning matters; specializing in needs analysis, tax planning, estate, liability and other insurance issues.
This level of experience will compliment your efforts as you work to protect your client’s legal rights.
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So, are you as a respected Plaintiff attorney ready to go it alone and risk putting yourself in the path of huge potential liability?
Or… are you ready to bring the experts who know how to help you safely navigate around the potential risks and liability onto your team?
Call us today at 800-666-5584 to limit your risk and liability <==
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