Bonds and Structured Settlements: No More Tears

For those who remain unconvinced that Structured Settlements are still “a good deal” in today’s economy, it’s worth noting how other financial professionals view bonds and bond-based instruments such as Structured Settlements.

First, a brief comment on how structured settlement companies arrive at their rates. And I do mean brief.

Bonds.

OK, that may be a bit of an oversimplification but suffice it to say the portfolios of life companies offering structured settlements generally include a significant percentage of quality bond holdings. That’s because life companies are strictly regulated by the states and must meet certain risk-based capital and other requirements in the interest of consumer safety.

For the past twenty years or so, state regulators have limited what life insurers (including those offering structured settlements) can invest in. Years ago, companies could get away with reaching for higher yields by investing in riskier instruments like junk bonds.

Thankfully those days are long gone.

Today, take a look at any company offering structured settlements and you will likely find a portfolio containing 80% or more of investment grade bonds. The balance in cash, short term investments and other “sensible” assets with minimal, if any, exposure to anything considered high risk makes for a very safe bet.

One small difference. Structured settlement rates of return usually exceed bond rates by quite a few (often fifty or more) basis points!

Which brings us back to the original topic. A recent article entitled “The Age of No More Tears Investing,” which appeared in a recent edition of Fortune magazine, quotes a number of financial experts who seem to think quite a bit of bonds these days.

Click HERE to read “The Age of No More Tears Investing”

Add it all together and you have a formula that goes something like this:

If Bonds = Safe, and
Structures = Backed Mostly By Bonds, and
Financial Experts = Touting Bonds as Good, and
Structure Rates > Bond Rates, Then

It stands to reason that:

Structures = Safe + Good 4 You!

OK, so maybe my theorem needs a little re-working but you get the gist. Good economy, bad economy. Whatever the case, structured settlements are a solid choice for those seeking safety and solid performance commensurate with the risk.

Naturally, it all depends on the numbers so please call if you’d like some comparison quotes or to let me know what I can do to help. Nothing beats an informed decision. Wishing you continued success and . . .

Press Release: National Structured Settlements Trade Association Elects Dan Finn Its Next President

I am proud and humbled to be writing to you today to announce that I recently was elected to serve as the incoming president of America’s premier advocacy group dedicated to protecting and preserving the tax benefits associated with structured settlements for personal, physical injury victims.

Click HERE to read the Press Release.

That my industry peers thought enough of me last year to elect me to our organization’s Board of Directors was gratifying enough. But when the elected Board members collectively drafted and elected me to lead the organization as its next president, the honor was magnified.

Although my term doesn’t officially begin until 2011, I am already fully engaged with a committed Board of Directors and Management Team that is working to ensure that structured settlements, and the tax advantages that accompany them, remain a viable settlement option for people anticipating settlements for personal, physical injury and wrongful death claims.

For 25 years, the National Structured Settlements Trade Association (NSSTA.com) has led the charge to engage the public on dialog necessary to ensure the continued success of structured settlements. I pledge to do my part to continue this fine tradition.

Through the collective efforts of ALL the professional stakeholders – accident victims themselves, attorneys, mediators, judges, insurance companies, members of Congress and my fellow structured settlement professionals – we can continue to help secure the futures of those who need it most.

I am committed to making sure clients continue to have this unique option for guaranteed future security available to them. Please feel free to contact me personally should you ever have a matter that you feel deserves greater emphasis in this important area.

You’ve seen the late night TV commercials. You can get “CASH” for your structured settlement payments NOW!

“Let us help you out of that burdensome, extremely attractive and secure guaranteed income tax-free cash flow you are receiving,” the paid spokesperson suggests. “We understand your problem and will give you the money YOU deserve such is our benevolence!”

In a perfect world, the spokesperson would, at this point, grow horns and start laughing maniacally. I imagine the scene from Planes, Trains and Automobiles where John Candy and Steve Martin get wedged between two semi-trucks while driving the wrong way down the highway.

But the world is imperfect and people aren’t always able to see the truth that often lurks behind a well-crafted advertisement that is, most would argue, designed to exploit.

In this rare weekend edition of our newsletter, I’m writing to praise financial columnist Jason Zweig for his article which appeared in today’s edition of The Wall Street Journal shedding necessary light on the emerging practice of selling factored structured settlements.

Click HERE to read “Another Can’t Miss Deal That Can Miss Spectacularly”

In an odd way, the fact that a secondary market has spawned from a secondary market speaks volumes about the attractiveness of the structured settlements in the first place.
It suggests, to me at least, that investors would love to be on the receiving end of an original structured settlement.

Trouble is, since structured settlements are only available to people settling a personal, physical injury claim, they are not available for purchase directly. That is unless they are purchased, after the fact and “at a deep discount” as the article points out, by companies wanting to capitalize on their original attractiveness.

Although the article steers clear of the ethical issues surrounding investors who make money off of people who have suffered physical trauma, it seems appropriate that the lone graphic used in the article shows a turkey vulture roosting on a yield sign.

For more perspective on this theme, clients may wish to revisit a few of the videos we have posted on our website under the “What They’re Saying” tab. Specifically, those of Sen. Richard Durbin and Rep. Joe Courtney (videos 5 and 6) of the United States Congress both of whom are former trial attorneys who strongly support structured settlements and are opposed to factoring.

A few days ago, an attorney client-friend I hadn’t spoken with in awhile called for some structured settlement proposals.

“Business must be terrible since rates are so bad, right?”

I acknowledged some cases recently where clients who were excellent candidates for guaranteed tax-free income desperately needed cash to stave off foreclosure, support a laid-off spouse, make up for lost savings, etc.

But he was surprised when I told him that our overall business activity is about on par with activity in the pre-Recession days before money seemed to evaporate overnight. After all, some people will always choose guaranteed, tax-advantaged income regardless of what the rest of the economy is doing. They’re just wired for safety and security.

“How can that be with interest rates so low?” he wondered. “Structured settlements can’t be paying more than, what, 1 or 2 percent?”

I smiled. This was not the first time I had heard this.

Oscar Wilde Was Right*

His client was a 55 year-old male whose marginal income bracket was still quite high because both spouses, fortunately, still worked. He planned to continue working to his normal retirement age of 65.

Furthermore, this person’s 401(k) had taken such a hit the past few years that he vowed never again to buy another stock. He was coming to that point in life where he needed to shift his risk tolerance anyway so had asked his attorney, a wise money-man himself, if he knew of anything “sensible” he could do with his settlement money.

I ran a quick quote that revealed his client could receive guaranteed lifetime income beginning at age 65 (a 10-year deferral) that resulted in a 4.35% tax-free rate of return based on full life expectancy. Factoring the client’s high estimated tax bracket into account, his tax-equivalent yield was over 7.50%.

It’s worth noting that the “real” (inflation-adjusted) rate of return for the S&P 500 from 1950-2009 is 7.0% according to data collected by Robert Shiller from Yale University for his book Irrational Exuberance.

Surprise!

The attorney was amazed! This was significantly better than he had been expecting. So much so, that he realized that maybe it was time for him to start thinking about resuming the structuring of his fees going forward.

I told him I was glad I could change his assumption and assured him I’d be here whenever he was ready to resume structuring his fees.

Thoughts From a Bond Guru

Clients may wish to heed the insights of “Bond Guru” Bill Gross, manager of the world’s largest bond mutual fund. In a recent Money magazine article, he talks about how people need to adjust to the “new normal,” which he defines as “an era of slow growth and lower returns on stocks, bonds and everything else.”

Click HERE to view the article “What the bond guru sees coming”

Gross essentially suggests that people cut their return expectations in half. Instead of expecting 10% returns on stocks, expect 5%. Expect 4% on bonds. Etc.

Final Comments

In the structured settlement business, we’re telling clients who will need money in the very short term they should NOT structure that portion of their settlement proceeds. (Exceptions: Some taxable settlements, attorney fees and Structured Sales).

But for those who seek long-term financial security, we have yet to find anything that compares to the benefits of a properly crafted structured settlement. The tax-advantage coupled with the uber-secure nature of structured settlements make for a terrific combination.

Tough as it is to get used to this “new normal,” those who adapt will surely survive and thrive. And we look forward to being here to help you through the transition.

Product Enhancement Announcement From: New York Life
Fixed Annuity Leader Now Accepting “Stand-Alone” Structured Attorney Fees!

Plaintiff attorneys in the know have been structuring their fees for many years. They have long valued the certainty, the security and the tax advantage that comes from deferring fees into a future year.

New York Life has always been a popular choice among the many excellent life markets offering structured attorney fees. But until this month (June, 2010) attorneys could only structure their fees with New York Life if their client structured part of their settlement proceeds.

I am extremely pleased to announce that this restriction has now been lifted.

Attorneys who wish to structure their fees with New York Life may now do so even if their clients choose to accept their settlement in cash provided the underlying claim qualifies under IRC 130 as a personal, physical injury case.

Why is This Worthy of Special Mention?

Four reasons:

1. This inclusion means that now, ALL Structured Settlement life markets now offer stand alone structured attorney fees. This further reinforces the viability of structuring fees from a tax perspective;
2. New York Life was the market leader in fixed annuity sales in the first quarter of 2010 according to the recently released Beacon Research Fixed Annuity Study. They topped the list with over $1.7 Billion in fixed annuity sales;
3. New York Life is one of the few companies that can boast top ratings from all four major rating agencies: A. M. Best, Moody’s, Standard & Poor’s and Fitch;
4. Ultra-conservative attorneys who regularly structure their fees like having an assortment of structured fees spread among several different life markets. Having New York Life now available when their clients “cash out” adds another option.

Practitioners seeking to secure their futures can gain a terrific financial advantage by structuring their fees. Because it’s vitally important to follow the established sequence of events in order to preserve the tax advantage, be sure to call me before your case settles to make sure everyone is in compliance. Certain underwriting limitations may apply and attorneys are naturally encouraged to seek their own independent tax advice.

To learn more about how valuable this strategy can be or to receive a structured attorney fee quote, call anytime. In these tumultuous financial times, who among us couldn’t use a little extra financial security?

Munis May Be Losing Some Luster

Long touted as the ultimate secure choice for investors seeking tax-free income, some municipal bonds may be creeping up the risk ladder according to an article which appeared online yesterday at money.cnn.com.

In his article, “Is there a muni bomb in your portfolio?,” staff writer David Ellis reports that a number of cities have had their credit ratings cut. As a result, especially when coupled with the current general economic malaise, some municipal bonds could end up “virtually worthless.”

Not good news for people who are counting on that money.

Even bazillionaire Warren Buffett (who knows a thing or two about money) is quoted as saying municipal debt woes could become a “terrible problem” in the future.

Click HERE to read “Is there a muni bomb in your portfolio?”

This article caught my eye since I can recall, over the years, many people who settled their personal, physical injury claims rejecting the income tax-free structured settlement option available to them in favor of cash so they could buy tax-free munis which they perceived as safer.

I will not argue against the wisdom of choosing something viewed as so historically safe but I hope this article provides some perspective for those who think munis are always a slam dunk. Structured settlements offer a sensible alternative.

Structured settlements remain an excellent choice for those who qualify and seek guaranteed, income tax-free cash flows! Please call anytime I can help you or anyone you know evaluate ALL the choices available before settling a personal, physical injury claim.

Think Again, My Mellowing Friend!

I recently participated in a mediation where the plaintiff attorney denied his client an opportunity to structure her settlement because his client was “too old.”

She was 59.

While 59 years of age may have been considered “too old” to think about lifetime financial security in another era (like, maybe 1743), all professionals involved in the personal injury tort process — defense and plaintiff attorneys, claims representatives, judges, mediators, etc. — should consider the following before making generalizations about the appropriateness of a structured settlement for people with perhaps a touch of grey:

I. Playing the Percentages

Authors Eric Tyson and Bob Carlson cite “Underestimating Life Expectancy” as one of the eleven mistakes to avoid when planning your retirement in their new book “Personal Finance For Seniors For Dummies.” According to Tyson,

“A retirement of 20 years will be routine for those retiring in their early to mid-60s today. A significant number will be retired for 30 years and longer. Some may even spend more time in retirement than they did working.”

Age 59 may be too old to think about starting a professional career in ballet but anyone who thinks this is too old for a structured settlement is missing a great opportunity. Who among us couldn’t benefit from guaranteed, tax-advantaged cash flow that can never be outlived?

II. Centenarians Unite!

The U. S. Census Bureau projected recently that, by the year 2020, 7.3 million Americans alive will be aged 85 or older. The fastest growing segment of this fast-growing demographic? Centenarians! The ranks of those living to be 100 years old is growing 7% per year and will number nearly a quarter million within the decade.

I’m still a few years away from hitting this particular milestone myself but I’m guessing it would be a whole lot more fun having money when you turn 100 than being without. Lifetime annuities provide secure, guaranteed cash flow on a tax-advantaged basis.

III. More On Longevity

Finally, in case you missed it, I highlighted a number of other statistics that make a compelling case for choosing a lifetime annuity in an earlier newsletter. Before leaving, be sure to:

Click HERE to check out our newsletter “Live Longer . . .. Buy Annuities.”

I continue to be amazed at how many people incorrectly assume that structured settlements are only appropriate for kids. What a shame. What a wasted opportunity!

Summary
There may very well be legitimate reasons why a structured settlement is not an appropriate choice for someone anticipating a personal injury settlement. But before rejecting it out of hand for all the wrong reasons, practitioners are encouraged to consider the wealth of empirical data available to help them make an informed choice for their unique situation.

We can help you! Whether you’re a plaintiff attorney looking to augment your retirement or a claims professional seeking to recreate a plaintiff’s future work-life cash flow needs, please call anytime to let us help you decide if a lifetime annuity is appropriate.

“I Want My Money and I Want It Now!”
(Or, Can I Pay You To Take My Money From Me?)

You’ve seen the commercials.

A distraught person is shown screaming out the window at the top of their lungs in frustration because some evil, unnamed annuity company has separated them from their money like some latter day Silas Marner. This financial affliction appears contagious since soon seemingly everyone in the neighborhood joins the chorus. They, too, want their money and they want it now!

Then, just when all hope seems lost and suicide-by-window jumping surely looms, a savior arrives in the form of a serious but not unkindly-looking gentleman who promises these hopeless souls the “CASH” today that will render their worries moot. After all, he assures them, it’s their money and they deserve it.

Beyond disingenuous, these ads purportedly exist to help people get back what’s rightfully theirs. But an article that recently appeared in an edition of Allentown, Pennsylvania’s The Morning Call sheds a whole lot of light on how dearly people pay when they choose to sell their structured settlement benefits.

Click HERE to read The Morning Call article.

Structured settlements remain one of the absolute safest, most secure choices for those settling a personal injury claim. Why else do you think companies that purchase the rights to the future payments are willing to spend so much money on advertising to acquire them? Buying structured settlements is a great deal for the company that buys them. But something significantly south of a great deal for the person selling.

Defense and Plaintiff Attorneys Agree: Structured Settlements Work!

Just because plaintiff and defense attorneys are legal adversaries doesn’t mean they always disagree. For instance, clearly they agree on their obligation to advocate for the clients who retain their services click here to hire a lawyer. I’m pretty sure both agree it’s a good idea to show up for court on time. And, if two recent videos are any indication, both agree in the value of Structured Settlements!

These new segments, produced by the National Structured Settlements Trade Association (NSSTA), feature two prominent attorneys (one plaintiff, one defense) extolling the benefits of structured settlements in the tort resolution process. A lot of people in PA ask what is limited tort insurance, so it’s important for them to understand their rights.

Neil Galatz – Past President, Western Trial Lawyers Association and perennial Super Lawyer shares two poignant stories about clients who benefited from structured settlements and why he routinely recommends them.

Steven T. Jaffe – Top defense attorney and Martindale-Hubbell A-V rated name partner with Hall, Jaffe & Clayton in Las Vegas explains the value of structured settlement experts at the bargaining table.

I hope you enjoy these videos! We plan to feature more as they become available so be sure to check back often.

With the Golden Globes and SAG Awards behind us and Oscar nominations just around the corner, I thought it might be fun to dive into the film vaults to see what roles, if any, Structured Settlements have ever played in the movies.

If you’re a sucker for courtroom dramas like I am, you probably can rattle off a few of the more memorable videos or DVDs you’ve enjoyed over the years. Inherit The Wind, Primal Fear, A Few Good Men, The Firm and others may even be among your favorites.

It should come as no surprise that most films, including these, have nothing to do with Structured Settlements.

But were you aware that one “lawyer flick” featured a scene where a Structured Settlement factored prominently into the plot development?

I know, I know. Leave it to a structured settlement guy to notice something like this.

And while “factored prominently” may be a bit of a stretch, 1998’s A Civil Action starring John Travolta and Robert Duval did indeed feature some Structured Settlement dialog.

Based on a book that’s based on a true story about a lawsuit that developed over alleged contaminated drinking water in Massachusetts, the film contains a scene during which plaintiff attorney Jan Schlichtmann (Travolta) makes his initial demand for damages.

After outlining that the two codefendant corporations collectively netted a profit of more than a half billion dollars the prior year, Schlichtmann submits what he believes to be a comparatively reasonable demand for damages at the informal settlement conference he has arranged for the parties at a swank restaurant:

Schlichtmann: “Twenty-five million dollars cash.”

(Pause)

Defense attorneys collectively raise their eyebrows and exchange a few encouraging nods suggesting they are pleased this demand seems far more reasonable than they were anticipating in light of the exposure.

(NOTE: Keep in mind this film predates the Vioxx Settlement by about a decade when 25 million dollars was still considered a lot of money!)

Schlichtmann: “And another twenty-five million dollars to establish a research foundation to study the links between hazardous waste and illness.”

(Pause)

Defense attorneys, along with Schlichtmann’s own legal team, are taken aback by his audacity. But he continues . . .

Schlichtmann: “And 1.5 million dollars per family annually for 30 years.”

There it is! A structured settlement demand! Who knew Hollywood had it in ’em? Credit author Jonathan Harr for developing such a tuned-in plaintiff attorney to demand a structured settlement because he recognizes that guaranteed annual income best meets his clients’ needs.

As the film continues, settlement talks break off shortly thereafter when one of the defense attorneys tallies the figures to produce a $320 Million demand.

Unfortunately for the settlement process, this uninitiated barrister failed to take the time to contact a Certified Structured Settlement Consultant (such as yours truly) who could have readily pointed out that the demand wasn’t as “outrageous” as he had surmised. But by failing to take present value into consideration, the settlement talks prematurely and abruptly conclude with defense counsel Jerome Facher (Duval) sneaking a dinner roll into his pocket for the road.

SIDEBAR: In addition to garnering Duval an “Outstanding Performance by a Male Actor in a Supporting Role” SAG Award, A Civil Action earned Oscar nominations for Best Supporting Actor (Duval) and Best Cinematography among other awards.

I won’t spoil the rest of the movie for you if you haven’t seen it but A Civil Action is certainly worth a look-see if you’re a movie buff and missed this one the first time around.

In fact, if you haven’t seen it but would like to check it out, drop me a line and I’ll even send you a complimentary BLOCKBUSTER $5.00 gift card you can use for the purpose. No strings attached! (Limited to the first 25 respondents) Consider this my contribution to the education of the masses on the topic of structured settlements through film. Enjoy!  (August, 2014 Update: Blockbuster who? Sorry. Gift cards no longer offered)

So, here’s hoping 2010 is shaping up to be a BLOCKBUSTER year for you in more ways than one! Wishing you continued success in the year ahead, I hope you win your Oscar pool.