January 20, 2012  

Treasury Issues Final Regulations Under 104(a)(2)
Physical Injury Damages Exclusion  

Internal Revenue Code Section 104(a)(2) is the foundation upon which structured settlements, which provide guaranteed future periodic payments on an income tax-free basis for personal, physical injury claimants, is built.

On January 20, 2012, Treasury issued its FINAL regulations under the code.

And while they didn’t actually use the words I’ve chosen for this newsletter’s headline above, their persistent refusal to act on the request reinforces the structured settlement industry’s long-standing consensus opinion on the topic:

Single Claimant Qualified Settlement Funds (QSFs) conflict
with the spirit of the original intent of the code.

What is a Qualified Settlement Fund? 

In non-legal terms, IRC Section 468B  is a section of the tax code that permits defendants to settle a claim when (typically) there are multiple defendants and/or claimants settling for an agreed sum but specific allocations are yet to be determined and/or defendant(s) need(s) to pay part of their obligation at some point in the future.

It addresses, among other things, timing of deductions.

When proper steps are followed (court order required, etc.), it permits the defendant to settle the case, pay the money owed (or give it time to arrange funds necessary to meet its obligation) and be done with the file.  A 468B Trust, or Qualified Settlement Fund (QSF), “stands in” for the settling defendant(s) and permits closure and certainty for the defendant.

Once this step is completed, the competing interests for the settlement dollars agreed to can proceed unencumbered by any defense intervention.

A QSF can be an excellent settlement tool for certain classes of cases.  Mass torts involving a large number of plaintiffs can be perfect candidates for QSFs.  In these instances, allocations can be arranged, plaintiffs have time to explore their post-settlement financial options, attorneys can be paid, liens can be resolved, etc. all in the time needed to accomplish these ends.

An exceptionally small minority of structured settlement practitioners believe the Code applies to single claimant transactions and asked, on more than one occasion, the Internal Revenue Service for clarity on the important doctrines of economic performance and constructive receipt.

The IRS has repeatedly chosen to pass on the request as they did again here citing that it was beyond the scope of the regulations.

Where We Stand

Our firm does NOT support the use of structured settlements flowing from a single claimant QSF for a variety of reasons.  Among them:

• Economic Benefit Most likely Triggered:  While this may be debated by some in our industry, we don’t care to expose our clients to unnecessary risk;  
• Limited Structured Settlement Options:  The vast majority of life markets offering structured settlements steadfastly refuse to accept a structured settlement funded by a single claimant QSF.  This seriously limits a plaintiff’s choice;
• We Don’t Push the Envelope with a Client’s Future:  We prefer to stick with the tried and true.  Properly crafted structured settlements, arranged in cooperation with all settling parties and their representatives, will normally achieve the best outcome;
• Time Value of Money:  Everything else being equal, funding a structured settlement annuity earlier rather than later puts more money in the client’s pocket;
• It’s Unnecessary:  Implementation of a QSF requires several court approval processes and usually involves trust management fees and other costs which can erode the plaintiff’s settlement.  All can be accomplished more easily and more cost effectively without the QSF.

Also 

Lest readers think we missed other important matters address in the regulations, there are two other areas upon which the IRS opined:

1. Treasury DID NOT ADOPT commentators’ requests to, among other things, define certain personal injuries as “physical” which would unequivocally qualify them for income tax-free treatment.  On this particular point, we are disappointed because it could have possibly clarified the tax-treatment of damages paid to exonerated prisoners among other classes of claimants; and,
2. Treasury DID NOT ADOPT one commentator’s request that elimination of the “tort like” test that has long been required in order for damages to flow tax-free to the plaintiff, would create confusion.  However, in this instance, not adopting was viewed as a plus since it broadens the scope of cases which may be eligible for special tax treatment.  The impact of this decision and its impact on the structured settlements remains to be seen.

If you have any questions on any of this or any other topic involving structured settlements, please don’t hesitate to call.  This was a long newsletter but we felt it was important enough to share with those who trust us to keep them abreast of important developments that impact their practices.

Thank you for the continued opportunity to be of service and best wishes for continued Struccess!

Because Your Longevity Risk is Increasing, That’s Why!

With apologies to our younger readers, remember the 1977 Dannon commercial that linked the high centenarian population of then-Soviet Georgia to eating yogurt?

What a difference a generation makes!

When Congress passed the Social Security Act in 1935, average life expectancy at birth was only 62.81 years.  By 2050, that number is projected to rise to 83.86 according to data360.org which is a small group of non-partisan, “just the facts, ma’am” folks who like crunching numbers.

Further, in its article last November entitled “Who’s Old?  More turn 90 in U.S., redefining aging,” USAToday, citing research from the National Institute on Aging, reports that there are currently nearly 2,000,000 Americans aged 90 or older, up threefold from just thirty years ago.

So what does this mean for you and me?

For those without pensions, it means that following the conventional wisdom of investing retirement funds and withdrawing at a fixed rate, your chances of running out of money have just gone up.

Put another way, you need to either:

Hope you don’t live as long
Save a bunch more money
Re-budget to a lower withdrawal rate
Hope for higher returns

Or, take the easier way out and:

Buy an annuity!

More specifically, buy an annuity that provides guaranteed income for life.  Effectively, you can create your own “personal pension” that assures income you can never outlive.

And while rolling over your 401(k) proceeds into a lifetime annuity is a pretty good idea, those anticipating personal injury settlements have a unique opportunity to address their own longevity risk with guaranteed future cash flows that are 100% income tax-free!

Every week we’re helping people secure their futures with income tax-free structured settlements and pension rollovers.  It just makes so much sense for so many people.

Plus, many of the smartest attorneys I know routinely structure their attorney fees to address their own longevity risk on a  tax-deferred basis and are happier for their decisions.

We are passionate about this particular topic having found a plethora of evidence that leaves us little choice but to conclude that lifetime annuities are the absolute best way to ensure that any long life you live is a financially secure one.

For further reading, we hope you’ll find some of our past newsletters helpful:

Live Longer . . . Buy Annuities

A Paycheck for Life

Young Workers:  Make Mine Guaranteed

Income Floor Strategy for Retirement

Annuities Are The New Black

So here’s to a long life for you and yours!  Please let us know how we can help you create your own “personal pension.”

We’ll be here eating yogurt waiting for your call.

In its post Top 5 Causes of Accidental Death in the United States, list-oriented website Listosaur.com takes a look at some statistics that contribute to the rankings of a list we all strive to avoid being featured in.

Their blog suggests that if people would simply stop drinking, being distracted and being young while driving, maybe motor vehicle mishaps would not be the number on cause of accidental deaths in the United States.

Sure, there’d still be accidents but these factors contribute heavily to the fact that more people die from motor vehicle incidents than from any other type of accident.

Some frightening statistics to consider:

• Motor Vehicle Incidents is the No. 1 cause of accidental death in the USA;
• Accidents in general is the No. 5 cause of ALL deaths in the USA;
• Motor Vehicle Incidents is the No 1 cause of ALL deaths (USA) for those ages 1 to 42.

Rounding out the top five accidental life-takers are:

Poisoning            Falls          Fires          Choking

When deaths do occur from one of these or any other myriad of causes, it can leave a lifetime of scars in its wake for those left behind.  When negligence contributes to the loss and a lawsuit ensues, the grief for the survivors can be compounded.  In such circumstances, it’s reassuring to know there are caring claims professionals, attorneys and structured settlement professionals committed to helping them deal with their loss.

Be safe everyone!  Drive carefully and please be aware of steps you can take to increase your chances of becoming an unwitting statistic.

In a Congress that is often criticized for its inability to find common ground, today’s New York Times features an article which illustrates that bipartisanship is alive and well when it comes to medical implant device safety.

Titled “Bill Would Require More Monitoring of Implants,” the article describes efforts by key Senators to address what many believe to be a major flaw in the current implant approval process.

One of the sponsors of the legislation, Sen. Charles Grassley (R-Iowa), is also a supporter of structured settlements.  He was one of our industry’s featured speakers at the annual convention of the National Structured Settlements Trade Association in Washington, DC in 2009.

As part of their legislative effort, Sens. Grassley, Herb Kohl (D-Wisconsin) and Richard Blumenthal (D-Connecticut) also sent letters to several manufacturers requesting information on their tracking practices.  Johnson & Johnson, parent company of DePuy Orthopedics, maker of the now recalled ASR hip implants, was among the companies the Senators were seeking information from.

All patients affected by the recall of DePuy and other medical implant devices, are encouraged to visit our affiliated website, ASRHipSettlement, for information, including an informative video, on structured settlements as they apply to defective hip surgeries.

Our firm continues to follow this matter closely.

Read Our Latest E-Guide

In an effort to help clients make more informed decisions about structured settlements in these tumultuous economic times, we created this mini e-guide to help them make wiser choices about their futures.

There’s plenty of reading inside so we’ll keep it short here.

To learn why structured settlements remain a beacon of stability amid a sea of financial uncertainty,

[Click Here]

to transfer to the e-guide page where we poke holes in four of the most common misperceptions circulating about structured settlements today.

I hope you enjoy the efforts of our research. Let us know what you think and don’t hesitate to contact us anytime you require structured settlement expertise.

Thank you for the continued opportunity to be of service and best wishes for continued Struccess!

(Re-posted from our firm’s e-newsletter)

(NOTE: Some blogs simply cannot be improved upon.  Here’s one we couldn’t have said better ourselves.  The following is reprinted in its entirety with permission from The National Structured Settlements Trade Association)

Some structured settlements may offer significant advantages

Kudos to CBS News financial writers Larry Swedroe and Tiya Lim for today’s CBS News’ post on structured settlements.  Swedroe is a principal at Buckingham Asset Management in St. Louis and Ms. Lim is the firm’s director of Institutional Advisory Services.

Here’s an excerpt:

A structured settlement offers advantages that you can’t get anywhere else. Let’s start with the tax benefits. All income from your annuity is exempt — not deferred but completely exempt — from federal and state taxes. Your payments are also exempt from taxes on interest, dividends, capital gains and the dreaded AMT.

With taxes almost certain to rise in coming years, that’s not a bad place to be.

A lawsuit settlement may be your one-time chance to protect your finances for years or even decades. The IRS makes structured settlements very attractive. Consider taking the agency up on its offer.

Swedroe’s analysis goes on to explain how an accident victim can potentially maintain eligibility for private and government needs-based programs by irrevocably funding a special needs trust with payments from a structured settlement.  For a free NSSTA handout explaining this in more detail, please click here.

This commentary is a timely reminder about the importance that accident survivors should attach to financial security and guaranteed regular payment streams.  Wild swings in the stock market can make long-term planning more difficult (see here), especially when payments continue to be deducted during depressed times.  By contrast, a structured settlement offers the security of a tailored future payment stream that is not subject to reductions due to interest rate or stock market changes.

October 28, 2011 – Just a brief postscript to yesterday’s blog about college tuition increases.

To accent the tuition increases we discussed yesterday, CNNMoney today features the article “More colleges charging $50,000 or more a year.”

When settling a personal injury claim, it’s important to consider all future needs.  For those contemplating helping out with college for their children or grandchildren when negotiating their claim, these needs should be factored into the settlement dialog.

Structuring Settlements for Future Success 

October 27, 2011 – The cost of earning a college degree just got pricier.  In some states, a whole lot pricier.

In its article “5 biggest state tuition hikes,” CNNMoney reports an “alarming” increase in college tuition increases.

The hikes they discuss are not of the walking variety by the way.

California, Arizona, Georgia, Washington and Nevada top the list of states where tuition increases rose up to 21%.

What’s a parent to do?

Those settling personal, physical injury claims can employ the same “lemonade out of lemons” strategy parents have been taking advantage of for the 20+ years I’ve been helping clients with their structured settlement choices.

I’m proud to have played a role in helping shape so many futures.

How it works:  No one wants their child to suffer an injury.  But parents with legitimate claims routinely arrange for settlement proceeds to be paid via a structured settlement to coincide with future tuition payments.  The vast majority of judges responsible for approving the settlements tend to prefer this settlement option.

It’s easy on the parents, easy on the plaintiff attorney, easy on the claims representative handling the file and good for the injured party.

In addition to minors structuring their settlements or parents structuring their own settlements to help their kids with college, another terrific but underutilized opportunity arises for plaintiff attorneys who structure their fees.

While most everyone agrees in the value of sending their offspring to college, the sad reality is that most parents are unable to save sufficiently to fulfill this wish.  I have assisted a number of plaintiff attorneys over the years who were savvy enough to structure their fees sufficient to coincide with the anticipated college for their children.

Whether you’re a claims professional offering a settlement, a plaintiff attorney representing a client or a parent in the midst of settling a claim, make sure you ask about structuring your settlement.

A structured settlement is not always the right option for one’s settlement proceeds.  But everyone involved in the process owes it to themselves to have their needs properly evaluated prior to settlement.

Call us.  We can help.

A very brief blog to call your attention to our firm’s most recent e-newsletter featuring a re-cap of the American Bar Association President’s views on two topics vital to the success of our civil justice system:  Structured settlements and the funding challenges facing our state courts.

Required reading for anyone concerned about civil justice.

[Click Here] to read the newsletter and for links to the accompanying video and Defense Research Institute article.

Life Industry Shores Up Balance Sheets 

October 18, 2011 – The life insurance industry’s admitted assets stood at $5.4 trillion as of June 30, 2011 according to A. M. Best.  This represents a 3% increase over the first six months of 2010.

Why should this matter to our clients?

In an economy where ALL industries are challenged, it means that the life insurance companies offering structured settlements continue to rise to the occasion. 

The Insurance Information Institute defines admitted assets as:

Assets recognized and accepted by state insurance laws in determining the solvency of insurers and reinsurers. To make it easier to assess an insurance company’s financial position, state statutory accounting rules do not permit certain assets to be included on the balance sheet. Only assets that can be easily sold in the event of liquidation or borrowed against, and receivables for which payment can be reasonably anticipated, are included in admitted assets.

The life insurance companies offering structured settlement products and services average about 125 years in business. 

We think that’s a pretty good track record for honoring one’s promises.

No question the entire industry will continue to be challenged but as “sure things” go, you’d be hard pressed to find anything surer for your future financial security.

Thank you for the opportunity to be of service!