The Finn Blog

Who’s Ready for 2021?

December 30, 2020 – As we wind down the year that couldn’t have been crazier, today we focus on everything positive and reach out to express our heartfelt thanks to all who helped contribute to our success.

This past year, we helped secure the futures of 85 individuals facing assorted financial challenges in 2020. They valued our expertise sufficiently to have entrusted us to help them make decisions involving nearly $24 million.

We are honored and humbled by the ongoing vote of confidence our clients have placed in us and wanted to send out a big CDC-compliant:

So just who did we help this past year?

Most of our clients were folks receiving settlement proceeds from a personal injury claim or lawsuit. We helped them choose risk-appropriate structured settlement or trust options with an emphasis on safety and tax efficiency.

We aided claims professionals, businesses, government entities and hospitals who require professional expertise in helping evaluate litigation exposure and negotiate effective claim settlements.

We added to our ever-expanding list of satisfied plaintiff attorneys who secure their own futures by deferring their contingency fees into fixed income annuities and managed equity accounts.

We helped a few people defer, reduce, or eliminate capital gains taxes by facilitating a structured installment sale when they were selling property.

We Zoomed into your homes and socially distanced offices to help provide specialized training on a variety of topics. We presented helpful information to claims offices, realtor groups and industry professionals on structured settlements, structured installment sales and other areas of interest.

THANK YOU for allowing us the privilege of serving you!

What’s Next?

Our pledge to you going forward is to keep doing more of the same AND MORE in 2021 and beyond! Whatever your financial future needs, if we can’t help you, we’ll find someone who can.

So, as we say goodbye to this historic (for all the wrong reasons) moment in time, we send you our most sincere wishes for a very safe and Happy New Year.

We understand your lives are different and some of you have suffered more personal losses than the rest of us. We send our most positive thoughts to you with high hopes the year ahead will bring peace and a return to some semblance of normalcy.

IRS: Tax Implications of Settlements and Judgments

December 18, 2020 – Special thanks to the National Structured Settlements Trade Association (NSSTA) for calling our attention to a recent brief from the IRS which addresses important distinctions in the tax treatment of various personal injury damages.

[Click HERE] to read the brief.

Today, we share this summary with our clients who require guidance on matters involving taxation when receiving injury damages.

Despite plenty of clarity on the topic, there remains sufficient misunderstanding regarding certain recoveries. How to differentiate between a physical (tax-free) injury and a non-physical (taxable) one, for instance.

Claims involving emotion distress are especially vexing to some.

This update helps address the key question every stakeholder needs to ask prior to finalizing any personal injury settlement:

“What was the settlement (and its corresponding payments) intended to replace?” 

This four-page memo doesn’t specifically address the topic of structured settlements. We remind our clients, however, that proper income planning is crucial to maximizing indemnification.

Especially when receiving taxable damages, a structured settlement can enhance the overall value of one’s settlement significantly by increasing the after-tax recovery.

Whereas all damages (except punitive damages) paid on account of personal, physical injuries are tax-free under 26 U.S.C. § 104(a)(2) whether as a lump sum “or as periodic payments,” all other damages are considered taxable.

Taxable damages, on the other hand, are taxed as income is received. When settling for a single lump sum, all taxes will be due in the year the settlement is finalized. On larger settlements, this can have a severe negative impact on a client’s net recovery.

By structuring taxable recoveries, most people can mitigate their tax burden by spreading out their recovery over several years. The net effect of this strategy is a more tax efficient settlement.

Please don’t hesitate to contact us BEFORE your case settles to ensure you preserve all your post-settlement options. Meanwhile, I hope you find this resource helpful. Let us know if you have any questions.

The Buffett Indicator

November 10, 2020 – Please, please, please, PLEASE understand the stock market is not without risk.

The stock market has had a phenomenal run over the course of the past decade. Fortunes have been made, lost for a bit, then made again.

If you’re among those who have benefited from this prolonged bull run, CONGRATULATIONS! You beat the house in Vegas.

Alas, human nature is such that prolonged stock market success often lulls investors into a false sense of security. They remain solidly invested even when certain indicators suggest it may be wise to pull back.

And just like the gambler who can’t walk away from the table when they’re ahead, bad times may lie ahead.

Now is one of those times. It’s actually been here for the better part of a year.

The Buffett Indicator

Warren Buffett has few peers when it comes to investing success. Using a combination of skill, common sense, patience, and a shrewdness which belies his folksy nature, Buffett has amassed a personal fortune and personifies wealth building acumen.

Because his words carry so much weight, the Buffett Indicator, which has historically pinpointed when stocks may be overvalued and could come crashing down, is something everyone with market exposure should pay close attention to and can be simplified as follows:

Market Capitalization/Quarterly GDP

The higher the Buffett Indicator number, the greater the risk.

Comparing Historical Buffett Indicators

According to this graph from DQYDJ.com, the Buffett Indicator hit 2.227 during Q2 2020. That’s really high! Throw in a global pandemic and stimulus spending over the past ten months and the market would seem even more precarious.

For the same reason athletic teams review film of games already played, sometimes backward glances can help shed light on how to prepare for the future. For perspective and to see what may lie ahead, let’s pick a few select periods starting when the nonagenarian Buffett was a spry 30-something year old investor:

Quarter Year – Buffett Indicator – DJIA – Years until DJIA returned

Q4 1968 – 1.022 – 6,529 – 25 years

Q1 2000 – 1.886 – 15,526 – 6.9 years

Q2 2007 – 1.524 – 16,747 – 6 years

Q1 2020 – 2.160 – 29,276 – ???

IF the market does tank, are you comfortable waiting six, seven, or even twenty-five years until the markets return to their pre-crash levels? That’s a lot of cash you’ll be burning.

Remember the Roaring Twenties? Of course, you don’t. Unless you’re 105 or older! That decade was one of exponential economic growth and widespread prosperity. It was an amazing time for many. Until it wasn’t. Once the bubble popped, the Great Depression arrived sending stock values plummeting along with the economy which took more than twenty-five years to recover from!

Your Safest Bet

So, if you are in or near retirement and are still fully invested in the market, do yourself a huge favor and GET OUT NOW! At least partially. You don’t need to completely eliminate your market exposure, but converting some of your portfolio into a stream of safe, secure, tax-advantaged cash flows will go a long way toward preserving what you’ve earned and protecting yourself from potentially catastrophic loss.

If you are about to receive money from a personal injury settlement, here’s another little bit of Warren Buffett wisdom worth sharing. Structured settlements remain the safest, surest choice for anyone ready to settle their insurance claim. Some options even include stock market-driven upside potential without the downside risk.

Pension vs. Lump Sum

September 22, 2020 – Two related AARP Bulletin articles may have bearing on your retirement plans. In short, companies are temping retirees with offers to pay their retirement benefits as a single, commuted lump sum instead of honoring their monthly pension obligations.

If you or anyone you know works for an organization that even offers a pension anymore, it’s worth your time to thumb through two recent articles:  “Treasury Department OKs More Lump-Sum Pension Payments” and “Pension or Lump Sum?”

A few highlights from these articles:

According to a MetLife study, 20% of those who opted for the lump sum spent the entire sum within five and a half years.

Of those who weren’t broke by then, 35 percent worried they would run out of money.

Most economists warn that people can rarely, if ever, replicate the security of a pension.

Less ethical financial advisors may be biased against the pension since they can benefit from investing your money.

Lump sum buyouts tend to benefit the company offering them more than the individual receiving them.

(NOTE: The articles don’t even mention taxes which would also be a consideration)

COVID-19 likely hasn’t left its final impression on our economy yet. As such, businesses with pension obligations may find themselves forced to accelerate layoffs, early retirements, or staff reductions to remain financially viable. Wise retirees-to-be will want to be prepared.

Compare Before Deciding

There may be many non-financial reasons for choosing a lump sum over the pension payments, but if you are confronted with the choice, how do you determine whether the pension or lump sum buyout is the better deal?

After reflecting on the information contained in these articles, a sensible move is to ANALYZE VALUES by comparing if the pension payments you’re forfeiting can be replicated in the marketplace with the lump sum you’re being offered.

We can help you estimate the fair market value of your pension.

Call us before you commit.

No cost. No obligation.

For Example:

A 60-year-old female in Pennsylvania is offered early retirement by her company. Her employment contract requires the company to pay her a monthly retirement benefit of $1,000 for as long as she and/or her 60-year-old spouse live. (NOTE: Assumes an opposite sex couple in this example. Although different actuarial tables would be applied in most states when calculating values for same sex spouses, the same analysis is used).

Before completing her retirement paperwork, the company tells her she has the option of taking her retirement in a single lump sum instead of the monthly income and they offer her $225,000.00.

Is this a good deal?

Could they replace $1,000 a month for $225,000?

A quick survey of life companies rated A+ or better by A.M. Best reveals it would cost approximately $275,000 to replace the pension this couple would be giving up. As such, the short answer to this question is, no, the employer is not offering them market value for the pension.

On the other hand, let’s assume the company offered her $325,000 for the same $1,000 per month lifetime benefits. In that instance, these folks would be better off taking the lump sum because they could buy a traditional annuity that would pay lifetime income which EXCEEDS $1,000 per month for lump sum offered.

A decision on whether to accept a lump sum payout in exchange for your future pension benefits should not be based on pricing alone. But people always like knowing if they’re being treated fairly so assessing value is a good starting point. You might be surprised.

I have no problem confessing our firm’s bias: Generally speaking, sticking with the pension will be the better choice. We’re big fans of secure income you can never outlive. That said, these articles provide solid practical tips for deciding what your best option will be. Everyone’s situation is different.

Whatever you do, don’t end up with an empty nest egg. There may be valid reasons to choose the lump sum over the pension benefits. But our advice is to think long and hard before doing so.

Photo courtesy of Luke Brugger at Unsplash.com.

 

 

Coronavirus Auto Injury Data

May 8, 2020 – Remember that credit you received on your auto insurance bill last month due to the anticipated lower claims costs since fewer people would be on the road during the coronavirus pandemic shelter-in-place orders?

Don’t be surprised if that ends rather quickly.

According to a recent article in Digital Insurance, a periodical aimed at senior insurance executives, those assumptions may have been faulty. (“Data may imply coronavirus auto-premium reductions were premature.”)

While there are certainly fewer vehicles on the road, it turns out many are traveling faster and perhaps feeling overly secure and paying less attention because of the low traffic, leading to more speeding tickets being issued and a higher fatality rate when crashes occur.

This can be especially problematic where 18-wheelers are involved. Speed + Mass + Collision usually = Very Bad Outcome.

This tracks with some of the conversations I’ve had recently with claims personnel and plaintiff attorneys. Overall, it’s too soon to know how all this will play out but all signs point toward the possibility of lower claims counts with higher severity until traffic patterns return to normal.

Until then, a timely reminder to be extra vigilant when driving during this pandemic.

Photo by Michael Jin on Unsplash

Roubini has a bad feeling on this one, all right?

March 3, 2020 – Remember the line in Platoon when Sgt. O’Neill (John C. McGinley) expresses his concerns about a pending military conflict with Staff Sgt. Barnes (Tom Berenger)?

“Bob, I got a bad feeling on this one, all right? I mean, I got a bad feeling. I don’t think I’m gonna make it outta here! D’ya understand what I’m sayin’ to you?”

Sgt. Red O’Neill

While the prospects of seeing one’s entire life savings evaporate due to fallout from a global pandemic pale in comparison to the psychological trauma experienced by the brave men and women who experience the harsh realities of war, this line came to mind when I read yesterday’s MarketWatch article quoting economist Nouriel Roubini who sees bad things ahead for the market.

“I expect global equities to tank by 30% to 40% this year.”

Nouriel Roubini

Investors may want to heed Roubini’s advice given he was one of the few economists to correctly predict the 2008 financial crisis. To avoid financial catastrophe, Dr. Roubini is urging people to seek safety NOW.

And he’s not the only one doing so. About a year and a half ago, we published a blog citing other experts suggesting clients may also wish to pare down their exposure to stocks in favor of safer options.

Where Can You Find Safety?

In addition to buying safe bonds, structured settlements and retirement annuities remain some of the safest choices for those who require certainty.

Even with interest rates at or near historic lows, structured settlements and retirement annuities remain attractive alternatives. Something about making some money (especially when there’s a decided tax advantage) is more attractive than losing a lot of money.

Consider all these available options clients are currently talking to us about:

Tax-free structured settlements for physical injuries.

Tax-deferred structured settlements for nonphysical injuries.

Tax-efficient structured installment sales to reduce or eliminate capital gains taxes when selling qualifying appreciated assets or businesses.

Fixed indexed annuities which allow participants to benefit from market ups but shield them from market downs.

Market indexed structured settlement options with downside protection.

A structured settlement option that accounts for future interest rate increases.

Multi-Year Guaranteed Annuities (MYGAs) for “better than CD” rates.

Even if you still have faith in the market for the long-term, almost everyone would be wise to consider converting at least some of their safety net to something that is actually safe.

And if Dr. Roubini ends up being right, there’s no time like the present to make a move before things get really bad.

Let us know if we can help save you from drowning.

Structured Settlements: Structured Installment Sales

Eleventh in a series of blog posts dedicated to helping clients decide when a structured settlement should be considered.

Today’s Installment (npi): Structured Installment Sales

February 5, 2020 – For this segment in our series of educational offerings, we’re going off-topic slightly because we wish to present a structured settlement offshoot product designed to help clients defer and sometimes eliminate capital gains taxes when selling qualifying appreciated assets: Structured Installment Sales.

Be sure to visit our companion site: MyStructuredSale.com

Real estate investors, business owners, property owners, and the realtors, business brokers, lawyers and accountants who represent and advise them will find this simple-to-implement alternative to traditional sales worthy of their time.

As any accounting major can tell you, deferring taxes and accelerating deductions is one of the fundamental tenets of accounting.

Structured installment sales help conveniently with the deferring taxes part of that formula.

The process is simple:

Step 1: Buyer and seller negotiate a price for the property or business.

Step 2: Seller decides how much of the net settlement proceeds to defer.

Step 3: Seller contacts a firm specializing in structured installment sales annuity quotes. (We hear Finn Financial Group is pretty good!)

Step 4: Terms of the structured installment sale are incorporated into the sales agreement and closing documents.

Step 5: At closing, all relevant documents are executed, and the funds dispensed to the appropriate parties.

Although Treasury regulations have permitted installment reporting for taxes since 1918, it wasn’t until 1980, when Congress passed Public Law 96-471, that Section 453 of the Internal Revenue Code was modified laying the foundation for what would become known as Structured Installment Sales. Publication 537 contains information on installment sale eligibility requirements.

In 2005, Allstate Life, in an effort to explore expanded applications for structured settlements, researched a utilization in the appreciated asset world and rolled out a product they called a structured sale. Prudential soon followed but just as the concept was beginning to gather major traction, the Great Recession hit wiping out investment equity and the opportunity to defer taxes with it.

Now, with property values up over the past decade, this tax deferring option is poised for a major resurgence. So much so that one of the largest insurers in the world, MetLife, has chosen to offer Structured Installment Sales through its specialized, appointed agency force.

Click [HERE] to watch MetLife’s 1:12 promotional video on the topic.

Structured installment sales are also available through Independent Life as well as an option funded by U.S. Treasuries.

When a structured installment sale is being considered, the parties involved need to be cognizant of a few basic rules:

A decision to defer sales proceeds must be made prior to finalizing any sales agreement to avoid constructive receipt;

Terms of the deferral should be incorporated into any sales agreement;

Plan design and deferral options may be limited;

Buyer and seller must execute certain required documents prepared by the firm implementing the structured installment sale;

The annuity must be funded directly by or on behalf of the buyer through the closing process.

The Tax Cuts and Jobs Act gives even added incentives for certain taxpayers to defer recognition of gain into future years. Those contemplating selling any qualifying appreciated asset would be well-advised to consider doing so via the structured installment sale method.

Unless they like paying taxes you can otherwise avoid.

World’s Largest Insurers

February 3, 2020 – Of the Top 25 largest insurers in the world in terms of (2108) non-banking assets, five of them are domiciled in the United States. (“Best’s Review,” February 2020, p. 27)

Those who resolve their personal injury claims and lawsuits with structured settlements can take comfort in knowing that all five of these well-capitalized American markets or their affiliates are active in the structured settlement marketplace. Their ranking and total assets in USD follow.

World’s Largest Insurers:

3 – Prudential Financial, Inc. – $815,078,000,000

5 – Berkshire Hathaway Inc. – $707,794,000,000

6- MetLife, Inc. – $687,538,000,000

17 – American International Group, Inc. – $491,984,000,000

25 – New York Life Insurance Company – $339,144,000,000

That’s a lot of financial security for those who are dependent upon future payments to meet ongoing healthcare and living needs.

Structured settlements were created to help accident survivors manage their lives with peace of mind that they’ll have the funds in the future when they’re needed.

With excellent companies like these and the handful of additional highly rated life markets providing safety and security reassurance, the industry is poised for many more successful years of making peoples’ lives better.

THANK YOU to our life company partners for their commitment to the structured settlements industry.

Recognizing a Noble Profession

This Week We’re Celebrating:

Claims Professionals Appreciation Week

January 27, 2020 – January 31, 2020

What’s that you say?  Didn’t know such a holiday existed?

Don’t feel too bad.  According to Google (and every other source I could think to consult), it doesn’t.

That’s why I invented it in 2013.

Full Disclosure I’m from a family of insurance professionals.  Add up the claims service of my dad, brother, wife, step-daughter, a couple family godparents and myself, we have dedicated more than 150 years to the insurance industry.

Even if Hallmark never designs a new card to honor the occasion and I’m the only one who ever celebrates it, I plan to set aside this week for the remainder of my career to pay homage to the fine men and women who toil in the claims departments of America each and every day of the year.

And I’m making it a week because it deserves to be more than a measly day given all they have to deal with throughout the year.  I know.  I’ve been there.

Why do this?  A couple of reasons:

They Make The World Go ‘Round

Take a moment to think about all the people, in addition to those for whom insurance coverage is provided, whose lives are enriched because of the work claims representatives perform:

  • Contractors who repair physical damage,
  • Doctors who treat those with physical injuries,
  • Attorneys who represent clients involved in the settlement process,
  • Shareholders, Mediators, Car Dealers, Manufacturers,
  • Consultants, and Vendors of every stripe imaginable.

It’s impossible to quantify exactly how much economic activity is generated simply because claims professionals do their job.  Suffice it to say that it’s probably . . . “a lot!

The Job Requires Skill In Multiple Disciplines

A claims professional is the quintessential “Jack of All Trades.”  At various times, they wear  multiple hats which can make it hard to differentiate them from numerous other professionals such as:

Banker – Counselor – Pastor – Lawyer – Appraiser – Mathematician – Researcher – Investigator – Mediator – Politician – Time Management Specialist – Physicist -Philosopher – Educator – Statistician – Communications Expert – Interpreter – Etc.

Claims departments frequently draw from a talent pool which contains people from a wide variety of interests and college majors which results in a broad background of experience.

In fact, many smart plaintiff law firms and other businesses often hire ex-claims professionals because they value their skills and training so highly.

It’s a Noble Profession That Helps People 

Claims professionals serve as the conduit between a suffered loss and recovery.

Unfortunately, money is the only medium available that can help restore an individual to their pre-accident condition following a covered loss.  And quantifying intangible damages is an impossible task at best.  Consider:

  • What value can you really ever put on the life of a child who’s been killed?
  • How can money replace the memories of a home destroyed by fire?

These are among the many challenges claims professionals confront each and every day.  And they do so in spite of the fact that they often garner about as much respect as an offensive right guard on a football team for their efforts.

Theirs is NOT an easy job by any stretch of the imagination.

But ask any person who’s ever been aided by a Catastrophe Duty Claims Professional how appreciative they were when the insurance representative showed up, check in hand, to help appraise and pay for their loss.

Ask anyone’s who has ever accepted a structured settlement when settling a physical injury claim how glad they were to receive guaranteed future income that is 100% income tax-free.

There are countless other examples of appreciation people feel each and every day for claims service even if it’s very rarely expressed as often as it should be.

So here’s to you, Claims Professionals.  This week we pause to salute you by saying simply

 “Thank You!”

for doing what you do.

We hope you are as proud of your contribution to society as we are of the the service you provide that helps so many.

Best wishes to all of you for continued success in your careers and your life!

Structured Settlements: Contractual Agreements

Tenth in a series of blog posts dedicated to helping clients decide when a structured settlement should be considered.

Today’s Installment: Contractual Agreements

January 16, 2020 – As the applications of the structured settlement concept continue to evolve, potential clients and practitioners should be aware of the less traditional, but equally valuable, opportunities to satisfy certain contractual agreements (or, more frequently, disagreements) by adapting the nonqualified assignment process we’ve discussed in previous posts.

Business disputes, mergers, acquisitions, divestitures, and a host of other situations may lend themselves to more favorable outcomes for all involved when a nonphysical injury structured settlement is considered.

Key to a successful outcome will be the ability to craft an agreement outlining that one party (the Payor) is obligated to pay future periodic payments to another party (the Payee) in order to satisfy a financial obligation.

Because the Payor will not usually want to remain contingently liable for any future financial commitment, the parties agree to permit the Payor to satisfy its obligation to pay future income by purchasing an annuity or U.S. Treasury-backed obligation and substituting obligors using an independent third party assignment company established for such a purpose.

Since the assignment companies accepting these obligations are not able to handle assignments involving wages, payees CANNOT receive structured settlement payments that are considered W-2 income. As such, all future payments will be processed as 1099 income and will be reported as such.

The Payor and Payee usually have divergent interests when it comes to the income being paid when finalizing contracts.

Paying a single lump sum to satisfy its end of the agreement will leave the Payor in a better position to move forward without any contingencies or encumbrances in dealing with the other party.

The Payee, on the other hand, will usually be better served by spreading the income and corresponding tax liability over a longer period of time.

Ergo, the nonqualified assignment process permits both sides to accomplish their objectives. The parties can settle for a single lump paid by the Payor which is used to purchase a more tax-efficient outcome for the Payee.

Business lawyers, business owners, executives, investors, and others who familiarize themselves with nonqualified assignment structured settlements can create more flexible contractual outcomes than is otherwise possible with the more common single lump-sum or short-term payout agreements.

Although the term has fallen out of vogue in recent years, nonphysical injury structured settlements present opportunities for win-win resolutions and should be explored anytime someone can benefit by receiving money over time.

Photo courtesy of Mari Helen on Unsplash

Finn Financial Group