Robert W. Wood has written a new legal treatise "Qualified Settlement Funds and Section 468B" published by the Tax Institute and available for purchase on the Tax Institute website. Following S2KM's earlier review of Wood's book, the noted author and tax expert provided S2KM with the following exclusive interview.
S2KM: Welcome Rob. Let's begin with a controversial issue. Why doesn't "one or more" encompass single claimant QSFs?
Wood: That's a perfectly logical question, and I wish I had a complete (or even a logical) answer. Of course, the question suggests its own answer. After all, given the statutory language, it might seem that this SHOULD be enough. But tax lawyers are (and ought to be) cautious creatures. When we know the IRS has said it is looking at an issue and we are not certain how it will come out, our hackles understandably go up. In the last analysis, I don't think there should be a problem with single claimant funds, but I am risk averse, and I don't want to end up being a test case!
S2KM: Does public policy support single claimant QSFs?
Wood: As I have commented previously, I am not sure I see
enough of the big picture to consider the public policy implications of
anything in the tax world. In the 30 years I have been practicing as a
tax lawyer, I have seen lots of things done in the name of public
policy that end up getting changed. Here, I think there ought to be a public policy of encouraging structured settlements, since they encourage financial and tax planning, and encourage the conservation of assets. To the extent Qualified Settlement Funds aid in that endeavor (which I personally think they do), we should also encourage QSFs. That is probably so regardless of how many or how few claimants are in the fund.
S2KM: How does 468B, as a potential settlement planning "standard", impact settlement negotiation, planning and funding?
Wood: First, at the present time, I don't think Section 468B trusts are a standard. QSFs are certainly being used more and more today, but we are quite a ways away from seeing the use of the QSF as a standard for every case that structures. I doubt we will ever see that. But if I make a big assumption and think about QSFs in this context, I suppose it would be a good thing. Again, regardless of whether there are many or few claimants, QSFs encourage a kind of regimen, a protocol that involves court supervision and court orders. This is good. Plus, QSFs allow the time necessary to develop and implement plans. In the absence of a QSF, there are sometimes hasty decisions made as a case is settling.
S2KM: Why don't plaintiff attorneys and settlement planners utilize QSFs in more cases?
Wood: I'm not sure, but I'd guess the primary reason is simple lack of familiarity. Just as structured settlements were not as widely used 25 years ago because many people lacked familiarity with them, today the QSF is in a similar posture. A second reason may be expense. Some lawyers and clients may say: why spend even a few thousand dollars setting up something if you can structure without it? Although QSFs can almost always help the situation, they may simply not be needed in many simple cases, so they don't get used. Of course, a third reason is the whole single claimant controversy, which understandably causes people to have cold feet in cases where there is only one claimant.
S2KM: How best can QSF performance metrics be defined and improved?
Wood: Every case is different, so I am not sure there is a one-size-fits-all kind of answer. Still, you seem to be implying that QSFs will become the standard for structuring settlements in the future. I personally find it hard to imagine that will happen. That is, I think we will see lots more QSFs going forward, but I doubt we will ever see a QSF for every structured settlement. But if it does happen, then it should encourage structured settlements, and the thoughtful and orderly implementation of plans. I may be wrong, but I suspect that in the vast number of cases, the plaintiff/claimant feels enormous pressure to make a decision quickly about structured settlements at settlement time. These structured settlements end up being locked in place for many years and potentially for life. QSFs can release the pressure by allowing more time for decision making.
S2KM: How can QSFs improve and grow the structured settlement and settlement planning markets?
Wood: First, to reiterate my answer to the prior question, I
think QSFs can act as a safety valve to allow more time, so claimants
can fully evaluate and tailor their structured settlements. I don't
have any statistical evidence to back this up, but I would bet that
more time would produce more (and more carefully constructed and
personally tailored) structured settlements. To begin with, though, I
suppose there needs to be a critical mass, more use of QSFs, so more
lawyers, brokers, insurance companies and defendants become more
comfortable with them. That includes class action administrators too,
although many in that context are already familiar with QSFs. Even so,
someone needs to consistently remind all these people about structured
settlements - and I mean structures of tax-qualified Section 104
payments, as well as structures of taxable monies. Regardless of the
context, in almost every case, SOMEONE ought to be asking whether there
is interest in structuring all or part of the recovery. We all need to
make sure we are offering adequate choices and adequate disclosure.
S2KM: What are the most important QSF educational priorities and opportunities?
Wood: I guess it depends on where you are in the industry, on
what your role is, and who your contacts are within that sphere. I
think we can all start small, and attempt to at least discuss the
concept with people with whom we work. We can start by using the QSF
concept and discussion as a way to bridge difficulties. Regarding the
sensitive topic of commissions, I think brokers on the plaintiff side,
brokers on the defense side, and the life companies themselves all need
to cooperate. No one likes to have the rug pulled out from under them.
It may sound like a Rodney King remark, but we all ought to be able to
S2KM: Rob, thank you for your insightful comments and continued success with your new QSF legal treatise.
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