Beyond Structured Settlements

Settlement Consulting - 3

In prior posts about settlement consulting, S2KM:

• Reviewed Joseph DiGangi's discussion at the NSSTA 2009 Winter Meeting titled: "Comprehensive Settlement Consulting in the 21st Century". See: "Settlement Consulting".
• Continued DiGangi's discussion by asking questions and offering comments about "settlement consulting" definitions and scope. See: "Settlement Consulting - 2".

This S2KM post outlines settlement consulting history - from a structured settlement perspective.

S2KM's structured settlement history diagram (developed with graphic artist Keith Burtoft) concludes with the founding of the National Association of Medicare Set-Aside Professionals (NAMSAP) in 2005.

Beginning in 2005, S2KM has continued to monitor structured settlement history by attending and reporting about settlement consulting conferences addressing structured settlements.

For the past three years, S2KM has also published annual reports about structured settlement developments:

• Structured Settlements in 2008;
  
• Structured Settlements in 2007;
• Structured Settlements in 2006.

Using the same categories as S2KM's structured settlement history diagram, here are some of the more recent settlement consulting highlights:

Social Security

• Deficit Reduction Act of 2005 (DRA);
• The Ahlborn Case (2006) - see John Campbell's analysis of the Eighth Circuit's decision which the U.S. Supreme Court unanimously affirmed.
• Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA);
• Additional MSA rules for structured settlements (2008);
• New POMS for Special Needs Trusts (2009) - see David Lillesand's report;

Taxation - see related articles on the Wood & Porter website:

• Banks and Banaitis cases (2005) - attorney fees;
• Murphy case (2007);
• IRS Letter Ruling 200836019 (2008) - Non-qualified 130 assignments and attorney fees.

State Legislation (2005-2008) - see Release 45 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

• Structured settlement protection statutes;
• Uniform Trust Code;
• UCC Article 9 anti-assignment provisions;
• Medicaid annuity rules.

Other Developments

• Academy of Special Needs Planners (ASNP) founded (2007);
• AIG receives $150 billion U.S. Government bailout (2008);
• Joseph Ricci replaces Randy Dyer as NSSTA Executive Director (2008);
• SSP publishes its "Standards of Professional Conduct" (2008) and begins its Registered Settlement Planner (RSP) certification (2008);
• American Association of Nurse Life Care Planners (AANLCP) founded (2008);
• Several annuity providers depart the structured settlement market (2005-2008);
• Structured settlement annuity premium remains level at $6 billion per year (2001-2008);
  
• Structured settlement surveys identify a larger market (2006-2008);
• Settlement consulting bloggers and podcast providers emerge (2004-2009).

For reasons why S2KM views 1982, 2001 and 2008 as strategically important for structured settlements, see "Structured Settlements in 2008 - 1".

Structured Attorney Fees

Robert W. Wood, the preeminent authority on "Taxation of Damage Awards and Settlement Payments", analyzes structured attorney fees in his second audio podcast interview with Ned Arthur (S2KM Podcast Tape 9).

Rob prefaces his analysis by noting that no specific Internal Revenue Code section addresses structured attorney fees. Instead, Rob views structured attorney fees as an accounting concept confirmed by case law - an attorney pays tax when he or she receives compensation.

According to Rob, when they are properly arranged, structured attorney fees allow a contingently-compensated attorney to:

• Defer portions of his or her compensation; and
• Pay tax upon receipt;
• Regardless of:
  • The type of case; or
  • Whether the client receives a lump sum or periodic payments.

Rob's podcast analysis of structured attorney fees addresses:

• Related tax history;
• Appropriate cases;
• Tax advantages and risks;
• Private annuity regulations;
• Public policy - for and against structured attorney fees.

For articles written by Rob Wood about attorney fee tax issues, see Wood & Porter's website generally including these specific articles:

• "Structuring Attorney Fees When You are Not a Solo";
• "New Regulations Address 1099s for Attorney Fees";
• "Contingent Attorney Fees in the Post-Banks Era";
• "Wood on the Private Annuity Regs and Structured Attorney Fees".

In a separate S2KM audio interview (S2KM Podcast Tape 8), Rob and Ned discuss Single Claimant 468B Funds from multiple perspectives including taxation, administration and public policy.

Rob's audio podcast interviews are featured on S2KM's Structured Settlement Public Policy Wiki.  They are also accessible directly from S2KM's blog (upper left) or subscribe to S2KM Podcast.

Single Claimant 468B Settlement Funds

Robert W. Wood, the pre-eminent authority on "Taxation of Damage Awards and Settlement Payments", analyses Single Claimant 468B Settlement Funds in his first audio podcast interview  with Ned Arthur and S2KM Limited. Rob, a partner at Wood & Porter, is a prolific and highly-respected author and commentator whose specialties include structured settlements.

The Wood & Porter website features a comprehensive listing of Rob's publications - books and articles.

Rob's first audio podcast with S2KM Limited focuses on public policy arguments for and against Single Claimant 468B Settlement Funds. Rob's audio podcast is featured on S2KM's blog (Podcast Tape 8) and S2KM's Structured Settlement Public Policy Wiki.

IRC section 468B was enacted as part of the Tax Reform Act of 1986. IRC section 468B created important settlement funding options for plaintiffs and their attorneys.  The controversial issue is whether IRC section 468B applies to single claimant cases.  The U.S. Treasury Department is currently evaluating the Single Claimant 468B issue. 

What are the stakes for structured settlement stakeholders?  There are many including who (plaintiff or defendant) controls structured settlement decisions and who (plaintiff or defense annuity agent) controls annuity commissions.

Rob Wood is the expert on IRC section 468B Settlement Fund options and issues including Single Claimant 468B Settlement Funds.

Rob's audio podcast interview:

• Outlines IRC section 468B's history and public policy;

• Initiates a strategic online conversation about Single Claimant 468B Funds.

In a separate audio podcast interview with Ned Arthur (S2KM Podcast Tape 9), Rob analyzes structured attorney fees.

"Attorney Fees and Private Annuity Rules" Revisited

Robert W. Wood, a noted tax expert, has challenged two controversial conclusions presented by Burgess J.W. Raby and William L. Raby in their article titled "Attorney Fees and Private Annuity Rules" which appeared in the January 22, 2007 edition of "Tax Notes".  S2KM reviewed the Rabys' article in this January 23, 2007 blog post.

The issue addressed in the Raby's article: "When the fees paid to the attorney are spread over time under a structured settlement, do the proposed regulations changing the private annuity rules affect them?"

Their conclusions: "We think it highly likely that if the issue is raised, the structured payments to attorneys would fit within the private annuity rules - and for cases not within the scope of section 104(a), whatever the scope may turn out to be, so too would the payments to the successful plaintiffs."

In an extended January 30, 2007 Letter to the Editor of "Tax Notes", Wood disagrees with the Raby's conclusion stating: "...I do not believe even the IRS, in its wildest dreams, would think the proposed private annuity regulations could torpedo attorney fee structures."  Wood's letter is featured on the Wood & Porter website. Structured attorney fees, according to Wood, are generally unsecured and unfunded obligations entered into for the plaintiff's convenience without necessarily eliminating the plaintiff's obligation to pay the attorney fees.

"More frightening", according Wood, is the second part of the Rabys' conclusion which Wood characterizes as "a doozy".  Wood reacts with shock to the Rabys' suggestion that plaintiff structured settlement arrangements might also be impacted by the proposed private annuity regulations calling that conclusion "an even more extreme a position than is their take on structured attorney fees."

Wood attacks the Rabys' conclusions on several fronts.

• He disagrees with their argument that an exchange of property occurs when an attorney agrees to look solely to a defendant for payment of legal fees. 
• He questions the Rabys' factual understanding of a structured attorney fee transaction and offers examples of sample settlement document language to support his position. 
• He criticizes the Rabys' assumption that the Child's case was incorrectly decided. 

In summary, Wood concludes the proposed private annuity regulations neither address nor impact structured settlements or structured attorney fees.