Beyond Structured Settlements

ASNP 2013 Annual Meeting

Although special needs (SN) planning encompasses non-personal injury clients, settlement planning, with and/or without structured settlements, represents an increasingly important component of both the SN market and the educational focus of its practitioners.

The Academy of Special Needs Planners (ASNP) hosted its seventh annual meeting in Austin, Texas March 21-23 which featured the following topics and speakers:

• Impact of the Affordable Care Act on SN Planning - Scott Solkoff
• Modifying Problem Trusts into Effective Special Needs Trusts (SNTs) - Renee Lovelace
• SNT Issues at the Social Security Administration - Eric Skidmore, Sean Balser, Kevin Urbatsch
• The Jimmo v. Sibelius Medicare Settlement - Margaret Murphy
• SSI Update and New Social Security Strategies - David Lillesand
• Medicaid Third-Party Liability Liens Post-Ahlborn - Floyd Faigle
• Settlement Planning Under Changing Conditions - Donna Meyer, Sharon Pope, Patrick Hindert, Jason Lazarus
• Drafting Special Needs Trusts - Nancy Chudacoff, Sheri Sudweeks, Vincent Russo
• Establishing the Financial Needs of the Special Needs Beneficiary - Jerry Hulick
• Administration of SNTs - Travis Finchum, Kathy Christofell, Jerry Hulick, Renee Lovelace
• Determining a Reasonable Attorney Fee - Mary Alice Jackson

Settlement Planning and Structured Settlement Highlights

Affordable Care Act

• ACA and Settlement Planning - The Affordable Care Act (ACA) changes settlement planning in fundamental ways which speaker Scott Solkoff highlighted in his comprehensive review:
  • Reduced personal injury verdicts and settlements.
  • A different calculus for determining future medical damages based upon health insurance costs.
  • Fewer first party special needs trusts (SNTs).
  • Reduced demand for Medicare and Medicaid for persons with disabilities under age 65.
  • New opportunities for special needs attorneys because of the complexity of the ACA.
• ACA, Verdicts and Settlements - S2KM will address the impact of the ACA on personal injury verdicts and settlements in future blog posts.
• ACA, SSA and SNTs - During an ASNP question and answer session moderated by Kevin Urbatsch and featuring representatives of the Social Security Administration (SSA Question and Answer session), the following exchange occurred:
  • Question: will the SSA allow early termination of SNTs to comply with ACA?
  • SSA Answer: right now, any early termination of a SNT will require payment of reversionary interest.

Settlement Planning and SN Attorneys

The ASNP settlement planning panel was one of several presentations which identified expanding opportunities for SN attorneys. Patrick Hindert, author of S2KM's blog, provided an analysis of the settlement planning market which emphasized changing structured settlement business and transactional models. Hindert highlighted the need for better standards and metrics as well as the importance of qualified settlement funds (QSFs) and the secondary structured settlement market. Sharon Pope discussed settlement planning practice issues and provided sample documents to help special needs attorneys expand their settlement planning practice. Jason Lazurus summarized new developments and cases impacting the use of Medicare set-aside arrangements in liability cases.

For SN attorneys to expand their settlement planning practice, ASNP's panel recommended more in-depth study of non-SNT settlement planning issues including the settlement planning market, the settlement planning team and the settlement plan itself. The panel's handout materials also identified a list of settlement planning documents organized among the following stages of the settlement planning process:

• Engagement
• Assessment
• Design
• Negotiation
• Implementation
• Monitoring

In addition to the settlement planning panel, multiple ASNP presenters discussed specific settlement planning issues. In addition to settlement topics and presenters mentioned elsewhere:

• Jimmo v. Sibelius - Margaret Murphy summarized this recent settlement which has important implications for anyone who needs skilled care as well as for skilled nursing facilities, home health and outpatient facilities. As a result of this settlement, Medicare claims should no longer be denied on a rule-of-thumb determination that a beneficiary's condition is not improving.
• WOS v. E.M.A. - Floyd Faiglie made a last minute addition to his Medicaid lien presentation to address this March 20, 2013 U.S. Supreme Court decision. The decision expanded the Supreme Court's previous Alhborn decision; rejected arguments by North Carolina defending its third party recovery statute; and further limits when a state may demand recovery from a portion of a settlement allocated to non-medical damages.
• Modifying Problem Trusts into Effective SNTs - Renee Lovelace recommended a cost benefit analysis formula for analyzing whether and when to modify a problem trust. Her analysis was process-driven and included: identifying problems, possible benefits, options, and cost of changes; quantifying costs and benefits; and determining the extent of any modification.
• Determining a Reasonable Attorney Fee - Mary Alice Jackson reviewed the eight factors listed in ABA Model Rule 1.5 for determining the reasonableness of a fee and discussed those factors in the context of SNTs. Note (added 3/31/2013): In his SSI update (see below), David Lillesand addressed the issue of whether and when SN attorneys need SSA approval of their attorney fees to avoid penalties resulting from poor quality draftsmanship in the Social Security Act attorney fee regulations.
• Establishing Financial Needs of the Special Needs Beneficiary - Jerry Hulick's presentation addressed special care, the special care team, special care information needs, and special care documents outside of the settlement planning context.
• Drafting Special Needs Trusts - Nancy Chudacoff, Sheri Sudweeks, and Vincent Russo presented ASNP's new Model Third Party SNT. Third party SNTs typically are used outside of the settlement planning context.

Structured Settlements

• ACA - Scott Solkoff noted in his ACA presentation that, after the ACA takes full effect January 1, 2014, structured settlements will more likely fund future health insurance costs, which should be lower and more predictable, than future medical expenses.
• "Over-structuring" - The ASNP panel discussing SNT administration (Travis Finchum, Kathy Christofell, Jerry Hulick, Renee Lovelace) emphasized a common complaint among SN attorneys: plaintiff attorneys frequently contact SN attorneys to draft a SNT on short notice after an "over-structured" settlement has already been reached. This panel discussion followed Lovelace's earlier presentation ("Modifying Problem Trusts") during which she highlighted expanding litigation against fiduciaries. S2KM's suggested solutions for fiduciaries to address the problem of "over-structuring": promote QSFs; enforce product suitability standards; or, as a last resort, utilize the secondary market to obtain increased liquidity for the trust.
• Deficit Reduction Act - The ASNP's SNT administration panel did not discuss whether the annuity rules in the Deficit Reduction Act of 2005 (DRA) are applicable to structured settlements. S2KM is not aware of any definitive authority addressing this issue. For S2KM's previous analysis of the DRA and structured settlements, summarizing a presentation by Sylvius von Saucken, see "Inconvenient Questions".
• Secondary Market - The SSA Question and Answer session did not address structured settlements. During a similar session at the ASNP 2012 Annual Meeting, Eric Skidmore, an SSA representative, confirmed an unpublished (and controversial) SSA position: the SSA believes the existence of the secondary market renders structured settlement annuities "available resources" that potentially disqualify special needs trusts beneficiaries from receiving Medicaid.

Congratulations to ASNP and conference Chairman David Lillesand for an outstanding 2013 educational program which also featured two special needs presentations by Lillesand: a supplemental "Back to Basics" program and a Supplemental Security Income (SSI) update.

For S2KM summaries of prior educational conferences of the ASNP, and other professional associations addressing settlement planning issues, see the structured settlement wiki.  For S2KM's listing of Spring 2013 educational conferences featuring settlement planning and structured settlement presentations, see this prior S2KM blog post.

Structured Settlements in 2010 - 2

Beginning in 2004, S2KM has utilized this blog ("Beyond Structured Settlements") and related web 2.0 publications to report and analyze strategic developments impacting the structured settlement and special needs settlement planning (aka settlement consulting) industries.

Featuring industry leaders, commentators and professional association conferences, S2KM has attempted to highlight how legal and technology changes are redefining the traditional (pre-2001) structured settlement market including structured settlement public policy as well as structured settlement business standards, business practices and business models.

From S2KM's perspective, the following categories, people and developments defined the structured settlement and special needs settlement planning industries in 2010:

Professional associations

• S2KM attended seven professional educational conferences during 2010 which addressed structured settlement and/or special needs settlement planning issues:
  • National Structured Settlement Trade Association (NSSTA) - 2
  • Society of Settlement Planners (SSP)
  • National Association of Settlement Purchasers (NASP)
  • National Alliance of Medicare Set-Aside Professionals (NAMSAP)
  • National Academy of Elder Law Attorneys (NAELA)
  • Academy of Special Needs Planners (ASNP)
• As a general observation, all of these conferences were valuable and complementary. For S2KM's 2010 (plus historical) conference reports, see S2KM's structured settlement wiki.
• SSP, NASP and NAMSAP deserve special recognition for their 2010 strategic educational discussions featuring industry leaders, commentators and critics who offered alternative perspectives for improving and growing the structured settlement and special needs settlement planning markets.
• By comparison, NSSTA remains reluctant to openly discuss strategic industry issues or to include alternative perspectives in their educational programs. More positively, NSSTA representatives and members increasingly attend and speak at non-NSSTA structured settlement and special needs settlement planning conferences.
• NAELA's educational conferences are noteworthy because they regularly feature sections or entire programs titled "unprograms". NAELA's unprograms are moderated group discussions about specific topics. NAELA's 2010 Special Needs Summit included six separate one hour unprograms with a concluding unprogram wrap-up session. One example of a 2010 NAELA unprogram was titled "Collaboration Opportunities for Special Needs Attorneys and Financial Planners".

Industry leaders

• NSSTA promoted Eric Vaughn, who previously served as NSSTA's lobbyist, to replace Joseph Ricci as NSSTA's new Executive Director effective July 1, 2010. Peter Arnold, previously NSSTA's Marketing Director, was similarly promoted to serve as NSSTA's Associate Executive Director. NSSTA's Board of Directors elected Michael Kelly as its 2010 President and Dan Finn as its President-elect. NSSTA honored Congressman Peter Stark during its Annual Meeting as its 2010 Legislator of the Year. NSSTA also gave special recognition to Karen Meyers and Joseph Bornstein for their contributions to NSSTA's CSSC and NSSTAPAC programs respectively..
• SSP elected Jason Lazarus as its President for 2010-11 and Charles Schell as Vice President. SSP honored Richard Risk with the designation of "life member" for his contributions to SSP and the settlement planning industry. Joseph Tombs continues as Director of SSP's RSP certification program.
• NASP named Matthew Bracy as its new President succeeding Robin Shapiro. Earl Nesbitt continues as NASP's Executive Director.
• NAMSAP elected Michael Westcott as its President.
• NAELA honored Dick Traum as the first recipient of NAELA's Special Needs Leadership Award. Traum is the founder and CEO of Achilles International, a non-profit organization providing community support for athletes with disabilities with members in more than 70 countries.
• Amy Palmiero-Winters, ultra-marathoner and lower-leg amputee, was named during 2010 as the winner of the 2009 James E. Sullivan Award given annually to the top amateur athlete in the United States.

Industry commentators

• For the past several years, Robert Wood has been the preeminent tax commentator and author for the structured settlement and settlement planning industries. Wood's publications appear on the Wood & Porter website.
• During 2010, Jeremy Babener emerged as an important new structured settlement tax commentator and author specializing in public policy and proposing an expanded structured settlement tax subsidy. In addition to authoring several structured settlement articles for tax and legal journals, Babener participated as a featured speaker at both the SSP and NASP 2010 Annual Meetings and authored two blog posts for S2KM during 2010. Babener discussed his structured settlement writing (accessible on S2KM's structured settlement public policy wiki and Babener's Tax Structuring website) in this 2010 S2KM interview.
• Additional authors who wrote and published 2010 legal articles about structured settlement and special needs settlement planning issues included: Daniel Hindert, Matt Garretson, Sylvius von Saucken, Peter Wayne, Mark Popolizio, Gregg Polsky and Brant Hellwig.
• Both the Legal Broadcast Network and Ringler Radio continued to produce and distribute podcasts featuring structured settlement commentators during 2010.
• An increasing number of structured settlement and special needs settlement planning professionals published blogs during 2010 joining industry blogging pioneers such as John Darer, Mark Wahlstrom, Matthew Bracy and Jack Meligan.
• Incisive Media published two new updates (Release 47 and Release 48) for "Structured Settlements and Periodic Payment Judgments" during 2010.

Legislation

• Both the Patient Protection and Affordable Care Act (Health Care Reform) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) redesign the legal environment in which the structured settlement and personal injury settlement planning markets operate.
• Among the anticipated strategic consequences of health care reform:
  • An estimated 16 million more Medicaid participants - and therefore:
  • More special needs trusts;
  • More special needs attorneys;
  • More structured settlement annuities payable to trustees.
• Dodd-Frank re-writes federal banking law and creates a new Bureau of Consumer Financial Protection. A key question, as yet unanswered, is whether the sale and/or purchase of structured settlement annuities constitutes a "financial product or service" under Dodd-Frank requiring regulatory supervision by the Bureau.

Regulations

• The United States Department of Treasury held a public hearing on February 23, 2010 focused on proposed new regulations for Internal Revenue Code section 104(a)(2). The proposed regulations, if enacted, would:
  • Eliminate the requirement that damages be based on “tort or tort type rights” in order to qualify for the section 104(a)(2) tax exclusion, and
  • Incorporate 1996 legislation requiring that personal injuries and sickness damages be “physical” in order to qualify for the section 104(a)(2) tax exclusion.
  • A subsequent S2KM interview featured John McCullough and Richard Risk, two of the structured settlement industry members who spoke at the hearing.
• The Centers for Medicare and Medicaid Services (CMS) continued to issue administrative guidance during 2010 for enforcement of the Medicare Secondary Payer (MSP) Act of 1980 and the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) reporting requirements for insurers. Featured discussions during the NAMSAP 2010 Annual meeting highlighted:
  • The increasing importance and complexity of the MSP statute for all personal injury stakeholders;
  • The need for these personal injury stakeholders (and their professional associations) to cooperate politically and educationally;
  • The challenges of integrating structured settlements, including rated ages, with Medicare set-aside arrangements (MSAs) in the context of health care reform, CMS MSA regulations and related judicial rulings;
  • The evolving business models, claim management strategies and professional skill sets which are now emerging to address these challenges.

Case law

• The Spencer v. Hartford class action lawsuit which settled in 2010 represents one of the most important legal developments in the history of the structured settlement industry.
• Hartford's gross settlement payment of $72.5 million represents 4.5% of total premium dollars Hartford used to purchase structured settlement annuities for class members from January 1, 1997 to June 7, 2010.
• Among the plaintiffs allegations:
  • Hartford and its attorneys, brokers and agents violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and committed common law fraud in structuring its settlements.
  • Hartford's structured settlements were priced so Hartford retained 15% of the value of the structured settlements.
  • Hartford and its attorneys, brokers and agents misrepresented structured settlements including explicit or implicit reference to:
    • The "cost" of the annuity or structured settlement or portion of the settlement being structured; and/or
    • The "value" of the annuity or structured settlement or portion of the settlement being structured.
• Hartford, which stopped writing new structured settlement business in 2009, denied the allegations.

Technology

• Despite the accelerating technology advances revolutionizing society generally, the structured settlement and special needs settlement planning industries have been slow to study and incorporate these advances into their educational programs and business models.
• The best industry-sponsored technology education programs during 2010 were offered by Mark Miller during a NAELA webinar and Harry Margolis at the ASNP 2010 Annual Meeting. Both presentations provided introductory overviews of web 2.0 and including recommendations for integrating specific social networking tools into special needs legal practices.
• NSSTA initiated a NSSTA blog during 2010 and offered an educational program about Internet marketing during its 2010 Fall Education program.

Public policy

• Both SSP and NASP featured specific discussions and presentations about structured settlement public policy during their 2010 Annual Meetings. The discussions included industry commentators representing diverse viewpoints and priorities.
• Jeremy Babener followed his 2009 paper debunking industry myths concerning "structured settlement dissipation studies" with several 2010 articles and papers addressing structured settlement public policy issues. Babener's public policy writing is featured on S2KM's structured settlement public policy wiki.
• Release 47 of "Structured Settlements and Periodic Payment Judgments" re-examined several structured settlement public policy issues related to single claimant 468B funds, structured settlement factoring transactions, dissipation by personal injury victims, the Deficit Reduction Act of 2005, special needs trusts and Medicare set-aside arrangements.
• In a 2010 Boston College Law Review article, professors Gregg Polsky and Brant Hellwig challenged the application of any structured settlement tax benefit for deferring attorney fees or payments to non-physically injured tort plaintiffs under general common law tax principles.

Business standards and practices

• The Spencer v. Hartford case raises many issues about structured settlement business standards and practices which require greater education and analysis if the primary market expects to improve and grow. For example;
  • Is the primary structured settlement market capable of self-regulation?
  • Why shouldn't key elements of the state structured settlement protection statutes (judicial approval; best interest test; compensation disclosure) be applied to primary market transactions?
  • As an additional requirement, or as an alternative, why haven't plaintiff attorneys and plaintiff consultants insisted upon a claimant's written informed consent before entering into a structured settlement?
  • Why haven't the SSP's Standards of Professional Conduct received more public discussion and analysis within the structured settlement industry?
• "Cash now" advertising represents one of the most highly criticized secondary market business practices. Although this practice continues to exist, NASP took an important educational step during its 2010 Annual Meeting by highlighting this issue and inviting secondary market critics to participate in the discussion.

Business models

• While other segments of, and products within, the special needs settlement planning market have expanded and improved in recent years, the structured settlement primary market in general has stagnated and retrenched.
• During 2010, however, representatives of the primary structured settlement market increasingly recognized their interdependency, and interacted, with other settlement planning professionals and professional associations such as special needs attorneys, life care planners, Medicare set-aside professionals and secondary structured settlement market participants.
• Future industry improvement and growth will require even greater appreciation and identification of shared interests as well as expanded implementation of shared political strategies, educational programs and business models.

Prior S2KM annual reports about the structured settlement industry and reports about industry association conferences are available on S2KM's structured settlement wiki.

ASNP 2009 Annual Meeting

The Academy of Special Needs Planners (ASNP) hosted its Third Annual Meeting March 6-7, 2009 at the Rancho Bernardo Inn in San Diego, California. Titled "Special Needs Planning in an Era of Change", the program devoted one day of educational discussions to "special needs settlement planning" (SNSP) which ASNP characterized as a "new opportunity" for special needs attorneys.

The ASNP speakers included leading special needs attorneys and plaintiff structured settlement consultants who provided detailed analyses of the following SNSP topics:

• Anatomy of a SNSP Case - Frank Johns, Kevin Urbatsch and Patrick Hindert;
• Structured Settlement Annuities in SNSP Practice - Jack Meligan and Michele Whitmore;
• IRC 468B Qualified Settlement Funds (QSFs) - Jason Lazarus and Richard Risk;
• Integrating SNSP with an Elder Law Practice - Tim Nay and Sandy Conley;
• Medicare Secondary Payer Compliance - Mark Popolizio;
• Lien Resolution Strategies - William Browning, Mark Popolizio and Sylvius von Saucken;
• Marketing to the Trial Bar - Frank Johns, Jason Lazarus, and Kevin Urbatsch.

The SNSP program highlighted three basic issues:

• What is SNSP?
  
• What changes are impacting SNSP?
• What new opportunities does SNSP create for special needs attorneys?

What is SNSP?

Surprisingly, none of the speakers attempted to specifically define SNSP. Hindert recommended web 2.0 knowledge maps, wikis and folksonomies as a strategy for defining and growing SNSP.

Meligan and Whitmore described the related topic of "settlement planning" as both a profession and a process. According to Meligan and Whitmore: "Settlement planning is a profession that helps recipients of settlement proceeds use their proceeds to achieve their post-loss goals and transition successfully into their post-settlement financial lives". Meligan and Whitmore recommended utilizing settlement planning professionals with: credentials; loyalty to plaintiffs; planning approach; and experience. Meligan and Whitmore also described "settlement planning" as part of a three-part process preceded by litigation and followed by financial planning.

von Saucken also described "settlement planning" as a process or "continuum" subject to changing rules that require adjustments in settlement planning prototypes. von Saucken presented a settlement planning timeline:

• Agreement on settlement amount;
• Lien reimbursement;
• Medicare/Medicaid preservation trust;
• Structured settlement paperwork;
• Disbursement.

By comparison, during his recent presentation at the NSSTA 2009 Winter Meeting, Joseph DiGangi defined "settlement consulting" as a four-stage process:

• Analysis
• Planning
• Implementation
• Monitoring

Most of the ASNP presenters identified and addressed "structured settlements" as an essential component of SNSP. As part of his 468B QSF comments, Risk reviewed several structured settlement definitions including the tax definition in IRC section 5891(c)(1). To S2KM's knowledge, Risk thereby becomes the first structured settlement primary market participant to review the IRC section 5891 tax definition for "structured settlement" during a national conference. By comparison, not a single NSSTA or SSP conference speaker has reviewed the IRC Section 5891 definition for "structured settlement" since IRC 5891 was enacted in 2001. Risk also becomes, to S2KM's knowledge, the first conference speaker to link IRC 468B and 5891 which S2KM views as a strategic SNSP construct.

Several ASNP speakers addressed various types of settlement trusts in the context of SNSP. Browning highlighted settlement trust "due diligence" as an increasingly important SNSP issue. Three settlement trust providers, but not one structured settlement annuity provider, exhibited at the SNSP conference.

What changes are impacting SNSP?

ASNP speakers identified and highlighted the following changes impacting SNSP:

• Deficit Reduction Act of 2005 (DRA);
• The Ahlborn Case;
• 468B qualified settlement funds (QSFs);
• Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA);
• Recent MSA rules promulgated by CMS;
• The structured settlement secondary market;
• State structured settlement protection statutes;
• Transition of knowledge and knowledge work to the Internet.

Additional changes referenced by ASNP speakers which deserve more detailed analysis in future SNSP discussions:

• Transitional SNSP business models:
  • How the claim management SNSP model differs from the 468B QSF SNSP model; and
  • How to develop multi-professional SNSP teams and knowledge networks.
• How the current financial crisis impacts SNSP;
• Proposed and/or needed SNSP legislative and regulatory changes.

What new opportunities does SNSP create for special needs attorneys?

Traditional special needs legal practice and education have focused on special needs trusts, estate planning, government benefits and probate. As the ASNP conference demonstrated, SNSP encompasses traditional special needs expertise, but also new fields of related legal practice.

Four leading SNSP legal treatises (listed alphabetically by title) define these new fields of SNSP legal practice:

• "Negotiating and Settling Tort Cases" - by Matt Garretson and Guy O. Kornblum;
• "Qualified Settlement Funds and Section 468B" - by Robert W. Wood;
• "Structured Settlements and Periodic Payment Judgments" - by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert;
• "Taxation of Damage Awards and Settlement Payments" - by Robert W. Wood.

The ASNP presentation by speakers Johns, Lazarus and Urbatsch titled "Marketing to the Trial Bar" offered valuable advice for special needs attorneys as well as other SNSP stakeholders. S2KM's structured settlement transaction diagram, developed in 2005 with graphic artist Keith Burtoft, may help special needs attorneys identify other potential SNSP clients and roles. In addition, as S2KM's blog post "Structured Settlement Surveys" demonstrates, further market research would be useful to define and grow the SNSP market.

Congratulations to ASAP and SNSP program Chairperson Tim Nay for the timely and educational SNSP program. Prior S2KM blog posts about ASNP:

• 2008 ASNP Conference;
• 2007 ASNP Conference.

For additional information about settlement consulting, see S2KM's four-part blog series "Settlement Consulting".

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 Settlements in 2008 - 3

This S2KM blog post, the third of three analyzing structured settlements in 2008, highlights the challenges facing the structured settlement industry as it enters 2009.

Two prior S2KM blog posts evaluated 2008 from an historical perspective (Structured Settlements in 2008 -1) and summarized the conferences S2KM attended throughout the year (Structured Settlements in 2008 - 2).

Who does your client trust? The National Structured Settlement Trade Association (NSSTA) spotlighted the "trust issue" during its 2007 Winter meeting when NSSTA also reported the results of its structured settlement survey of injury victims and attorneys. Structured settlements require trust by injury victims and their attorneys that:

• Structured settlement consultants are qualified professional financial advisers; and
• Annuity providers will pay promised future periodic payments.

Traditionally important to structured settlements, issues of trust have been magnified in 2008 by the widespread financial collapse that required a federal bailout of AIG and called into question the reliability of financial rating assessments as well as the protection afforded consumers and investors by government regulators. A corollary issue for structured settlement consultants is "professionalism" - one of four strategic priorities NSSTA President Chris Diamantis identified during the NSSTA 2008 Annual Meeting.

• Should injury victims and their attorneys trust structured settlement consultants and engage them as financial advisers?
• What are the professional qualifications and services of individual structured settlement consultants?
• Are structured settlement consultants problem solvers or product pushers?
• Do they understand their own product - an increasingly complex transaction as visualized in this structured settlement diagram ?
• Are structured settlement consultants capable of objectively and comprehensively advising injury victims and their attorneys about such fundamental structured settlement issues as:
  • IRC 468B;
  • IRC 5891;
  • State-specific structured settlement protection statutes;
  • The Medicare Secondary Payer Statute; and
  • The Deficit Reduction Act?
• Are individual structured settlement consultants licensed and educated to sell non-insurance investment products?
• Are they professionally capable of recognizing, and do they proactively communicate, their own conflicts of interest?
• Do they proactively disclose their structured settlement compensation arrangements and obtain an injury victim's informed consent for such compensation?

How strong are structured settlements? The structured settlement industry should expect injury victims and their attorneys to demand additional assurances in 2009 about the financial security of structured settlement annuities. If "sophisticated" investors and financial institutions are hoarding cash and/or buying U.S. government securities, why should injury victims and their attorneys accept long term financial promises with limited or no liquidity? Will these traditional industry arguments continue to successfully drive structured settlement annuity sales in 2009:

• Except for United States treasury obligations, life insurance annuities are among the most secure long term investments.
• Fixed annuities are especially secure because they do not depend upon the vagaries of interest rates and securities markets.
• Fixed annuities, however, require the obligating party(s) to remain in business for the duration of the annuity obligation.
• The 30 year performance record of structured settlement annuities (to date) has been close to perfection.
• With strong support from legislators, regulators and judges, the structured settlement industry has survived its worst potential disasters.
• These potential disasters include the failures of AIG, Executive Life; Confederation Life; Capital Life; and Monarch Capital.
• By contrast, the most spectacular structured settlement failures have not involved annuities.
• These failures, which include SBU and Stanwich, involved IRC 130 structured settlement treasury bond trusts - i.e. (poorly or criminally) managed assets.
• Life insurance companies that issue structured settlement annuities are regulated by state insurance departments.
• State insurance guarantee funds provide a safety net for individual company failures.
• Life insurance companies that issue structured settlement annuities, therefore, are among the strongest of the financially strong.
• If injury victims want income tax-free periodic payments with lifetime security, they should include a structured settlement annuity as part of their settlement plan.

Competing business models - two alternative business models will continue to compete in 2009 for the future of structured settlements:

• The traditional claim management (defense-controlled) business model characterized by:
  • IRC 130 as a funding model;
  • Single product (annuity) orientation;
  • Defendant "approved" structured settlement agents;
  • Defendant "approved" structured settlement annuity providers;
  • Defendant "right of last refusal" to match funding alternatives;
  • Defendant "right" to deny structured settlements to injury victims;
  • Opposition to single claimant 468B;
  • Failure to fully inform injury victims about settlement transfers;
  • Failure to promote full disclosure and informed consent of structured settlement compensation.
• The emerging settlement planning (plaintiff-controlled) business model characterized by:
  • IRC 468B and 130 as a two-step, court-approved funding model;
  • Multiple product (annuity and trust) alternatives;
  • Integration of structured settlements with other government benefits;
  • Claimant selection of structured settlement consultants;
  • Claimant selection of structured settlement annuity providers;
  • Claimant's right to a structured settlement;
  • Claimant's right to information about the secondary market prior to settlement;
  • Claimant's right to full disclosure and informed consent about structured settlement compensation.

Primary vs. secondary structured settlement markets

• The National Structured Settlement Trade Association (NSSTA) and the National Association of Settlement Purchasers (NASP) cooperated in 2000 and 2001 to draft the Model State Structured Settlement Protection Act and to help enact IRC section 5891.
• Relatively limited educational, marketing and transactional interaction, however, has occurred historically between the primary and secondary markets.
• S2KM's 2006 concept map ("How the Primary Market Views Factoring") highlights the generally hostile attitude many primary market participants continue to express toward the secondary market and factoring companies.
• Among other results, the primary market's attitude has limited:
  • The education structured settlement stakeholders have received about settlement transfers;
  • The advice and assistance structured settlement consultants offer their customers about settlement transfers.
• One of the continuing industry challenges in 2009 will be whether various factions within the primary and secondary markets are able to work collaboratively to improve and expand structured settlements.
• As a positive developments:
  
  • NSSTA, the Society of Settlement Planners (SSP), and the Academy of Special Needs Planners (ASNP) each offered educational programs about settlement transfers during 2008;
  • Representatives of the primary and secondary markets jointly addressed improving structured settlement business practices at both the SSP and NASP 2008 Annual Meetings as well as the 2008 Structured Settlement Thought Leadership Conference.

Structured Settlements and Government Benefits

• A traditional structured settlement industry argument, promoted by defenders of the claim management business model, proclaims "structured settlements enable injured victims to live free of reliance on government assistance".
• This promotional statement is false and misleading. Many, if not most, structured settlement recipients depend upon government benefits in addition to structured settlements to address basic financial needs.
• These government benefits include: Social Security, Medicaid, Medicare, Veterans Benefits and Federally Assisted Housing.
• As David Lillesand, a leading social security and special needs attorney, stated at the SSP 2008 Annual Meeting: Medicaid alone represents a "life or death issue" for disabled persons including structured settlement recipients.
• The challenges of maximizing and successfully integrating government benefits are more complicated with a structured settlement than with a lump sum benefit in part because of a lack of legal authority.
• With anticipated budget cuts and reforms for Medicaid and Medicare in 2009, the structured settlement industry must improve and expand its educational and lobbying strategies if it expects structured settlements to play a vital role in this changing legislative and regulatory landscape.

Growing the structured settlement market

• As evidenced by annuity premium, the primary structured settlement market has not grown since 2001.
• Several structured settlement annuity providers have left the market since 2006. Concurrently, the number of individual structured settlement consultants remains relatively constant while their average age continues to increase.
• Recent structured settlement surveys and market studies by NSSTA, AIG, J.G. Wentworth and Towers Perrin confirm opportunities exist to grow the structured settlement market and suggest the structured settlement market is underperforming.
• Some of the important issues related to structured settlement market growth:
  
  • Managing transition and change
  • Structured settlement advocacy
  • Marketing to plaintiff attorneys
  • Problem solving vs. product sales
  • Building settlement planning teams
  • 468B as a standard funding model
  • Integrating structured settlements with settlement trusts
  • Improving industry Internet applications and skill sets
  • Continuing market research
• In a 2008 S2KM interview, paralympic champion Randy Snow offered the following advice for successfully transitioning and growing the structured settlement industry: listen to the customer; design the best products; surround yourself with the best people; have fun.

Thank you and best holiday wishes to all structured settlement stakeholders who followed S2KM's blog reports during 2008. The New Year should be interesting and challenging for the financial markets generally and the structured settlement industry more specifically.

Structured Settlements in 2008 - 2

This S2KM blog post, the second of three analyzing structured settlements in 2008, summarizes conferences S2KM attended throughout the year. A prior post evaluated 2008 from an historical structured settlement perspective. A subsequent post will discuss challenges facing the structured settlement industry in 2009. Conferences and associations are listed alphabetically. For more detailed reports about these conferences, check the parenthetical links for related S2KM blog posts. For S2KM's complete historical review of professional associations and conferences, see S2KM's structured settlement wiki.

Academy of Special Needs Planners (ASNP) - The second annual ASNP conference underscored the strategic nexus that exists between special needs planning, settlement planning and structured settlements. ASNP's "extra-curricular" program featured a social service project where 30 ASNP conference attendees assisted Families Helping Families of Southeast Louisiana repair and improve its office headquarters. The ASNP conference confirmed for this author why special needs attorneys and financial planners, as opposed to former life insurance salesmen and claim managers, represent the future of structured settlements and settlement planning. Although several NSSTA and SSP members attended and/or participated as speakers, most of the structured settlement industry missed this valuable conference.

American Association for Persons with Disabilities (AAPD) - Structured settlement leaders from both NSSTA and SSP attended the 2008 AAPD Leadership Gala dinner in Washington, D.C. - in addition to many Congressional and Disability leaders. NSSTA was one of the event sponsors and had earlier featured Andrew J. Imparato, AAPD President and CEO, as a speaker at NSSTA's 2007 Fall Meeting. Imparato, a visionary and inspirational leader, is dedicated to transitioning disabled persons from poverty to economic self-sufficiency. AAPD's strategy includes uniting disabled persons as a political block and business market. AAPD's political priorities include changing the social security statutory definition of "disability" from "unable to work" to address "barriers to work" for disabled persons. Imparato's message for structured settlement professionals: involve yourselves at the local level with independent living centers.

National Academy of Elder Law Attorneys (NAELA) - NAELA's Mission is "is to establish NAELA members as the premier providers of legal advocacy, guidance and services to enhance the lives of seniors and people with disabilities". NAELA's membership consists of 4400 attorneys in the United States, Canada, Australia and the United Kingdom. Most of the members of ASNP and the Special Needs Alliance (SNA) are members of NAELA including many NAELA founders and former Presidents and Directors. S2KM developed a "Web 2.0 for Lawyers" wiki for the NAELA 2008 Symposium which was also featured in a Legal Broadcast Network (LBN) podcast interview by Scott Drake with S2KM's Managing Director, Patrick Hindert. S2KM also published a 2008 blog post analyzing NAELA and NAELA's CELA certification program from a knowledge management and web 2.0 perspective.

National Alliance of Medicare Set-Aside Professionals (NAMSAP) - Founded in 2005, NAMSAP is a non-profit organization devoted to improving Medicare set-aside arrangements (MSAs) and to facilitating compliance with Medicare conditional payment recovery.

• Background - MSAs are administrative and funding mechanisms utilized in certain categories of settlements to protect Medicare's interests as "secondary payer" under the Medicare Secondary Payer (MSP) statute. Although the MSP rules were enacted by Congress in 1980, CMS did not begin to enforce the MSP statute until 2001 based upon a series of CMS policy memoranda for workers compensation cases, several of which address structured settlement issues.
• MMSEA - On December 29, 2007, President George W. Bush signed into law the "Medicare, Medicaid and SCHIP Extension Act of 2007" (MMSEA). Beginning July 1, 2009, MMSEA requires liability insurers (including self-insurers, no-fault insurers and workers compensation insurers) to determine Medicare status for all claimants and report all claims involving a Medicare beneficiary to CMS when those claims are resolved. If the reporting for any claimant is not done in a timely manner, MMSEA authorizes CMS to enforce a civil penalty against liability insurers of $1000 per day per claimant. These information requirements and penalty provisions provide the basis for expanded enforcement by CMS of the MSP statute.
• MARC - One of the featured presenters at the NAMSAP 2008 Annual meeting was Roy Franco, Director of Safeway's Risk Management Strategies and Chairman of the Medicare Advocacy Recovery Coalition (MARC).
  • In discussing the MMSEA requirements for liability cases, Franco said "the issue is not just about reporting" and predicted a "claim freeze" as liability insurers and self-insureds wait for resolution and approval before they pay claims.
  • Franco characterized the MMSEA MSP rules as an attack on traditional best practices for liability claim management. He predicted legal challenges and criticized MMSEA rules.
  • Franco outlined MARC's priorities for MMSEA which include changing the law or, alternatively, obtaining an injunction to stop its July 1, 2009 implementation.
• S2KM reporting - S2KM published seven blog posts in 2008 highlighting recent MSA and MMSEA developments that impact structured settlements including several developments that have occured during 2008.
• S2P2J analysis - S2P2J Release 44 features an extensive update of MSA rules for structured settlements as well as a summary of MMSEA.

National Association of Settlement Purchasers (NASP) - At the NASP 2008 Annual Meeting, Patrick Hindert, S2KM's blog author, moderated a panel discussion titled "How to Improve and Grow the Structured Settlement Market". Participants included: Jack Meligan, Michael Upchurch and Matthew Bracy. As settlement planners, both Meligan and Upchurch described their view of the secondary market as a "mixed-bag" of bad and good. The "bad" part of factoring results from non-professional ("cash now") advertisements promoted by many factoring companies.

Not only do plaintiff attorneys dislike "cash now" advertisements, according to Meligan and Upchurch, they are also less likely to recommend structured settlements if they believe their clients will eventually sell their payment rights.

The potential liquidity provided by settlement transfers improves the structured settlement annuity product. Lives change. Unexpected events occur. Even the best personal injury settlement plans need to be reviewed post-settlement and sometimes adjusted. Settlement transfers, which must be reviewed and approved by state judges, are appropriate in some cases.

Bracy emphasized the need for well-educated plaintiffs and plaintiff attorneys - as well as judges. He noted that many primary market participants have ignored the settlement transfer business. Bracy acknowledged that good and bad business practices exist in the secondary market as well as the primary market. According to Bracy, the potential secondary structured settlement represents between 5% and 7% of the total primary market. Most structured settlement cases, according to Bracy, neither require nor qualify for a settlement transfer.

National Settlement Consultants (NSC) - Patrick Hindert, S2KM's Managing Director and blog author, was privileged to speak at the NSC 2008 Annual Meeting and also to attend NSC presentations and social functions. In addition to Michael and William Goodman, NSC founders and principals, the NSC presenters included representatives from ten (10) structured settlement annuity providers as well as several national settlement planning experts. In retrospect, the "not-for-publication" May 2008 NSC presentations by some of the annuity providers now seem especially interesting and important. Among other topics, these presentations addressed investment exposure to real estate mortgages plus one annuity provider's study of settlement transfers by its own structured settlement recipients. Randy Snow's NSC keynote presentation about change and growth was humorous and thought-provoking. Randy subsequently participated in a series of S2KM blog interviews about change and growth in the structured settlement industry. Hindert provided a structured settlement Medicaid update as part of the NSC educational program.

National Structured Settlement Trade Association (NSSTA) - Founded in 1985, NSSTA is the oldest and largest structured settlement professional trade association. NSSTA's members are primarily structured settlement consultants and annuity providers. In addition to providing education and certification, NSSTA historically has served as the legislative and lobbying voice of the primary structured settlement market. NSSTA's committees, especially NSSTA's legal committee, are among the most valuable sources of information about the structured settlement industry.

• Winter Meeting - Prominent educational themes and presentations at the NSSTA 2008 Winter Meeting included: trial attorneys; disabled persons and disability associations; government benefits; structured settlement legal documentation; legislative and regulatory developments; Internet marketing; and professionalism.
• Annual Meeting - Chris Diamantis, NSSTA's 2008 President, introduced Joseph Ricci as NSSTA's new Executive Director, and identified NSSTA's strategic priorities for 2008: factoring; advocacy and marketing; professionalism; and governance and communication. J.P. Steele announced the results of a Structured Settlement Survey Report sponsored by AIG which S2KM summarized in a November 23, 2008 blog post. Eric Vaughn, NSSTA's lobbyist, provided a "Washington Report" analyzing the then-upcoming federal election from a structured settlement perspective. Legal committee co-chairman, Michael Miller, summarized results from 100 factoring cases in which his law firm, Drinker Biddle, had participated since January 2008. Craig Ulman, NSSTA's General Legal Counsel, provided a State Guarantee Funds primer. Bradley Frigon spoke about special needs trusts. Among other topics, two actuarial presentations discussed structured settlement pricing.
• Fall Meeting - Although S2KM participated in four committee meetings at NSSTA's 2008 Fall Meeting, S2KM did not attend NSSTA's educational program because of a scheduling conflict. S2KM's blog coverage of this meeting therefore was limited to editorial commentary.

Society of Settlement Planners (SSP) - Founded in 2001, SSP is a national nonprofit educational and public policy association of professional structured settlement producers and others who assist injured claimants in the settlement process. At its 2008 Annual meeting, the SSP adopted its "Standards of Professional Conduct for Settlement Planners", a multi-year SSP project initiated and managed by SSP Director and attorney Richard Risk.

Carl A. Pierce, distinguished professor of law at the University of Tennessee, assisted SSP with this ethics project. Pierce served as a reporter for the latest revision of the American Bar Association's Model Rules of Professional Conduct.

Frank Johns, a leading special needs attorney and settlement planning ethicist, also advised SSP on its Standards of Professional Conduct. Johns' 2008 SSP presentation introduced a proposed Request for Proposal (RFP) for settlement planners.

Risk organized and moderated SSP's tax panel that featured Jody Brewster, Glenn Mackies and Michael Montemurro.

SSP devoted three presentations to government benefits, the highlight being David Lillesand, a national leader among social security and special needs trust attorneys. Based upon his discussions with the Social Security Administration (SSA), Lillesand stated that Nancy Veillon's January 31, 2006 letters to attorneys Roger Bernstein and Jay Sangerman representing NSSTA are "inoperative" - a statement Lillesand repeated during his presentation with SSA executive attorney Ken Brown at the ASNP 2008 Annual Meeting.

SSP's panel discussion about the secondary markets included NASP Executive Earl Nesbitt, Stephen Harris and Rhonda Bentzen. Other SSP educational presentations included a legislation and litigation update, settlement planning case studies, and advice about Internet marketing.

Stetson Special Needs Trust X (SSNTX) - Throughout its 10 year history, the Stetson Conference has been recognized as the leading special needs trust (SNT) knowledge forum in the United States. Most of the speakers are members of either the Academy of Special Needs Planners (ASNP) or the Special Needs Alliance (SNA). For structured settlement professionals, the 2008 Stetson program titled "The Basics of Special Needs Trusts" offered analyses of several important settlement planning topics and included two presentations specifically focusing on structured settlements:

• Texas Attorney Pi-Yi Mayo spoke about the January 31, 2006 Social Security Administration (SSA) letters to attorneys Roger Bernstein and Jay Sangerman as well as the application of the Deficit Reduction Act of 2005 (DRA) to structured settlements used to fund special needs trusts; and
• Leo Govoni provided "An Economic Analysis of Structured Settlements".

Structured Settlement Knowledge Leadership Conference (SSKLC) - Focusing on the "needs and best interests of consumers", the first Structured Settlement Thought Leadership Conference, sponsored by J.G. Wentworth, was designed to bring together knowledge leaders who are "redefining structured settlement roles and processes". The Leadership Conference objective was to provide an educational platform and open forum dedicated to growing and improving the structured settlement market. In addition to four panel discussions and two individual presentations, the Leadership Conference featured a brainstorming session to improve the structured settlement process for plaintiffs based upon the subjects discussed in prior sessions. The panel discussions addressed the economic life cycle of a personal injury claim identified by Adam Scales in his 2002 Wisconsin Law Review article titled "Against Settlement Factoring? The Market in Tort Claims has Arrived". One result of the Leadership Conference was the subsequent 2008 structured settlement survey conducted by J.G. Wentworth.

Special Needs Trusts X

Stetson Law School hosted the 10th Annual Special Needs Trust (SNT) Conference October 16-17, 2008 at the Don CeSar Beach Resort in St. Pete Beach, Florida. More than 300 attorneys, trustees, care planners and structured settlement consultants attended one or both of the basic and advanced educational programs.

Throughout its 10 year history, the Stetson Conference has been recognized as the leading SNT knowledge forum in the United States. Most of the speakers are members of either the Academy of Special Needs Planners (ASNP) or the Special Needs Alliance (SNA) and each of these associations schedule members-only meetings in conjunction with the Stetson Conference.

For structured settlement professionals, the Stetson program titled "The Basics of Special Needs Trusts" offered analyses of several important settlement planning topics and included two presentations specifically focusing on structured settlements:

• Texas Attorney Pi-Yi Mayo spoke about the January 31, 2006 Social Security Administration (SSA) letters to attorneys Roger Bernstein and Jay Sangerman ("Bernstein letter") as well as the application of the Deficit Reduction Act of 2005 (DRA) to structured settlements used to fund special needs trusts; and
• Leo Govoni, Director of the Center for Special Needs Trust Administration, provided "An Economic Analysis of Structured Settlements".

In addition, Bradley Frigon ("Basics of Special Needs Trusts") and Bernard Krooks ("Taxation of Special Needs Trusts") each addressed structured settlement issues in their conference presentations.

Mayo's discussion about the Bernstein letter and the DRA highlighted two controversial issues that have not received sufficient attention by either the National Structured Settlement Trade Association (NSSTA) or the Society of Settlement Planners (SSP). For backgound about these issues, see these prior S2KM blog posts:

• The Deficit Reduction Act of 2005
• Inconvenient Questions - summarizing a paper by Sylvius von Saucken.
• SSP 2008 Annual Meeting - 2: specifically David Lillesand's comments that the SSA letters to Bernstein and Sangerman are "inoperative" based upon his discussions with SSA officials including Ken Brown.
• NSSTA 2007 Winter Meeting - 3: specifically Jay Sangerman's statement that the DRA "does not apply to structured settlements" used to fund special needs trusts.

Citing Texas law, Mayo stated that the DRA annuity rules do apply to structured settlements used to fund SNTs - at least in Texas. According to Mayo, the Texas interpretations of the DRA are especially relevant because the DRA annuity rules adopted pre-existing Texas rules almost verbatim. Mayo warned that other states are likely to interpret the DRA annuity rules in a similar fashion - especially because (as other Stetson speakers confirmed): 1) state Medicaid agencies are making a concerted effort to limit SNT uses, flexibility and availability; and 2) many state Medicaid agencies continue to view annuities generally as abusive SNT planning techniques.

As a counterpoint on the DRA, Mayo recommended John Campbell's 2008 NAELA Journal article titled "The Use of Qualified Settlement Funds, Qualified Assignments and Special Needs Trusts in Physical Injury Settlements" in which Campbell argues that the DRA should not apply to structured settlements used to fund a SNT because the funds used to purchase the structured settlement annuities never belong to the SNT beneficiary. For S2KM's review and analysis of Campbell's article, see S2KM's earlier blog posts titled "IRC 468B Funds Revisited" featuring comments by Campbell.
 
As for the SSA's letters to Bernstein and Sangerman, Mayo did not directly address whether he supported Lillesand's assertion that the letters are "inoperative". Instead he cited the following authority to support his opinion that: 1) payments from a structured settlement annuity that are irrevocably assigned to a SNT are not income to the trust beneficiary when paid directly into the trust; and 2) that such annuity payments paid into a SNT after a beneficiary reaches age 65 should be treated the same as annuity payments received before age 65:

• POMS SI 01120.201J.1D which states in part: "a legally assignable payment ... that is assigned to a [SNT] is income for SSI purposes unless the assignment is irrevocable"; and
• CMS' position that additions to a SNT made after the beneficiary reaches age 65 should not be treated differently from prior additions where there has been an irrevocable assignment of structured settlement payments to a properly established SNT.

Mayo emphasized the importance of reciting the irrevocable nature of the structured settlement assignment in settlement documentation and court orders establishing the SNT.  He also agreed with Lillesand about the importance of obtaining SSA POMS that specifically address structured settlements used to fund SNTs. For S2KM's most recent status report about SSA POMS for structured settlements, see Ken Brown's comments under "SSI Rules for Trust Administration" in S2KM's blog post about the 2008 ASNP Annual Meeting.

In the context of the current financial crisis, Govoni's presentation titled "An Economic Analysis of Structured Settlements" appeared to be an important and timely subject. For this author, however, the analysis fell short of expectations for several reasons:

• Govoni was the only presenter at the conference who did not provide handout materials. With some exceptions, in this author's experience, structured settlement handout materials at national conferences repeatedly fall below the highest standards of other settlement planning professionals.
• Although Govoni briefly referenced the current financial crisis, he did not mention AIG, did not discuss financial ratings and did not address the impact of the financial crisis on structured settlements and/or managed assets as funding alternatives for SNTs.
• Govoni focused much of his analysis on relative rates of return and age ratings but never mentioned after-tax investment comparisons or Monte Carlo analysis.
  
• Govoni recommended annuity commutation riders as a strategy to pay potential estate tax obligations but failed to mention the secondary market as a potential source of structured settlement liquidity.

With the exception of a single reference by Mayo to "the grey market", none of speakers who addressed structured settlements discussed the secondary market, IRC 5891 or the 46 state structured settlement protection statutes. This educational neglect mirrors the continuing failure of NSSTA and SSP to educate their members about how to sell structured settlements (and grow the structured settlement market) in the context of IRC 5891 and the 46 state structured settlement protection statutes.

In this author's private discussions with Stetson conference attendees, several mentioned the secondary market as a valuable settlement planning resource. Three attendees informed this author of SNT beneficiaries and trustees who had been forced into the secondary market almost immediately following settlement because their SNTs had been "over-structured". In each instance, the settlement plan contained insufficient cash to permit the SNT trustee to purchase a needed house and/or a vehicle. In one case, the SNT beneficiary and his family have brought a lawsuit against the plaintiff attorney. These attendees each said the over-structuring resulted from defense pressure during settlement negotiations and could have been avoided if a 468B Qualified Settlement Fund had been utilized.

While it was encouraging to see leaders from both NSSTA and SSP attend the Stetson SNT seminar, more educational interaction and legislative collaboration is needed between the structured settlement industry (both the primary and secondary markets) and related professional associations including special needs planners and Medicare set-aide professionals. As NSSTA and the National Association of Settlement Planners (NASP) prepare for their association meetings next week in San Francisco and Las Vegas respectively, such increased interaction and collaboration should represent priorities and opportunities to improve and grow the structured settlement market.

Congratulations to Stetson Law School for continuing its SNT educational leadership and also for focusing increased attention on structured settlement issues that impact SNTs and special needs planning.

S2P2J Releases 43 and 44

ALM has published and distributed Release 43 of "Structured Settlements and Periodic Payment Judgments" (S2P2J). Co-authored by Daniel Hindert, Joseph Dehner and Patrick Hindert, S2P2J is a legal textbook first published in 1986 and updated semi-annually.

S2P2J Release 43 topics:

• Executive Life of New York (ELNY)
• Non-qualified structured settlements
• Single claimant 468B
• Factoring
  • Arbitration cases; and
  • DOJ's sovereign immunity defenses.
• Macomber v. Travelers
• Ohio 2007 laws for suitability and disclosure of annuities
• Constitutional findings on periodic payment statutes

Release 44 is a work-in-progress. Here are some of the highlights:

• Market growth - S2P2J Chapter 1 addresses the history and expanding use of structured settlements and periodic payments. For the past several years, the structured settlement industry has reported flat annual annuity sales of approximately $6 billion. Structured settlement legal developments, however, have continued to expand at an accelerating pace. S2KM's blog has reported recent market surveys sponsored by NSSTA and AIG. These studies, plus the growth of non-qualified assignments, will be addressed in Release 44.
• Settlement Trusts - S2P2J Release 44 will include a new Chapter 3 section titled "Settlement Trusts". This new section will organize and expand existing S2P2J coverage of settlement trusts which already includes detailed reporting about many types of settlement trusts and issues including the SBU and Stanwich debacles. The expanding markets for settlement planning and special needs planning highlight the increasingly important interaction of structured settlement annuities and settlement trusts including: government bond trusts; reversionary grantor trusts; settlement preservation trusts; special needs trusts; Medicare set-aside trusts; and IRC section 468B trusts. As settlement trusts continue to proliferate, criteria for selecting a settlement trustee becomes increasingly important and will be addressed in Release 44.
• Roles and Responsibilities - The NSSTA and AIG structured settlement market surveys each spotlight plaintiff attorneys (and presumably plaintiff structure settlement advisers) as important for future market growth. Release 44 will take a closer look at the structured settlement roles and responsibilities of plaintiff attorneys (in Chapter 5) and plaintiff structured settlement consultants (in Chapter 6). Release 44 will feature an expanded analysis of how the ABA Model Rules of Professional Conduct and SSP Standards of Professional Conduct impact key structured settlement stakeholders.
• Government Benefits - Release 44 will continue to expand and improve S2P2J Chapter 15 (Government Benefits and Structured Settlements). Featured topics will include the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) as well as the continuing problems for structured settlements created by the Deficit Reduction Act of 2005 (DRA). Release 44 will highlight the need for more specific structured settlement legal authority related to Social Security, Medicare and Medicaid.
• Structured Settlement Transfers - The secondary annuity market represents a strategic challenge for the primary structured settlement market. S2P2J Chapter 16 continues to track and analyze secondary market developments. Release 44 will update state structured settlement protection legislation in West Virginia and Rhode Island. Release 44 also will continue to track business conduct of factoring companies including the Fresno County, California cases (Cox and Caldwell) and the Rapid Settlements arbitration cases.

IRC 468B Funds Revisited - 3

Two earlier S2KM blog posts prioritize a new article published in the NAELA Journal by John J. Campbell titled "The Use of Qualified Settlement Funds, Qualified Assignments and Special Needs Trusts in Physical Injury Settlements" to refocus on single claimant 468B funds as a strategic issue for the settlement planning and structured settlement industries. The first blog post recommends educational resources for 468B Funds. The second post summarizes Campbell's article. This post offers additional S2KM analysis and commentary.

As previously reported, Campbell's article is notable because it:

• Supports the argument Congress does not intend the traditional economic benefit doctrine to apply to 468B funds created for a single claimant;
• Helps educate elder law and special needs attorneys about the importance of 468B funds;
• Expands 468B fund analysis beyond tax issues to include government benefits issues - specifically SSI, Medicaid, special needs trusts and the Deficit Reduction Act of 2005 (DRA).

Although Campbell's tax analysis generally follows the analysis of other 468B experts, such as Robert W. Wood and Richard B. Risk, Jr., Campbell's conclusions are more aggressive. According to Campbell, while it is possible the IRS could distinguish single claimant and multiple claimant 468B funds, that likelihood is "a remote possibility at best". Wood and Risk are more cautious in their conclusions. They each urge Treasury and/or the IRS to clarify their positions for single claimant 468B cases.

From S2KM's perspective, Campbell's conclusions about the impact of the Deficit Reduction Act (DRA) on structured settlements used to fund special need trusts are also aggressive - considering the lack of any specific structured settlement legal authority. For example, despite the DRA's prohibition against deferred or balloon annuity payments, Campbell concludes that "SSI and Medicaid do not prohibit the use of either deferred or balloon payments to fund exempt Special Needs Trusts if the annuities comply with Internal Revenue Code 130". There are no direct references, however, to structured settlements or qualified assignments in any SSI nor Medicaid legislation or regulations.

Campbell's article contains one serious omission - his failure to mention or consider the impact of IRC Section 5891. Reasons why IRC 5891 is important for Campbell's analysis:

• Structured Settlement Definition - Enacted as part of the Victims of Terrorism Tax Relief Act of 2001, IRC 5891 includes the Federal tax definition for "structured settlement". A tax analysis of structured settlements should reference the tax definition of a structured settlement.
• Economic Benefit Argument - As Risk points out in his 2004 article titled "A Case for the Urgent Need to Clarify Tax Treatment for a Qualified Settlement Fund Created for a Single Claimant", the ability of structured settlement recipients to transfer their payment rights pursuant to IRC 5891supports the argument that Congress does not intend for the traditional judicial doctrine of economic benefit to apply to single claimant 468B funds.
  
• Secondary Market - Conversely and misleadingly, Campbell's article states: "Once there is a qualified assignment of an annuity funding a structured PI settlement, the plaintiff cannot change the terms of the annuity, including the payment amounts or the payee". To the contrary, IRC 5891 and 46 state structured settlement protection statutes permit a plaintiff, with prior state court approval, to transfer payment rights (including payment amounts to new payees) pursuant to a "structured settlement factoring transaction".
• Medicaid and Structured Settlements - Campbell's commentary about Medicaid qualification and structured settlements does not address two important, strategic settlement planning and structured settlement issues:
  • The DRA requirement that qualifying annuities be "non-assignable"; or
    
  • The "saleable = countable" argument promoted by many state Medicaid agencies.
    

S2KM conclusions - Campbell's article highlights:

• The complexity of structured settlements and important role of structured settlements in personal injury settlement planning.
• Note: for a visual model, consider this S2KM Structured Settlement Transaction Diagram.
• The need for:
  • Treasury and/or the IRS to confirm existing tax authority for single claimant 468B funds;
  • Better legal authority:
    • Specifically: to clarify the rules for structured settlements used to fund special needs trusts and Medicare Set-aside arrangements;
    • More generally, to integrate existing structured settlement laws (including Federal tax legislation and state statutes) with other government benefit laws including Medicaid and Medicare;
    • For additional S2KM analysis, see "Inconvenient Questions".
  • Better industry research and analysis (legal, public policy, market and cost-benefit) about structured settlement and settlement planning issues.

SSP 2008 Annual Meeting - 1

The Society of Settlement Planners (SSP) has announced the educational program schedule for its 2008 Annual Meeting to take place March 5-7 in Washington, D.C. at the Marriott Hotel at Metro Center. Registration forms and online registration are available on the SSP website.

Patrick Hindert, S2KM's blog author, will moderate two of the SSP seminar discussions:

• "Why We Are Losing the Medicaid Annuity War - and the Surge Needed for Victory" - featuring David J. Lillesand; and
• "The Secondary Markets - What Settlement Planners Need to Know" - featuring Stephen R. Harris; Earl S. Nesbitt; and Rhonda Bentzen.

More detailed descriptions for these programs:

Medicaid Annuities

Medicaid annuities, including structured settlement annuities used to fund special needs trusts, are under attack by federal and state legislators and regulators.  The Deficit Reduction Act and the secondary annuity markets create new issues and challenges for settlement planners and special needs planners.  In a discussion titled "Why We are Losing the Medicaid Annuity War - and the Surge Needed for Victory", David J. Lillesand, a national special needs expert, will provide a provocative review of current Medicaid annuity issues and propose a strategy to address these challenges.

Lillesand's presentation will address:

• Medicaid’s continuing attack on annuities used for nursing home planning and the spill-over impact on structured settlements;
• The SSA’s recent Appeals’ Council decision to cut more than one-third of the tax-free SSI benefits for a special needs trust with a properly assigned structured settlement - what REALLY happened in Pensacola and why the ruling still stands;
• SSA’s massive failure to understand annuities - the “Bernstein letter” notwithstanding;
• How the SSA's misunderstanding of annuities impacts the willingness of attorneys and clients to use structured settlements;
• When we might expect “relief” and/or "clarification" in the form of new SSA POMS or federal regulations;
• The need for the SSA to change deeming rules and/or resource rules so structured settlements can be utilized for spousal and parental personal injury derivative claims - which currently disqualify seriously ill children and spouses for Medicaid;
• How repeated, unannounced political cuts in Medicaid services are impacting structured settlements by creating uncertainty for future care options and, therefore, the demand for greater cash reserves to meet sudden cuts in services;
• And most importantly, how the insurance industry in general, and the structured settlement industry in particular, can benefit by joining with disabled families to stabilize and standardize across states Medicaid services for the seriously ill and disabled who are not insurable through private health insurance plans.

Secondary Markets

The secondary life and annuity markets are revolutionizing all financial and estate planning including structured settlements, settlement planning and special needs planning.  This discussion, titled "The Secondary Markets - What Settlement Planners Need to Know", will feature three national secondary market experts - Stephen R. Harris, a partner at Drinker Biddle; Earl S. Nesbitt, a partner at Nesbitt & Vassar who also serves as Executive Director of the National Association of Settlement Purchasers (NASP); and Rhonda Bentzen of Bentzen Funding Solutions.  This secondary market discussion will serve as an important introduction and update for settlement planners with special attention on how IRC section 5891 and the state structured settlement protection statutes have changed the structured settlement business.

Secondary issues to be addressed:

• What does a settlement planner need to know about the secondary markets?
• What laws apply - and what are the critical issues under those laws?
• What happens in a specific settlement transfer transaction - beginning to end?
• Who are the key players in a settlement transfer transaction?
• What is the settlement transfer documentation and work product?
• What are the responsibilities and potential roles for settlement planners?
• What issues and potential conflicts exist for settlement planners?
• What should settlement planners tell their clients about the secondary markets:
  • Prior to settlement?
  • Following settlement?   
    
• Who are the major secondary market participants?
• What are the critical issues and current industry developments?
• Where can a special needs planner obtain more information about the secondary markets?

For prior S2KM blog posts about the Society of Settlement Planners, see SSP 2007 Fall Meeting and the incorporated links.