Beyond Structured Settlements

2008 ASNP Annual Meeting

The Second Annual Meeting of the Academy of Special Needs Planners (ASNP), titled "Beyond Nuts & Bolts: When Theory Meets Reality", took place March 27-29, 2008 in New Orleans. Open to non-ASNP members, ASNP's 2008 program attracted more than 100 attendees plus nine sponsors and exhibitors.

Program Chairperson Frank Johns, ASNP's founders and ASNP's staff are to be congratulated for maintaining the high educational standards ASNP established in 2007. In addition to the excellent presentations, ASNP's educational program featured detailed and valuable handout materials in hardcopy and CD ROM formats. The 2008 ASNP program was noteworthy, in part, because it offered multiple presentations highlighting settlement planning and structured settlement issues - many of which S2KM identified and recommended in S2KM's summary of ASNP's 2007 Annual Meeting.

Several ASNP program presentations featured members of the Society of Settlement Planners (SSP). In addition to Johns, SSP member presenters included Michele Whitmore, Tim Nay, Jack Meligan, Joseph Tombs, David Lillesand and this blog's author, Patrick Hindert. Several additional SSP, National Structured Settlement Trade Association (NSSTA) and National Association of Settlement Purchasers (NASP) members participated as sponsors, exhibitors and/or attendees.

Summary of the 2008 ASNP Annual Meeting

Families Helping Families - ASNP's "extra-curricular" program in New Orleans featured a social service project where 30 ASNP conference attendees assisted Families Helping Families of Southeast Louisiana repair and improve its office headquarters. Many special needs professionals have disabled family members. Their commitment to disabled persons is genuine. The ASNP work project represented a hands-on demonstration of their commitment and complemented the participation and support NSSTA and SSP provided earlier this month in Washington, D.C. for the AAPD Leadership Gala Dinner.

Special Needs Trusts for Wealthy Families - Michael Gilfix opened the ASNP Educational Program with a detailed analysis of the challenges facing special needs planners whose clients include wealthy families with disabled members. Gilfix's analysis addressed the meanings of "wealth" and "disability" in the context of public benefits as well as planning considerations to meet the cost of care and services for such clients.

Tax Considerations of Grantor vs. Non-Grantor Trusts - Vincent Russo provided a tax-oriented introduction to various trusts used in special needs planning. Russo identified drafting issues, reviewed a Fiduciary Income Tax Return (Form 1041) and highlighted a variety of "tax traps". Russo's discussion supplemented his tax presentation at the 2007 ASNP Annual Meeting.

Special Needs Financial Planning - Two financial planners, Cynthia Haddad and Sal Salvo, offered an overview of comprehensive special needs financial planning. Haddad reviewed sample case studies from a book she co-authors. Salvo discussed the role of life insurance and shared his experience of caring and planning for his own disabled child.

Secondary Life and Annuity Markets - This blog's author introduced ASNP members to life settlements, structured settlement transfers and Medicaid annuity transfers. Issues addressed included secondary market history, public policy considerations, existing laws and regulations, and reactions from the primary markets - as well as the professional responsibilities and planning options for special needs attorneys.

Prudent Investment - William Browning discussed the management role and investment duties of trustees for special needs trusts. Browning's presentation highlighted the general impact of the Uniform Prudent Investor Act (UPIA) for trustees in the context of modern portfolio theory as well as recent litigation against trustees.  Browning's presentation did not mention structured settlement annuities.

Ethical Pitfalls for Attorneys Acting as Fiduciaries - Frank Johns addressed ethical challenges special needs attorneys encounter when representing a fiduciary or serving as self-appointed fiduciaries. Johns' commentary included consideration of the ABA Model Rules of Professional Conduct, the NAELA Aspirational Standards and the ACTEC Commentaries to the Model Rules of Professional Conduct.

Difficult Trust Beneficiaries - Patricia Dudek and Cynthia Barrett shared their personal experiences and recommendations for special needs attorneys and trustees who encounter difficult trust beneficiaries including distribution authority and strategies for avoiding professional liability.

Trusts and the Funding of Tort Recoveries - Michele Whitmore reviewed the relationship of structured settlements and special needs planning from a settlement planning perspective. Whitmore summarized the history of structured settlements and highlighted various abuses including how "over-structuring" has contributed to the development of the secondary annuity market. Whitmore recommended a collaborative and plaintiff-controlled settlement planning strategy based upon damage analysis, 468B Qualified Settlement Funds, Medicare Set-Aside Arrangements and Special Needs Trusts.

Settlement Planning and Special Needs Planning - Tim Nay moderated a panel discussion featuring Jack Meligan and Joseph Tombs that highlighted collaboration opportunities for settlement planners and special needs attorneys. Meligan differentiated needs-based settlement planners from product-based structured settlement intermediaries. Meligan criticized defendants who seek to control or restrict any claimant's right to select his or her own settlement advisors and products. He summarized the mission and history of the Society of Settlement Planners (SSP) and noted the recently adopted SSP Standards of Professional Conduct. Tombs outlined the SSP Registered Settlement Planner (RSP) certification program and distinguished a settlement planner from a plaintiff structured settlement broker.

Personal Injury Litigation - Evan Krame and Diedre Wachbrit offered advice and recommended guidelines for special needs attorneys who work with trial attorneys. Their presentation included advice for special needs attorneys about structured settlements and structured settlement advisors. They also identified several trust companies that currently offer special needs trust services.

Why Fiduciaries Get Sued - Richard Milstein and Frank Johns examined several areas of trustee liability and discussed special needs trust case studies that highlighted areas of greatest risk for trustees. Milstein and Johns included their own list of the top ten reasons special needs trustees are sued as well as their recommended remedies.

SSI Rules for Trust Administration - Ken Brown and David Lillesand discussed current Supplemental Security Income (SSI) rules and issues impacting the administration of special needs trusts. Brown summarized the general SSI rules for disbursements from trusts as well as specific rules relating to home ownership. Lillesand outlined the sources of SSI law and summarized trust administration and trust creation issues. Both Brown and Lillesand addressed structured settlements. According to Brown, the Social Security Administration (SSA) has identified structured settlements for future POMS but they are not currently a priority. According to Lillesand, the lack of structured settlement POMS continues to pose a risk for those claimants and their attorneys who attempt to fund special needs trusts with structured settlement annuities. If and when structured settlement POMS are drafted, Lillesand recommended the POMS should also address secondary market annuity issues.

Section 8 Housing and Special Needs Trusts - Kevin Urbatsch explained why special needs trusts and Section 8 Housing rules are not fully compatible. According to Urbatsch, some local public housing agencies (PHAs) are taking the position that every distribution from a special needs trust qualifies as income for the Section 8 recipient including distributions for medical expenses. This result can cause the elimination of a Section 8 voucher. Re-qualification for Section 8 may take months or even years.

Sponsors and Exhibitors

• MassMutual
• J.G. Wentworth
• Legal Directives
• ResCare Premier
• CORE Health Care
• MetDESK
• The Halpern Group
• First Capital Surety & Trust
• Wells Fargo

For additional information about structured settlements, see S2KM's Structured Settlement Wiki.

SSP 2008 Annual Meeting - 2

The Society of Settlement Planners (SSP) hosted its 2008 Annual Meeting in Washington, D.C. on March 5-7.  Approximately 75 persons attended the SSP meeting including settlement planners, special needs attorneys and annuity provider representatives. Under direction from 2007 SSP President Anthony Alfieri and Program Chairperson Jack Meligan, SSP's 2008 educational program matched the high standards of previous SSP programs.

During SSP's business meeting, SSP members:

• Adopted the "Standards of Professional Conduct for Settlement Planners"; and
• Elected new officers and directors .
  
  • SSP elected Greg Maxwell as 2008 President and Joseph Tombs as SSP Vice President.
  • SSP Directors include: Richard Bishop; Charles Derenne; Paul Lesti; Tim Nay; and Richard Risk.
  • Nay, the first-ever President of NAELA, is also the first-ever special needs attorney to serve on SSP's Board of Directors.

SSP's Educational Program

• Ethics
  • The SSP Code of Ethics (titled: "Standards of Professional Conduct for Settlement Planners") represents 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 and a reporter for the latest revision of the American Bar Association's Model Rules of Professional Conduct, assisted SSP with this ethics project.
    • Pierce introduced drafts of SSP's Code of Ethics at both the 2007 and 2008 SSP Annual Meetings.
  • Frank Johns, a leading special needs attorney and settlement planning ethicist, also advised SSP on its Code of Ethics. Johns, an SSP member, delivered SSP's featured dinner address. Johns' comments focused on ethical considerations for judges, plaintiff attorneys and trustees when selecting a structured settlement or settlement planning professional. Johns' 2008 SSP presentation also featured his proposed Request for Proposal (RFP) for settlement planners. Johns first introduced his ideas for a settlement planner RFP at the 2007 Advanced Elder Law Institute.
• Tax Panel
  • Organized by structured settlement attorney and moderator Richard Risk, SSP's Tax Panel has become the best tax discussion in the structured settlement industry.
  • In addition to Risk, SSP's 2008 tax panel participants included:
    
    • Jody J. Brewster, Tax Partner with Skadden Arps Slate Meagher & Flom;
    • Glenn F. Mackies - Tax Partner at Deloitte & Touche.
    • Michael J. Montemurro - Branch Chief at the Internal Revenue Service responsible for Income Tax and Accounting;
  • The SSP tax panel addressed several topics with single claimant 468B receiving the most attention. The structured settlement industry is waiting for written guidance from the United States Treasury Department as to whether IRC section 468B applies to single claimant cases. SSP's tax panel provided a detailed look at these single claimant 468B issues:
    • The language in IRC section 468B and existing regulations;
    • Technical and policy Issues created by the language;
    • Technical and policy arguments for and against single claimant 468B funds;
    • Impact of economic benefit on single claimant and multiple claimant 468B funds;
    • Defining single claimant and multiple claimants within IRC section 468B.
• Government Benefits -SSP devoted three presentations to government benefit issues.
  • Medicaid
    • David Lillesand, a national leader among social security and special needs trust attorneys, dropped a bombshell on the structured settlement industry at the SSP meeting.
    • Based upon Lillesand's discussions with Social Security officials including Ken Brown, Lillesand declared "inoperative" Nancy Veillon's January 31, 2006 letters to attorneys Roger Bernstein and Jay Sangerman representing the National Structured Settlement Trade Association (NSSTA).
    • NSSTA's letters from SSA are inoperative, according to Lillesand, because:
      • NSSTA's letters from SSA do not represent meaningful authority inside the SSA. POMS yes. Letters no.
      • NSSTA's letters predate (by one week), and fail to address or consider, the Deficit Reduction Act of 2005.
    • Lillesand said he expects the SSA to issue new POMS within the next few weeks.
    • However, the new POMS will not address structured settlements. Lillesand stated "The SSA Office of General Counsel will not approve structured settlement POMS at this time".
    • Lillesand and Ken Brown of the SSA will be featured speakers at the ASNP 2008 Annual Meeting March 27-29 in New Orleans.
    • Lillesand's 2008 SSP presentation focused on the "life or death" issue of Medicaid insurance for disabled persons - plus the challenges and risks for special needs attorneys who recommend annuities as funding and investment options.
    • Lillesand's SSP presentation, and his excellent supporting SSP paper, define serious immediate challenges for structured settlement and settlement planning professionals.
    • Lillesand's proposed solution:
      
      • A collaborative (multi-trade association) initiative focused on annuities and government benefits.
      • And specifically for Medicaid and structured settlements:
        
        • Convince SSA to draft POMS favorable to annuities and structured settlement annuities.
        • Incorporate the January 31, 2006 NSSTA letters into the POMS.
  • Medicare
    • SSP offered two presentations about Medicare.
      • One titled "Medicare Compliance - Medicare Set Asides (MSA) - Beware of the Medicare Super Lien" featured Paul K. Isaac and Benjamin M. Basista.
      • The other titled "Nuts and Bolts of Medicare Set Aside Arrangements" featured Douglas L. Shaw and Marge George-Ratz of Medivest.
    • For this author, neither SSP  Medicare presentation focused satisfactorily on annuity issues related to Medicare Set-Aside arrangements.
    • Request for future SSP and NSSTA presenters about Medicare Set-Aside arrangements:
      • Summarize in your presentations CMS Policy Memoranda addressing structured settlement annuities - especially the CMS October 15, 2004 Policy Memorandum;
      • Context the CMS structured settlement policy memoranda within Medicare legal authority generally;
      • Identify any Medicare legal authority that updates or supersedes the October 15, 2004 CMS Policy Memorandum;
      • Identify the issues, opportunities and risks for settlement planners and structured settlement professionals.
      • Recommend strategies to advance the use of annuities as part of developing government benefit legislation and regulations.
• Secondary Life and Annuity Markets
  • SSP's panel discussion titled "What Settlement Planners Need to Know about the Secondary Markets" expanded previous trade association discussions about structured settlement transfers (aka factoring).
  • This author moderated the SSP secondary market panel discussion which featured:
    • Rhonda Bentzen - a secondary market intermediary who is an honorary member of SSP and serves as Chairperson of SSP's Membership Committee.
    • Stephen R. Harris - a partner at Drinker Biddle & Reath who represents annuity providers;
    • Earl S. Nesbitt - the Executive Director of the National Association of Settlement Purchasers (NASP) who represents factoring companies.
  • The SSP secondary market discussion offered multiple informative perspectives on this controversial topic. It also included questions by SSP members to Nesbitt for NASP members focused upon:
    • Alleged predatory advertising by factoring companies;
    • Alleged improper use of the term "structured settlement" by factoring companies;
• Nesbitt promised to communicate SSP's concerns to NASP members.
• Legislation and Litigation Update
  • 2008 SSP President Greg Maxwell provided a summary of recent legal developments impacting settlement planners and structured settlement professionals.
  • 2007 SSP President Anthony Alfieri updated a tax analysis of sexual abuse cases.
• Case Studies - SSP offered three presentations about settlement planning advice and developments.
  • Professor Joseph Tombs introduced the "Tombs' Dissipation Index" as a settlement planning tool;
  • Jack Meligan and Michele Whitmore analyzed multiple settlement planning scenarios and recommended settlement planning techniques and tools.
  • Ward Zimmerman moderated a panel discussion about negotiation tactics featuring Charles Derenne, Michele Whitmore and Jack Meligan.
• Internet Marketing
  • Mathew Hayes provided insights and strategies to improve SSP member email marketing.
  • Hayes' SSP presentation paralleled Mark Wahlstrom's marketing presentation at the NSSTA 2008 Winter Regional Meeting;
  • In this author's opinion, Hayes and Wahlstrom should expand their Internet presentations to include emerging web 2.0 technologies and tools such as blogs, wikis and podcasts.
    

For prior S2KM coverage about:

• SSP - see this S2KM blog post.
• Web 2.0 - see this S2KM blog post
• Deficit Reduction Act of 2005 - see this S2KM blog post
• Medicare, etc. Extension Act of 2007 - see this S2KM blog post.
• Secondary Life and Annuity Markets - see this S2KM blog post.

Patrick Hindert, S2KM's blog author, is a member of SSP.

Addendum 03132008

S2KM's original post above failed to report two important events from the SSP meeting:

• David Synder - SSP honored Snyder as a founding member of the Society of Settlement Planners and historic leader among settlement planners and structured settlement professionals.  Snyder recently announced the sale of his former company Delta Settlements to Michael Upchurch.
• AAPD Leadership Gala dinner - The 2008 AAPD Gala was even better than advertised and raised more than $1 million.  Both SSP and NSSTA members attended. NSSTA was an event sponsor.

Who is Michael Upchurch?

Earlier this week, David and Dorothy Snyder announced that Michael A. Upchurch had purchased The Delta Group of Settlement Companies effective March 1, 2008.  As the new owner, Chairman and CEO of Delta Settlements, Michael Upchurch becomes a prominent stakeholder and participant in the structured settlement market. Upchurch agreed to provide S2KM with the following exclusive interview.  Upchurch responded in writing to S2KM's written questions:

What is your professional background?

After graduating with an MBA from Southern Methodist University, I began my professional career with IBM. At IBM, l specialized in the integration of advancing technologies into established business processes. This skill set appears to be increasingly important within the structured settlement and settlement planning industries.

In 2003, I entered the structured settlement industry with Ringler Associates. The following year, I decided to focus exclusively on helping injury victims and their attorneys. In 2004, I left Ringler and formed Upchurch Financial Services (UFS). During the past four years, UFS has enjoyed positive and productive relationships with Millennium Settlements and National Settlement Consultants. Throughout this learning process, I have attempted to distinguish myself as a leading structured settlement consultant. My focus has been on increasing the overall utility of the settlement and the efficiency of the settlement process.

Effective March 1, 2008, David Snyder and Dorothy Snyder have announced the sale of Delta Settlements to me. I am honored to be associated with Delta, Dave and Dorothy and excited about the future of Delta Settlements and structured settlements.

What are your interests outside of business?

My wife, Holly, is my college sweetheart from Emory University. We have three children Mick (10), Isabella (8) and William (5). Whatever personal time I have is devoted to my family.

What prompted you to enter the structured settlement industry?

My father, John J. Upchurch, introduced me to structured settlements. My father is a former judge who was instrumental in establishing the mediation legislation in the state of Florida. He retired from the bench and established a mediation practice that has become one of the most successful and respected mediation firms in the United States. As a mediator, my father helps resolve complex cases every day.

My father taught me the challenge and importance of meeting the medical needs of catastrophic injury victims - how to deal with ongoing medical expenses even before a case is settled. That planning challenge requires knowledge about Medicaid and Medicare. My father pointed out the disconnect that frequently occurs among the victims' legal and financial advisors, as well as the defendants, in addressing medical expenses.

My father recognized early the importance and opportunity for integrated analytics, financial services and care solutions. My father thought my business talents and interests would be a good match for the structured settlement and settlement planning industries.

What successes have you achieved in your structured settlement career to date?

I have been fortunate to have great teachers and mentors. I have learned from some of the most influential trial attorneys in the state of Florida. Specifically, E. Clay Parker has played a key role in my professional development. Clay taught me how to evaluate different insurance policies and understand the relationships between the different defendants and key insurance stakeholders. This type of analysis is extremely important when advising trial attorneys on settlement strategy. As a structured settlement professional who advises trial attorneys, I have the opportunity to communicate and practice Clay's lessons on a weekly basis.

Within the structured settlement industry, I have learned from some of the industry leaders. Scott Hoover taught me about the defense side of the business. Chris Diamantis taught me the challenges of building, managing and maintaining a multi-disciplined settlement firm. Most recently, Michael and Bill Goodman taught me about execution, organizational development and excellence. Michael and Bill have been exceptional friends and mentors.

My past successes are defined by my personal structured settlement production. Upchurch Financial and Delta Settlements will continue to be production leaders within the structured settlement industry. In addition to growing the structured settlement market, however, I want to improve the structured settlement industry. I want to do more for personal injury victims and their families.

What changes do you see occurring in the structured settlement market?

This is an exciting time to be part of the structured settlement industry. Many changes are creating new business opportunities. Obviously, the impact of government benefits is significant. Medicaid and Medicare legislation is re-defining structured settlements and settlement planning. Trusts and other banking products are important and those markets will continue to grow rapidly. The secondary markets are impacting all financial and estate planning - including structured settlements. I want Delta to become the most knowledgeable structured settlement company about the secondary markets. We need to help personal injury victims before and after the settlement. The Internet impacts everyone and every business. Delta will continue to be a technology leader within the structured settlement industry.

What opportunities do you see to grow the structured settlement market?

NSSTA published some market research last year that indicated we have hardly scratched the surface in developing the structured settlement market. Annuities are great products. We are fortunate to have excellent federal and state legislation for structured settlements. If we can develop the same type of rules for Medicaid and Medicare, structured settlements have a great future. It is important for all structured settlement stakeholders to understand the issues and to collaborate to develop the opportunities.

Why did you purchase Delta Settlements?

Delta Settlements is a fantastic company. Delta has wonderful owners, outstanding producers and employees. I am honored to be associated with Delta. Dave and Dorothy Snyder and my family share many of the same personal and business values. Delta has an important future. Delta is strategically positioned for success.

What role do you anticipate Delta will play in the structured settlement market?

Delta will continue to be a leader. We want to build upon the legacy and success that Delta has already achieved. We want to be the best structured settlement company - whatever positive performance metrics you apply.

How do you see the following developments impacting structured settlements?

• Government benefits - Medicaid and Medicare legislation have already revolutionized structured settlements. Any structured settlement leader who wants to remain a leader must offer knowledge, services and skill sets specific to government benefits.
• Secondary markets - The secondary markets are a legal and business reality. Unfortunately, our industry has not yet developed an adequate strategy to address the issues created by factoring. As an industry, we should be more proactive in developing best practices related to factoring. We should advise our clients before and following the settlement. Where factoring is appropriate, we should assist the original structured settlement recipient to obtain as much money as possible. Delta Settlements wants to play a leadership role in helping our industry develop a more enlightened, and more effective, factoring strategy. If done correctly, we can improve our sales growth as well as improve the secondary market.
• Internet technologies - As you might guess with my background at IBM, I am very focused on integrating technologies into the structured settlement market. Over the past three years, Upchurch Financial has built and tested a technology-based marketing and case management system. Over the coming year we will extend this platform to Delta and many of our clients. In addition, we anticipate using Delta's website as a platform to provide services and applications for our consultants and clients. Strategically, we expect our technology expertise to be an important differentiating advantage in the structured settlement marketplace.

For additional information about Delta Settlements, see S2KM's blog post titled "Michael Upchurch Purchases Delta Settlements".

Structured Settlement Transfers in Rhode Island

During the past three weeks, The Providence Journal has published two articles by Staff Writer Edward Fitzpatrick about structured settlement transfers (aka factoring) in Rhode Island.  The articles feature State Superior Court Judges who express strong negative opinions about factoring companies as well as concerns that existing laws and judicial procedures in Rhode Island may not adequately protect structured settlement recipients.

Under the Rhode Island structured settlement protection statute, enacted in 2001, state judges must determine whether a proposed transfer of the payment rights "is in the best interest of the payee taking into account the welfare and support of the payee's dependents." Judges must also ensure that persons attempting to sell structured settlement payment rights have been advised to speak with a lawyer.

According to The Providence Journal articles, these judicial concerns have already resulted in two changes for transfer transactions in Rhode Island:

• Superior Court Presiding Justice Joseph F. Rodgers, Jr. has announced new court procedures under which Rodgers will personally hear all structured settlement transfer applications to determine the number of transfers and to establish uniform procedures for filing and handling transfers; and
• Rhode Island Attorney General Patrick C. Lynch, responding to a request from Rodgers, has agreed to make available attorneys from the attorney general's consumer protection unit to advise individuals who are seeking to sell structured settlement payment rights to help ensure that people are making informed decisions.

Both of these changes appear to be positive steps for structured settlement recipients. They also highlight and reinforce some important features and safeguards included in most state structured settlement protection acts (SSPAs):

• The requirement of advanced court approval is a cornerstone of each of the SSPAs, as well as IRC section 5891;
• Since 2001, structured settlement transfers are not effective and are subject to a 40 percent excise tax unless approved in advance by a state court.
• Although the SSPAs are not uniform, most are derived from the Model Structured Settlement Protection Act (Model Act);
• Since 2000, the National Structured Settlement Trade Association (NSSTA) and the National Association of Settlement Purchasers (NASP) have jointly promoted the Model Act to state legislatures with considerable success including support from state attorneys general, state bar associations and the National Conference of Insurance Legislators (NCOIL);
• Under each of the SSPAs, factoring companies ("transferees") are required to make written disclosures to structured settlement recipients ("payees");
• These disclosures are designed to highlight the value of the payments to be transferred and to contrast the value with the amount of money the payee will actually receive;
• In most states, the transferee must disclose the "discounted present value" of the payments determined by using the "Applicable Federal Rate" most recently published by the Internal Revenue Service for purposes of valuing annuities;
• At least some aspects of the Model Act's procedural requirements are spelled out under each of the SSPAs;
• Most of the SSPAs include supplemental protections for payees and their dependents as well as for structured settlement obligors and annuity issuers;
• In most states, these supplemental protections include notice requirements for interested parties plus a finding by the court that payees have either received independent professional advice or have knowingly waived their right to receive it;
• Similar to Rhode Island, the standard for judicial approval in most states is the "best interest" test: is the proposed transfer in the best interest of the payee taking into account the welfare and support of the payee's dependents?
• As judges become more experienced and knowledgeable about structured settlement transfers, some states can be expected to set additional requirements under their SSPAs: for example, New Pennsylvania Rule 229.2, a state rule of civil procedure promulgated by the Pennsylvania Supreme Court in 2007.
• According to R. Stanton Wettick, Jr., an Allegheny County Judge who serves as Chairman of the Pennsylvania Civil Procedural Rules Committee: "New Rule 229.2 is intended to provide the additional information necessary for a trial court to determine whether a petition to transfer structured settlement payment rights meets the best interest standard".
• In addition, some states can be expected to propose amendments to their structured settlement protection statutes: for example, West Virginia House Bill 4380, currently under consideration by the West Virginia legislature.

The February 3, 2008 Providence Journal article (headlined "Judge Warns of Financial 'Vultures'") focuses on a single proposed factoring transaction.  The article highlights harsh comments about factoring companies from the reviewing Superior Court Judge Netti C. Vogel and other Rhode Island superior court judges. Their primary complaints about factoring companies include: excessive late night advertising and high discount rates; plus the lack of independent advice for payees. 

The simplicity of the immediate solution for these judicial concerns in Rhode Island is noteworthy:

• Superior Court Judge Vogel determined the proposed transfer in the McNeil case was not in McNeil's "best interest" and therefore denied the transfer.  Under the SSPAs, judges are the gatekeepers. They are assigned the responsibility for protecting payees under state structured settlement protection statutes.   
• With support from Rhode Island Attorney General Lynch, Presiding Superior Court Judge Rodgers has addressed three important issues:
  • Tracking the number of transfer requests;
  • Creating uniform procedures for transfer applications;
  • Making available state consumer protection attorneys "to see how the law is being applied, whether the law needs to change, and to provide people with some measure of representation."

Additional S2KM recommendations:

• Both the primary and secondary structured settlement markets need to improve their educational marketing for judges and other structured settlement stakeholders;
• Primary market professionals who want to improve the secondary market should change their strategy. Instead of merely attacking and complaining about factoring companies, they should: 
  
  • Educate themselves about the secondary markets;   
    
  • Assume a more proactive advisory role about settlement transfers;
  • Re-learn how to sell structured settlements and how to grow the structured settlement market in a changing legal environment.   
    
• All structured settlement participants should encourage the development of "best practices" for secondary market transactions including competitive bidding for all proposed transfers.

For additional information about structured settlement transfers, see:

• Chapter 16 of "Structured Settlements and Periodic Payment Judgments";
• Online resources provided in this S2KM blog post.
  

Addendum (posted February 20, 2008) - More descriptive recommendations for two settlement transfer resources:

• ABA Article – Co-authored by Daniel Hindert and Craig Ulman, the 2005 ABA article titled “Tranfers of Structure Settlement Payments: What Judges Should Know About Structured Settlement Protection Acts” is the definitive analysis for judges as well as for professionals who want to understand the role of judges in settlement transfers.
• “Structured Settlements and Periodic Payment Judgments” – Originally published in 1986, this hardcopy textbook is co-authored by Daniel Hindert, Joseph Dehner and Patrick Hindert.  Release 39 originated, and subsequent releases have updated, a new chapter titled “Transfers of Structured Settlement Payment Rights”.

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.

The King of Torts Addresses Structured Settlements

The keynote address by esteemed trial attorney Joseph Jamail (aka "The King of Torts") was one of the highlights of the NSSTA 2008 Winter Meeting.

Jamail and Jay Harvey, the immediate past-president of the Texas Trial Lawyers Association (TTLA), who also spoke at the NSSTA meeting in Austin, represent the most recent plaintiff attorneys to appear at NSSTA meetings to endorse structured settlements.

Among other endorsements from plaintiff attorneys, the King of Torts' structured settlement proclamations now appear on NSSTA's website :

• "Structured settlements provide the ultimate safeguard for settlement funds."
• "Structured settlements help lawyers protect the needy from the greedy."

The message and choreography of NSSTA's plaintiff attorney appearances and endorsements are strikingly similar. Escorted and introduced by, or featured with, their NSSTA-member structured settlement advisors (Robin Young for Joe Jamail), these trial attorneys announce their support for structured settlements and make positive, uplifting comments about the structured settlement industry. The NSSTA audience applauds - with enthusiastic standing ovations for celebrity attorneys such as the King of Torts. NSSTA allocates little or no time for questions. No controversial issues are addressed. Everyone walks away happy. NSSTA posts the positive sound bites on its website and declares a public relations victory.

NSSTA's continuing strategy to feature plaintiff attorney endorsements is understandable in the context of results from NSSTA's recent marketing study titled "A Study of the Structured Settlement Process Conducted on behalf of the National Structured Settlement Trade Association". This survey "of attorneys involved in structured settlements and structured settlement recipients" was conducted for NSSTA during 2006 and 2007 by the University of Georgia Research Center. The purpose of the study, as reported by Joseph M. Costello at the NSSTA 2007 Annual Meeting, was "to better understand the perceptions these stakeholders have of structured settlements".

Some of NSSTA's announced findings based upon research including telephone interviews with 43 plaintiff attorneys:

• 95 percent of the plaintiff attorneys surveyed said they were proponents of structured settlements;
• 75 percent said they would recommend a structured settlement in an appropriate case;
• 70 percent said they retain a structured settlement consultant;
• And yet, according to NSSTA:
  • Only 7% of personal injury settlements between $75,000 to $100,000 involve structured settlements; and only 30% of personal injury settlements over $1 million;
  • Plaintiff attorneys prefer (and presumably recommend) the following financial planning resources for their clients:
    • Trust company/department - 30%
    • Financial planner - 28%
    • Structured settlement consultant - 23%
    • No response - 19%

Among NSSTA's "lessons learned" from the survey: plaintiff attorneys are a critical point of contact for structured settlement education and marketing.

Based upon these findings, NSSTA's public relations strategy with plaintiff attorneys makes a lot of sense as a critical priority for the growth of structured settlements. Endorsements by prominent plaintiff attorneys (including especially "The King of Torts") are positive and valuable for the structured settlement industry.

To grow the structured settlement market, however, current industry stakeholders (including NSSTA, SSP, NASP and their members) need to engage attorneys in a more well-defined educational conversation about structured settlements. Targeted attorneys should include judges, mediators, special needs attorneys, trustees, guardians, defense attorneys, legislators and regulators - as well as plaintiff trial attorneys.

For plaintiff attorneys, this recommended educational conversation should address priorities S2KM previously identified in a blog post criticizing the lack of structured settlement education at the AAJ 2007 Annual Convention.

On a positive note for AAJ and structured settlements, the December 2007 issue of "Trial" magazine (the "Journal of the American Association for Justice") provides a small, but timely and related, educational step forward. The issue is titled "Find Your Way to Settlement - Smart Strategies for Your Next Case". Among many settlement articles and structured settlement advertisements, one article addresses structured settlements - Dov Apel's article: "Settling the Cerebral Palsy Case". In his article, Apel summarizes some (but far from all) of the most important structured settlement issues for plaintiff attorneys including: protecting the confidentiality of injury victims' personal medical information; and 468B qualified settlement funds.

In addition to Joseph Jamail's valuable endorsement and public relations sound bites (plus considerable annuity premium), what is the structured settlement legacy of The King of Torts? This author hopes Joseph Jamail's most important and lasting structured settlement contribution will result from his advice in Austin:

"Advocacy should be part of the practice and training of structured settlement professionals".

S2KM endorses the King of Torts' advice and further encourages:

• Continued structured settlement research and advocacy focused on injured and disabled persons;
• Continued education about structured settlement public policy and laws - including how to improve the laws and related legal processes;
• Respectful and open discussion about issues related to such research, advocacy, education and improvement.

For additional information about the role and responsibility of plaintiff attorneys in structured settlements, see Chapter 5 of "Structured Settlements and Periodic Payment Judgments".

Addendum 01282008

Since writing and publishing this post, the author has received comments from NSSTA representatives pointing out some of NSSTA's efforts and successes in engaging plaintiff attorneys in educational dialogue about structured settlements - including what needs to improve and change.  S2KM acknowledges NSSTA's efforts to engage some of its plaintiff attorney speakers in meaningful educational dialogue. President Henry Strong, in particular, should be recognized and thanked for his questions to plaintiff attorney Webb Brennan at the NSSTA 2007 Fall Meeting.  Although this author did not attend that presentation, Strong's questions apparently resulted in valuable and frank discussion about structured settlements including problems.  That type of discussion represents a positive step in refocusing and growing the structured settlement market and should be encouraged and continued. S2KM apologizes for missing the Webb Brennan discussion and for failing to sufficiently credit NSSTA in the above post for its efforts to develop meaningful educational dialogue with plaintiff attorneys.

NSSTA 2008 Winter Regional Meeting

The National Structured Settlement Trade Association (NSSTA) hosted its 2008 Winter Regional Meeting January 16-18 at the Barton Creek Resort in the Texas hill country west of Austin. Approximately 150 persons attended.

NSSTA's educational program and featured speakers highlighted some of the strategic changes impacting the structured settlement industry as well as the challenges facing NSSTA as a trade association.

Prominent NSSTA themes in Austin:

• Trial Attorneys - Historically defense-oriented, NSSTA now features prominent plaintiff attorneys at every meeting. "King of Torts" Joe Jamail was the keynote speaker in Austin. Jay Harvey, immediate past President of the Texas Trial Lawyers Association (TTLA), also spoke in Austin.
• Disabled Persons and Associations - NSSTA's new structured settlement marketing brochure features Megan O'Neil, a structured settlement recipient who works with the World Institute on Disability (WID). O'Neil was a featured speaker at NSSTA's 2007 Annual Meeting. NSSTA will be a primary sponsor of the American Association of Persons with Disabilities (AAPD) Gala Dinner March 5, 2008 in Washington, D.C. Andrew Imparato, AAPD's President, was a featured speaker at the  NSSTA 2007 Fall Regional Meeting. Imparato and AAPD promote and aspire to "empower" disabled persons which include structured settlement recipients.
• Government Benefits - NSSTA recently formed a government benefits committee which is currently co-chaired by Doug Brand and John McCulloch. In Austin, special needs attorney Pi-Yi Mayo spoke about special needs trusts and the Deficit Reduction Act of 2005 while special needs attorneys Robert Sagrillo and Robert Lewis participated on a panel that addressed the Medicare secondary payer rule and the Medicare, Medicaid and SCHIP Extension Act of 2007.
• Legal Documentation - Mike Miller and Toni Warbington repeated a presentation they made at NSSTA's 2007 Fall Meeting about the legal and practical issues associated with structured settlement legal documentation. Their presentation emphasized some of the potential legal exposures as well as recent case law.
• Legislative and Regulatory Developments - Eric Vaughn, NSSTA's lobbyist, summarized current Federal legislative developments and outlined NSSTA's political strategy including regulatory priorities and potential alliances with other trade associations. Craig Ulman, NSSTA Legal Counsel, provided a status report on Executive Life of New York.
• Marketing - NSSTA member Mark Wahlstrom, owner and host of The Settlement Channel, introduced a new email-based marketing strategy (titled "An Army of One") developed by NSSTA's Marketing Committee. As a reminder of why annuities are financially secure, Wayne Mehlman of the American Council of Life Insurers (ACLI) spoke about the solvency requirements and regulatory oversight of the Life Insurance Industry.
• Professionalism - Several NSSTA presentations addressed issues related to this topic. Lynn Courier provided an update on the Broker Relationship Initiative. Bo Short spoke about leadership. NSSTA members Mike Kelly, Teri Triplett and Will Shapiro discussed their personal strategies for maintaining and advancing their professionalism.

NSSTA's Challenges

• Leadership - With few exceptions, NSSTA's leadership currently consists of white males age 50 and over whose professional careers have been restricted to life insurance, casualty claims and traditional structured settlements. Where is the next generation of structured settlement leaders? Why aren't these future leaders attending and speaking at NSSTA meetings? What new skill sets, knowledge, experience and ideas will this new generation of leaders bring to the structured settlement industry? How will the current generation of structured settlement leaders capture and transfer their collective knowledge? How relevant and valuable is traditional structured settlement knowledge in a transitioning market with new laws and business models?
• All Things to All People - In Austin, NSSTA proposed to "represent all viewpoints and interests on all Federal and state legislative and regulatory issues" related to structured settlements. Is that possible - or even desirable? Can NSSTA successfully reconcile the competing interests of companies like AIG and associations like AAPD, WID, NAELA, AAJ, SSP, and their members, clients and constituents, on issues like single claimant 468B? Can NSSTA reconcile a "claim management" (defense controlled) structured settlement model with a "settlement planning" (plaintiff controlled) structured settlement model?
• Secondary Markets - How long, how effectively and how beneficially can NSSTA and its current leadership ignore (from an educational and professional responsibility perspective) the development of the secondary life and annuity markets? What impact will NSSTA's current strategy have upon the long-term growth of the primary structured settlement market? Have the factoring companies really stolen the "structured settlement" brand - or, alternatively, have NSSTA and its members abandoned and ignored their customers? Why not openly discuss settlement transfers at NSSTA meetings? Why not define what constitutes "best professional practices" and re-learn how to sell structured settlements in the new legal and business environment?
• Government Benefits - Both the Deficit Reduction Act of 2005 and the Medicare, Medicaid and SCHIP Extension Act of 2007 are likely to have a significant impact on the future of structured settlements. Can NSSTA successfully lobby to preserve and expand the use of structured settlements to fund special needs trusts and Medicare set-aside arrangements? Which traditional structured settlement annuity features will survive? What new knowledge, skill sets, services, resources and business models are necessary for current structured settlement participants to survive and remain successful?  Is NSSTA being truthful and/or credible when they tell Congress "structured settlements enable injured victims to live ...free of reliance on government assistance"?
  
• Unauthorized Practice of Law - The traditional claim management structured settlement model encourages (and in some cases requires) intermediaries to engage in the unauthorized practice of law - specifically, the "drafting of legal documents by non-lawyers". Structured settlement legal issues, including the drafting of legal documents, become even more complex in the settlement planning model which must regularly consider issues related to Medicare, Medicaid, special needs trusts, Medicare set-aside arrangements and the secondary life and annuity markets. The most recent NSSTA Regional Meeting presentations of "All Things Considered" have addressed structured settlement legal documentation.  These educational programs represent an important and valuable start in understanding what constitutes the authorized and unauthorized practice of structured settlement law. Hopefully, NSSTA and NSSTA's Legal Committee will continue this education.
• Internet Business Transition - Can NSSTA and its members successfully transition their business to the Internet? Does NSSTA have a strategy to accomplish this objective?  How can NSSTA use web 2.0 technologies and tools to improve its education and business processes?  Does Smith Bucklin, NSSTA's new association management company, possess the necessary skill sets and experience to help NSSTA and its members with this transition?  What is the next step?

Congratulations to NSSTA, especially President Henry Strong and Educational Committee Chairman William Tocchi, for a valuable 2008 Fall Regional Meeting.  The NSSTA 2008 Annual Meeting will take place April 16-19 in La Jolla, California.

For additional S2KM blog posts about NSSTA, see NSSTA 2007 Fall Regional Meeting and incorporated links.

Structured Settlements in 2007

Happy holidays from S2KM Limited. Thank you for reading S2KM's blog during 2007. This final 2007 S2KM blog post highlights some of this year's important structured settlement developments and issues.  For additional background information, see:

• S2KM Mid-2007 Structured Settlement Report
• Structured Settlements in 2006

Industry Growth and Development

• Industry insiders are predicting final 2007 structured settlement annuity sales (qualified and non-qualified) will match or slightly exceed total 2006 production of $6.1 billion.
• Membership growth in 2007 for the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP), the primary structured settlement trade associations, also appears flat. Neither of these associations has articulated a strategy for growing the structured settlement industry.
• NSSTA replaced long-time Executive Director Randy Dyer in 2007 with association management company Smith Bucklin. NSSTA has announced it will continue a business relationship with Dyer. However, NSSTA has not yet announced Dyer's new role or responsibilities.
• Annuity provider Mass Mutual exited the structured settlement industry in 2007 joining other recent industry departures such as Genworth, Travelers and Aegon. No new annuity providers entered the structured settlement market in 2007.
• The secondary life and annuity markets continued to be controversial within the structured settlement industry in 2007. Semetra resigned from NSSTA in 2007 based in part on their disagreement with NSSTA's Bylaw Amendments related to structured settlement factoring. Neither NSSTA nor SSP allows factoring companies to join their associations.
• Although the secondary structured settlement market continues to grow in 2007, the overall pace of its growth appears to have leveled off for many, but not all, participants.
• Preliminary strategic recognition and some consolidation continued during 2007 within these overlapping markets:
  
  • Structured settlements;
  • Personal injury settlement planning;
  • Litigation funding;
  • Special needs planning;
  • Secondary insurance and annuity markets.

Legislation and Regulations    

• New York Governor Eliot Spitzer announced a $750 million "agreement in principle" for Executive Life of New York in 2007. The agreement is designed to continue paying all ELNY annuitants 100% of their benefits. The announcement represents a public relations victory for the structured settlement industry. Many questions about the agreement, however, remain unanswered. For example: the amount of contributions from indemnity (casualty) insurers who own or have assigned structured settlement annuities.
• State Medicaid Agencies are continuing to adopt annuity provisions from the Deficit Reduction Act into their state Medicaid Plans. Interpretations and applications of these new annuity rules remain inconsistent creating process bottlenecks and denials. The impact of the secondary annuity markets on Medicaid qualification remains unclear in 2007. The Social Security Administration (SSA) announced in 2007 that it will draft POMS for annuities in 2008. For additional information about the Deficit Reduction Act, see:
  • Release 41 of "Structured Settlements and Periodic Payment Judgments";
  • Inconvenient Questions; and
  • NAELA Annuity Policy White Paper.
• 48 states have enacted structured settlement protection statutes. Overall, these statutes appear to be accomplishing their purposes and functioning with increasing certainty and efficiency. Pennsylvania's judiciary adopted Pennsyvania Rule 229.2 in 2007 tightening some rules and processes within that state's protection statute.
• The U.S. Treasury has not ruled on single claimant 468B funds in 2007.

Case Law - some of the significant 2007 cases:    

• DOJ Sovereign Immunity Defense - see "Drinker Biddle's Structured Settlement Update" for analysis of two DOJ sovereign immunity cases: Transamerica v. Settlement Capital and Continental Casualty v. United States.
• Primary Market Disclosure Case - "Pullman & Comley's Structured Settlement Insights" provided the first Internet analysis of Joseph v. The City of New York which Pullman & Comley characterizes as ""the first court opinion to analyze the requirements in structured settlement protection acts that disclosures be made when negotiating a structured settlement."
• Rapid Settlements cases challenging secondary market laws and business practices including:
  
  • Rapid v. Symetra; and
  • CNA v. Rapid Settlements

• Murphy v. IRS - Eleven months after ruling that taxing damage awards for nonphysical compensatory damages violated the United States Constitution, the United States Court of Appeals for the District of Columbia Circuit has reversed itself in Murphy v. IRS by holding that the United States can tax awards for emotional distress and injury to reputation.
• Macomber v. Travelers - the parties agreed to a confidential settlement in 2007.  It is unclear what legal precedents, if any, the earlier Connecticut State Supreme Court rulings in this case will hold for current or future structured settlement litigation.
  

Educational Programs and Resources

• Both NSSTA and SSP offered certification programs in 2007.    
• S2KM attended educational programs for the following trade associations in 2007 and wrote blog posts (see links) evaluating their structured settlement educational programs:          
  
  • National Structured Settlement Trade Association (NSSTA).          
  • Society of Settlement Planners (SSP)          
  • American Association for Justice (AAJ)          
  • National Academy of Elder Law Attorneys (NAELA)          
  • Academy of Special Needs Planners (ASNP)          
  • National Association of Settlement Purchasers (NASP)    
• The structured settlement industry continued to offer various additional educational resources in 2007:          
  
  • Blogs, podcasts, wikis and concept maps;          
    
  • Digital and hardcopy newsletters;          
    
  • Hardcopy legal textbooks.

Business Standards and Practices

• 2007 developments
  
  • Broker Relations Initiative - status report provided in this S2KM blog post.
  • SSP Ethics Project - status report provided in this S2KM blog post.
• 2007 issues:
  
  • Structured settlement public policy
  • Claim management vs. settlement planning
  • Consumer and investor protection including:
    
    • Compensation disclosure;
    • Informed consent;
    • Single claimant 468B funds;
    • Unfair claim practice legislation;
    • Fiduciary responsibilities for professional advisors.

• Additional compensation issues:
  • Rebating
  • Affinity programs
  • Secondary market transactions
• Unauthorized practice of law.

SSPA Non-Contravention Standards

State courts play an important "gatekeeper" role for structured settlement factoring transactions. IRC section 5891 imposes a 40 percent federal excise tax if a factoring transaction does not receive required state court approval. State structured settlement protection acts (SSPAs) make factoring transactions ineffective unless such transfers receive court approval.

When evaluating a proposed transfer, state courts must address these issues:

• Payee's best interest - taking into account the welfare of the payee's dependents;
• Compliance with SSPA requirements - including notice, disclosure and independent professional advice; and
• Non-contravention of applicable laws - including other statutes and court orders.

In the lead article of its Fall 2007 edition of "Structured Settlement Insights", Pullman & Comley summarizes growing judicial authority for what constitutes non-contravention of a statute or order - as well as the related issue of what information is required for a court to make a non-contravention finding.