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The National Association of Settlement Purchasers (NASP) hosted its 2007 Annual Meeting October 18-19 at the Grand Hyatt in Washington, D.C. This author was privileged to participate.
S2KM's reporting about NASP's 2007 Annual Meeting begins with this blog post and this wiki which summarizes NASP's 2007 Educational Program - a learning conversation about "The Structured Settlement Market".
For prior S2KM commentary about NASP, see this S2KM blog post.
The Society of Settlement Planners (SSP), hosted its 2007 Fall Meeting September 8 at the Camelback Inn in Scottsdale AZ. SSP is a national nonprofit educational and public policy association of professional structured settlement producers and other professionals who assist injured claimants in the settlement process.
During the past three years, SSP has offered outstanding structured settlement and settlement planning educational programs. Earlier this year, SSP announced the creation of a new Registered Settlement Planner (RSP) professional designation. The first RSP program is scheduled to begin today in affiliation with Texas Tech University.
For summaries of prior SSP educational programs, see these earlier S2KM blog posts:
Highlights of SSP's 2007 Fall meeting included educational presentations by SSP members for the following topics:
For an association that purports to be a protector of claimants rights, it was surprising SSP did not address the following important settlement planning issues as part of its Fall 2007 Meeting:
In addition to SSP's educational presentations in Scottsdale, SSP's President Anthony Alfieri chaired a discussion about SSP's organizational and promotional issues. Here are some related and unsollicited S2KM recommendations for SSP:
Drinker Biddle's June 2007 Structured Settlement Update (posted on their website) provides concise legal summaries for two current industry developments:
Executive Life of New York (ELNY)
Drinker Biddle's update contains this bombshell about ELNY: "Over the past several weeks, the New York State Insurance Department has notified certain property and casualty insurance companies that own structured settlement annuities issued by ELNY and certain guarantee associations that there will be a shortfall in ongoing payments from annuities issued by ELNY. Although it is unclear how many annuities remain in force, we understand that the total shortfall may amount to as much as $600 million."
Structured settlement industry insiders, who requested anonymity, are divided in their reaction to this news. Some were shocked. One industry leader stated: " We all thought ELNY had a strong financial position." Other industry leaders downplayed the importance of the announcement. From a claimant perspective, they emphasized the strength of the state guarantee funds and the fact that the notice is precautionary. According to one source, no immediate emergency exists. NSSTA, a structured settlement trade association, monitors Executive Life and continues to report on Executive Life to its members (including this blog author). NSSTA's most recent Executive Life update (January 8, 2007), however, makes no mention of any ELNY shortfall.
The Drinker Biddle update estimates that, at the time of its rehabilitation in 1992, ELNY had issued as many as 8,500 structured settlement annuities.
Although all 50 states now have insurance guarantee funds, the Drinker Biddle update identifies two significant issues potentially applicable to ELNY:
Hopefully, NSSTA and its legal committee will address these ELNY developments and provide additional details about ELNY's status.
For additional historical analysis about Executive Life, see "Structured Settlements and Periodic Payment Judgments":
Transamerica v. Settlement Capital
Drinker Biddle's June 2007 Structured Settlement Update also features a legal summary of Transamerica v. Settlement Capital, a recent decision from the U.S. Court of Appeals for the Sixth Circuit that reconfirms sovereign immunity as a permissible defense for the United States government in objecting to proposed structured settlement transfers. This case is one of a series of cases where the United States Department of Justice Civil Division Tort Branch (DOJ) has asserted sovereign immunity (after the transfer has been approved by a state court, without making an appearance and despite timely notice) to void a transfer of payment rights approved by a state court pursuant to the state's structured settlement protection statute - in this case Florida.
Other recent cases supporting sovereign immunity to void state court ordered transfers of structured settlement payment rights include:
Although not referenced in the Drinker Biddle Structured Settlement Update, a recent, related sovereign immunity case, Continental Casualty v. United States, is significantly more important strategically for structured settlements than Transamerica v. Settlement Capital. In Continental Casualty, decided by U.S. District Court in Northern California in 2006, the plaintiff challenged the DOJ's structured settlement policy. The plaintiff sought an order:
Although the terms of a settlement had been memorialized in Continental Casualty in a letter from the DOJ to the plaintiffs' counsel, the letter did not address a structured settlement. Plaintiffs alleged that the DOJ understood that the agreement was conditioned upon a structured settlement to be approved by CMS. The DOJ argued it never agreed to a structured settlement.
In addition to seeking a court order for a qualified settlement trust (which the court refused to create), the plaintiffs challenged the following DOJ structured settlement requirements:
In denying the plaintiff's joint petitions, the District Court stated: "The court is not in a position to make policy decisions regarding DOJ settlement practices and finds no illegality in any of the requirements. To the extent these practices are contrary to sound or appropriate public policy, it rests with the executive or legislative branch to regulate."
Does the DOJ's existing structured settlement program support or violate public policy? This question represents a fundemental political and business issue for all structured settlement stakeholders. Congress is currently investigating the DOJ and should include this issue within the scope of its ongoing investigation. All structured settlement stakeholders should separately address and highlight this issue as part of a broader industry discussion of business standards and practices.
The Academy of Special Needs Planners (ASNP) hosted its first annual conference March 23-24, 2007 at the Marriott Evergreen Conference Resort in Stone Mountain, Georgia. Open to non-ASNP members, the conference attracted more than 100 participants (mostly disability attorneys) and showcased ASNP's knowledge leaders among the 15 speakers.
This report looks at the ASNP conference specifically from a structured settlement perspective.
Conclusions and recommendations:
What follows is S2KM's summary of the 2007 ASNP conference presentations - highlighting related structured settlement issues which S2KM encourages ASNP members to address in future ASNP conferences, legal research and legal commentary.
Vincent Russo opened the program with an impressive overview of the "Tax Consequences of Trusts in a Special Needs Practice". S2KM would like to see Russo (and other special needs tax experts) incorporate and address these IRC sections in their SNT analysis: 104(a); 130; 468B; and 5891 - including statutory definitions and penalties. What recommendations can ASNP offer for resolving apparent conflicts among Medicaid, Medicare and tax laws related to structured settlements?
Diedre Wachbrit and Ira Wiesner highlighted special needs advisors and optional protection clauses In their presentation titled "Advanced Drafting Issues: Care Committees, Trust Protectors and Distribution Provisions". S2KM would like to see Wachbrit and Wiesner address advanced drafting issues for SNTs funded with structured settlement annuities. These issues include assignment language; beneficiary designations; and annuity payment rights transfer strategies.
Frank Johns and Patricia Dudek spoke about "Ethics and Administration of Special Needs Trusts, Pooled and Independent". Structured settlements and settlement transfers create many ethical and administration issues for SNTs. The ethics issues include: conflicts of interest; fee arrangements; requirements for disclosure, confidentiality and informed consent; scope of representation; and allocation of authority. The administration issues specific to structured settlements in SNTs include settlement transfer issues. Johns is already a recognized and published knowledge leader for structured settlement ethical issues. S2KM hopes Johns, Dudek and ASNP will continue to focus on structured settlement ethical and administration issues.
Susan Hartley, Martha Ford and William Browning spoke about pooled trusts. Ford's presentation was valuable in understanding the original legislative intent and process in 1993 that created statutory safe harbors for (d)(4)(A) and (C) trusts. Hartley addressed pooled trust management and administrative issues. Browning was simultaneously amusing and insightful while defending and promoting the growing use of pooled trusts. S2KM questions: what role should structured settlement annuities play in pooled trusts? What are the advantages and disadvantages of structured settlement annuities compared with other funding options for pooled trusts?
Michael Gilfix, David Lillesand and Ken Brown examined current SSI issues. Responding to questions following his presentation, Brown stated SSA will issue new POMS in 2007 and the POMS will address structured settlements. Issues S2KM would like these experts to address:
Carrie Frank offered a plaintiff attorney perspective for special needs attorneys. Her presentation referenced structured settlements and highlighted qualified settlement funds. S2KM encourages ASNP to continue examining the issues Frank identified:
John Campbell presented a detailed look at Medicare and Medicaid liens as well as Medicare Set-Aside trusts. Campbell referenced structured settlements and highlighted the growing interaction of Medicare and Medicaid (Medicare Set-aside Special Needs Trusts). S2KM welcomes and encourages Campbell's continuing commentary about structured settlements - especially the conflicting Medicare and Medicaid rules for structured settlements.
The ASNP sponsors and exhibitors greatly enhanced the ASNP conference.
Congratulations to Harry Margolis and other ASNP founders and members. Stay focused on structured settlement legal issues. The structured settlement industry needs your legal expertise to help understand and resolve many of the "Inconvenient Questions" it now faces.
S2KM's coverage of the National Structured Settlement Trade Association (NSSTA) 2007 Winter Regional Meeting includes two prior blog posts:
NSSTA-1 summarizes progress reports from two NSSTA-sponsored initiatives and highlights NSSTA's new strategic priority to recapture the structured settlement brand.
NSSTA-2 summarizes five experts who spoke about factoring at the NSSTA 2007 Winter Regional Meeting.
This S2KM blog post addresses the remaining presentations from NSSTA's educational programs:
All Things Considered (ATC) - Formerly known as "The Tax Posse", this presentation features topics and presenters selected by NSSTA's Legal Committee. In addition to two factoring presentations (see NSSTA-2), the ATC panel addressed three issues in Santa Fe:
Supporting Casualty Claims - Ismael Acevedo, Vice President of AIG's Structured Settlement Division delivered an educational primer for structured settlement consultants who represent (or want to represent) casualty claim departments. Acevedo's presentation summarized the results of an AIG survey of 1000 claims adjustors. In addition, Acevedo announced a new AIG initiative to make its structured settlement program "more transparent". Acevedo did not specify whether or how this new AIG initiative will apply to such issues as factoring and/or to informed consent by injured claimants for structured settlement compensation arrangements.
The Non-Qualified Market - Speaker Dennis Drexler recommended that structured settlement consultants should consider the market for non-qualified annuities used to fund installment sales of businesses, professional practices or real or personal property. The benefits for a purchaser, according to Drexler, can include: deferred payment of capital gains, the ability to customize a payment stream, and the improved credit worthiness of the obligor.
Settlement Trust Workshop - For the second consecutive conference, NSSTA devoted half-a-day of its educational program to settlement trusts. Three trust experts, David Cover, Brad Cantwell and Jay Sangerman analyzed the relationship of annuities and trusts in the context of three case studies.
The National Structured Settlement Trade Association (NSSTA) hosted its 2006 Fall Regional Meeting last week at the Breakers Resort in Palm Beach, Florida. Approximately 175 members attended the program which NSSTA titled: "Who Does Your Client Trust?". For additional information and articles about the program, see NSSTA’s website.
Program Highlights:
As organizational news, NSSTA announced the appointment by the NSSTA Board of Directors of three new directors (Martha Hunt; Jim Logan; and Theresa Triplett) to replace three directors (Gary Burke; John McCulloch; and Andy McLean) who have resigned from the Board since NSSTA's 2006 Annual Meeting.
Congratulations to NSSTA and its educational committee for another outstanding program. The NSSTA Winter Regional meeting will be held January 24-26, 2007 in Sante Fe, NM. For additional details see NSSTA's website.
For a complete listing of all S2KM blog posts about NSSTA, click here.
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Selecting a trustee for any of the several types of personal injury settlement trusts (settlement trusts) requires consideration of several issues. Unlike most trusts managed by bank-affiliated trust departments, settlement trusts generally involve declining balances as opposed to wealth accumulation or transfer. Settlement trusts also generally require frequent distributions and customer service requests as well as specialized knowledge of federal and state disability laws. Most traditional bank-affiliated trust departments lack both operating systems and administrative procedures designed for declining balance trusts and the specialized knowledge required for settlement trusts. Many settlement trusts do not meet the minimum size requirements of bank-affiliated trust departments whose relatively high overhead costs and personnel turnover also make them unsuitable trustees for settlement trusts.
Only a limited number of banks and trust companies specialize in settlement trusts. As one result, the trustees for many settlement trusts are individual trustees including attorneys acting as trustees. As another result, more non-banking companies and individuals are offering to partner with settlement trustees by providing specialized administrative services or by serving as settlement trust protectors. A settlement trust protector is a named party in a settlement trust document who serves an administrative function separate from the named trustee. Purposes for appointing settlement trust protectors might include: preventing disputes or conflicts of interest; providing legal, regulatory, investment, and/or tax expertise; providing personal familiarity with the disabled beneficiary’s condition and needs; or selecting and replacing the trustee.
In comparing alternative potential trustees for a settlement trust, some of the most important considerations include:
1. Experience and expertise – including trust and investment management; declining balance trusts; governmental benefits, as well as laws and regulations applicable to disabled individuals;
2. Conflicts of interest – whether the trustee: manages accounts individually or pools assets; invests in proprietary or non-proprietary funds; lends or pledges trust assets as collateral; and/or separates account supervision from investment services.
3. Availability – who will be responsible for account distributions and customer service requests and what is their availability and knowledge.
4. Minimum required deposit – Many bank-affiliated trust departments require a minimum deposit of $500,000 or more whereas trust companies that specialize in settlement trusts may accept deposits as low as $30,000.
5. Trust fees and expenses – Trust fees can differ substantially in amount and generally include the following categories:
i. One time fees – These fees generally include an administrative fee; a trust installation fee; and a trust termination fee;
ii. Annual fees – These fees generally include an annual trustee fee (based upon a percentage of managed assets) or a minimum annual trustee fee, whichever is greater.
iii. Trust services – Trustees may or may not charge additional fees for: annual trust reports; tax returns and reports; direct deposits; check writing; and wire fund transfers.
iv. Extraordinary fees – Trustees generally charge additional fees for “extraordinary” services such as reviewing trust documents and medical payment administration.
v. Investment commissions – whether paid indirectly through the trustee or directly to an investment banker or broker, trusts incur and pay commissions on investments;
vi. Taxes – Although a trust is a legal entity and has its own tax identification number, most settlement trusts are grantor trusts which require the beneficiary to pay resulting income and capital gains taxes.
The following additional issues should be considered when comparing a chartered bank or trust company (corporate trustee) with an individual trustee:
6. Court supervision – No court supervision is generally required with a corporate trustee whereas individual trustees generally require continuous court supervision;
7. Regulatory oversight – Corporate trustees are supervised by Federal and/or state regulators which require frequent internal audits and perform regular external audits whereas individual trustees have no similar regulatory oversight or fiduciary checks and balances;
8. Continuity – Corporate trustees exist in perpetuity whereas individual trustees may leave because of illness, death or changed circumstances requiring appointment of a successor trustee.
For additional information , see “Settlement Trusts” , “Special Needs Trusts”, “Settlement Planner Definition”, "Structured Settlement Definition", and "Structured Settlements and Periodic Payment Judgments".
A trust is a legal entity concerning the ownership, use and distribution of property. To create a trust, the owner of property (grantor) transfers property (trust corpus) to another person or company (trustee) who is responsible for maintaining and protecting the property on behalf of one or more persons (beneficiary). A trust generally requires a formal document (trust agreement) which states the trust purposes as well as the terms and conditions for administering the trust and for the beneficiary to receive and use trust property. Trusts may be either revocable or irrevocable by the grantor. Trusts may be created either during the grantor’s lifetime (intervivos) or by will following the grantor’s death (testamentary). Trusts separate ownership of assets into legal ownership (control by trustee) and equitable ownership (use by beneficiary). Trusts have many purposes including: wealth accumulation, spendthrift protection, avoidance of probate, and reduction of taxes.
Trusts which are used in connection with personal injury settlements are referred to as settlement trusts. Settlement trusts are generally irrevocable intervivos grantor trusts with spendthrift features. Similar to structured settlement annuities, the purposes of settlement trusts include: preventing the claimant/beneficiary from squandering settlement proceeds; insuring that those settlement proceeds are used for their intended purposes; and providing funds in amounts and at times when needed.
Several types of settlement trusts exist including:
1. Qualified Government Bond Trust – IRC Section 130 permits a qualified assignee to purchase either annuities or US government obligations to fund structured settlement payments. When government bonds are purchased, the qualified assignee is usually a trust or a custodial account.
2. Reversionary Grantor Trust – With a reversionary grantor trust, a defendant transfers assets into a trust which makes distributions for the benefit of the personal injury claimant based upon conditions in the trust agreement. Upon the claimant’s death, the remaining trust corpus reverts to the defendant.
3. Settlement Preservation Trust – Settlement preservation trusts provide claimants with spendthrift protected taxable or tax-free payments as well as liquidity and flexibility. They are especially useful when the timing or amount of a claimant’s future needs are unpredictable or event contingent.
4. Special Needs Trust – A special needs trust is used to preserve a claimant’s SSI and/or Medicaid eligibility. For additional information, see “Special Needs Trusts”.
5. Medicare Set-aside Trust – A Medicare Set-aside trust is used in certain categories of workers compensation and personal injury settlements to set aside money for future medical expenses which would otherwise be covered by Medicare. For additional information see “Medicare Set-aside Arrangements”.
6. 468B Trusts – 468B trusts are used by defendants to obtain immediate tax deductions in class-action lawsuits and by plaintiffs to control structured settlement funding decisions. For additional information see “468B Settlement Funds”.
7. Special Purpose Trusts – Special purpose trusts are used to set aside moneys to pay for specific anticipated expenses such as a child’s future college education.
For Additional information, see “Structured Settlements and Periodic Payment Judgments”, "Selecting a Settlement Trustee", "Structured Settlement Definition" , "Introduction to Annuities", and "Advantages and Disadvantages of Annuities".
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