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.

2007 Advanced Elder Law Institute

The National Academy of Elder Law Attorneys (NAELA) hosted its 2007 Advanced Elder Law Institute November 2-4 at The Peabody Hotel in Memphis, Tennessee under the leadership of NAELA's 2007 President Mark Shalloway and NAELA's 2007 Institute Chair Christine A. Alsop.

Titled "Elder Law and Advocacy: It's Now or Never", the NAELA conference featured 24 outstanding and diverse presentations. In addition to 275 NAELA members, 23 law students attended. NAELA's 2007 law school writing competition attracted 26 submissions.

Highlights from the Advanced Elder Law Institute:

• The 24 presentations included four breakout sessions offering multiple program options plus extensive supporting written materials.
• Tim Nay and Stephen Dale were honored as recipients of NAELA's 2007 Powley Award and Gelardi UnAward respectively.
• Mariam Piven Cotler, a bioethicist, presented the 2007 Clifton Kruse, Jr. Professionalism and Ethics Luncheon address.
• 21 exhibitors confirmed a growing awareness that NAELA's 4700 members represent an important market for many product and service providers.
• NAELA's Not Ready For Prime Time Players performed two amusing scenes from "Sly Fox" with proceeds donated to the Alzheimer's Association of Memphis.
• NAELA's PAC sponsored a tour of Graceland with dinner at the Elvis Presley Car Museum.
• NAELA's President Mark Shalloway impersonated "The King" (born in 1935) as a 72 year old senior citizen complete with walking supporter and nurses.

From a structured settlement perspective, the following NAELA presentations were especially valuable:   

• "Representing the Unwary Client After the Purchase of Unsuitable Annuities"
  
  • Andrew S. Friedman, an Arizona plaintiff attorney who specializes in class action lawsuits, summarized current class action lawsuits against insurers and insurance agents who sell deferred annuities to senior citizens.
  • None of the defendants Friedman identified appear to be NSSTA or SSP members.
  • Although the annuity products (equity-indexed vs. fixed annuities) and the sales targets (elderly persons vs. personal injury victims) are different, structured settlements (at least the primary market) appear to share many of the business practices Friedman described.
  • According to Friedman:
    • The equity-indexed annuities are sold through "independent insurance agents";
    • Many of these insurance agents:
      • Promote their professional expertise with:
        • Bogus credentials (example: "Certified Estate Planning Specialist") resulting from a one or two day "certification program"; and
        • Assurances that state insurance departments regulate insurance sales practices - which, according to Friedman, is totally inadequate to prevent sales abuses.
      • Invariably recommend annuities and do not sell any other product;
      • Do not undertake any due diligence to prevent misleading or incomplete sales presentations;
      • Promise high rates of return, safety, liquidity and assets sheltered from potential creditors with no taxation;
      • Intentionally conceal or fail to disclose important information about their products;
      • Engage in the unauthorized practice of law;
      • Make sales misrepresentations and omissions - for example: "you don't pay me anything".
      • Develop marketing and sales materials that appeal to vulnerable elderly investors and exploit their fears of risky or insecure investments and living out their retirement years without financial security.
    • The insurance companies pretend to be innocent and to know nothing about these allegedly unethical business practices;
    • The class litigation claims include RICO conspiracy charges against three groups:
      • Annuity companies;
      • Insurance sales agents;
      • Related companies that assist with product development, marketing and administration.
• "Advocating for the Most Vulnerable: Financial Exploitation Lawsuits to Discover and Recover Assets Stolen from Persons with Disabilities"
  • Charles P. Golbert, Deputy Public Guardian for the Office of the Cook County Public Guardian, explained how financial exploitation of elderly and disabled persons is becoming more common and widespread.
  • Golbert summarized the common legal theories for recovery:
    • Incapacity;
    • Undue influence, coercion and duress;
    • Breach of fiduciary duty; and
    • Fraud.
• "Comprehensive Representation of Personal Injury Plaintiffs and Special Needs Trusts"
  • Frank Johns, an expert in disability rights, special needs trusts and legal ethics, outlined a process for elder law attorneys to negotiate their engagement for special needs trusts in personal injury litigation.
  • Johns' presentation included annotated documentation addressing as many as five potential roles for elder law attorneys:
    • Drafting the special needs trust;
    • Appearing in court to obtain approval of the trust;
    • Drafting a qualified settlement fund;
    • Administering a qualified settlement fund;
    • Drafting an RFP for potential structured settlement consultants;
  • Johns' proposed RFP for structured settlement consultants:
    • Addresses structured settlement:
      • Roles;
      • Expertise; and
      • Services.
    • Does not currently address structured settlement compensation issues.
• Clifton Kruse, Jr. Professionalism and Ethics Luncheon Address
  • Miriam Piven Cotler's presentation was one of multiple NAELA programs that addressed ethical issues;
  • Cotler warned against common perceptions and misperceptions about the elderly including the dangers of becoming paternalistic.
  • According to Cotler, when the primary issues relate to power and control, "you can forget about ethics".
• "Why Can't We All Just Get Along: The Battle Between Special Needs Trusts, Retirement Accounts and Tax Rules"
  • Bradley J. Frigon, a NAELA Director who recently participated as a featured speaker at the NSSTA 2007 Fall Regional Meeting, addressed this complicated relationship of overlapping and sometimes conflicting laws.
  • One recommended follow-up would be a similar presentation about the relationship among special needs trusts, personal injury settlements and tax rules.   
    
  • Concept maps represent a valuable communication tool for explaining and discussing complex overlapping legal rules.

Congratulations to NAELA for an educational and enjoyable Advanced Elder Law Institute.  NAELA's 20th Anniversary 2008 Symposium will take place May 14-18 at the  Hyatt Regency Maui Resort and Spa.

For additional S2KM reporting about NAELA, see:

• NAELA Annuity Policy White Paper
• NAELA 2006 Advanced Institute
   

SSP 2007 Fall Meeting

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:

• SSP 2007 Annual Meeting
• SSP's 2007 Educational Seminar
• SSP to Create Professional Designation
• SSP 2006 Annual Meeting
• SSP's 2005 Annual Meeting

Highlights of SSP's 2007 Fall meeting included educational presentations by SSP members for the following topics:

• Medicaid Liens - At SSP's 2007 Annual Meeting, Matt Garretson summarized his paper titled "What does the Ahlborn Case Really Mean?" In Ahlborn, the U.S. Supreme Court unanimously affirmed the Eighth Circuit's decision limiting a state Medicaid agency to reimbursement from only that portion of a judgment or settlement that represents payment for medical expenses. At SSP's Fall 2007 Meeting, attorney Greg Maxwell continued SSP's analysis of Medicaid liens. Maxwell discussed preliminary responses by state Medicaid agencies to Ahlborn and identified lien resolution services as an increasingly important settlement planning service and skill set. For additional information about Medicaid lien resolution, see section 15.04[4] of "Structured Settlements and Periodic Payment Judgments" as well as Matt Garretson's new book "Negotiating and Settling Tort Cases".
• Personal Injury Tax Planning - Jesus Longoria, a Texas-based financial planner, discussed several settlement planning tax issues including punitive damages; confidentiality agreements; alternative minimum tax; and commutation riders. Longoria's presentation also featured a product developed by Amicus Financial Advisors that calculates projected taxes on various settlement options. Longoria's presentation did not detail two important settlement planning tax issues addressed by attorney Robert W. Wood in recent S2KM blog posts and podcasts - IRC section 468B funds and structured attorney fees. Wood also authors "Taxation of Damage Awards and Settlement Payments", a definitive hardcopy textbook that encompasses personal injury tax planning.
• Dissipation Risk - Professor Joe Tombs of Texas Tech University delivered an entertaining presentation about dissipation risk titled "The Elephant in the Room". Tombs' conclusions: 1) Financial planners generally ignore dissipation risk; 2) Dissipation risk defines settlement planning; and 3) Settlement planners must teach personal injury claimants how to manage their impulses. Tombs also introduced a new Amicus product that he has titled the "Tombs' Dissipation Index" (TDI). According to Professor Tombs', the TDI measures (on a scale of 1 to 100) the relative propensity of individual settlement recipients for dissipation risk. The most important indicators: education and physical fitness. Had time permitted, it would have been interesting to hear Professor Tombs address these additional dissipation-related topics:
  • How inadequate settlement amounts (compared with projected injury-related expenses) and unexpected (and unplanned for) future events impact settlement planning and dissipation analysis?
  • What impact, if any, pre-litigation funding and post-settlement funding (factoring) have on settlement planning and dissipation analysis?
  • How factoring, from a dissipation perspective, impacts a settlement planner's financial and insurance product recommendations?
• Annuities and Managed Money - Paul Lesti, author of a structured settlement treatise, repeated a presentation he originally delivered at the AAJ 2006 Winter Meeting as part of a debate with Rich Halpern. One of the results of Lesti's debate with Halpern was the distribution by Halpern of widely-discussed (within the structured settlement industry) opinion letters by two law professors, Stephen Saltzburg and Edwin Chemerinsky. These opinion letters highlight the obligations of plaintiff attorneys, under the ABA's Model Rules for Professional Conduct, to understand and inform their clients about proposed structured settlement compensation arrangements and to secure their client's "informed consent" for any such compensation arrangement. Although Lesti's presentation provided a persuasive summary of the advantages of structured settlement annuities, Lesti did not:
  • Address the settlement planning issues raised by Professors Saltzburg and Chemerinsky;
  • Define "managed money" for purposes of settlement planning;
  • Discuss the role and interaction of settlement trusts (managed money) and annuities in preserving government benefits.
• Settlement Planning - Jack Meligan summarized examples of Settlement Professional Inc's (SPI) settlement plans and settlement planning strategies. SPI's settlement planning approach focuses on empowering personal injury victims to control and direct their own settlement planning. For future SSP educational programs, Meligan should be encouraged to expand his excellent presentation to address the following issues:
  • What is settlement planning and how does it differ, from a product and knowledge perspective, from:
    • Structured settlements?
    • Special needs planning?
  • How do settlement planners identify and collaborate with settlement trust providers?
  • How does factoring (and the secondary insurance markets generally) impact settlement planning?
• Annuity Testimony - Jack Meligan and Paul Lesti teamed up to provide a valuable and enlightened analysis of annuity testimony. When offered as proof of present value in personal injury litigation, annuity testimony generally is provided by defendants as a trial strategy for limiting economic damages. Chapter 12 of "Structured Settlements and Periodic Payment Judgments" provides a traditional, defense-oriented analysis of annuity testimony. In their presentation, Meligan and Lesti looked at annuity testimony from the perspective of settlement planners working with  plaintiff attorneys to challenge and defeat annuity testimony by defendants. Their analysis included trial tactics as well as how to use annuity testimony expertise as a marketing advantage.
• Medical Imagery - What does medical imagery have to do with settlement planning? Quite a bit - if you listen to the representatives of Bio-Sim Corporation, who made a brief presentation at the SSP meeting. Bio-Sim, whose work is featured on the television show, Grey's Anatomy, believes their work product can substantially reduce settlement time - and improve settlement results for plaintiffs. Bio-Sim also offers referral fees to settlement planners. Which raises this question: if you are a settlement planner focused on marketing to plaintiff attorneys, what products and services should you be offering?

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:

• Executive Life of New York - NSSTA has created a Task Force. SSP should at least provide its members with a status report.
• 2007 POMS - how are SSP and NSSTA tracking this issue? - specifically what new POMS sections are being proposed for annuities, structured settlements, assignment rights and special needs trusts?
• State Medicaid responses (and related judicial responses) to the Deficit Reduction Act of 2005 - Sylvius von Saucken introduced this issue to SSP members at SSP's 2007 Annual Meeting and to NSSTA members at the NSSTA 2007 Annual Meeting.
• Transparency and informed consent for all settlement planning compensation. SSP should continue its leadership with these issues.
• Single Claimant 468B Funds - What is the strategy to secure clarification by the U.S. Treasury confirming single claimant 468B funds? 
• Rebating
  • Which statutes define rebating?
  • Which rebating practices (plaintiff and defendant), are:
    • Legal vs. illegal; and
    • Represent good vs. unacceptable business practices?
• Macomber case - Having featured this case at its 2006 Annual Meeting, SSP should provide an update for its members about the Macomber settlement.
• State structured settlement protection statutes - NSSTA provides educational presentations about these statutes for its members.  Why not SSP?

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:

• Continue to identify and recruit structured settlement and settlement planning industry leaders who share SSP's values and priorities - even if they compete with you and challenge your viewpoints on important issues.
• Establish communication with other settlement planning associations - including NSSTA; NAELA; NAMSAP; NASP; ASNP; and SNA. Focus on shared issues and collaboration opportunities. Attend the Stetson Law School SNT seminar.
• Use a wiki to publish online (publicly or privately) the current draft of SSP's Code of Ethics. Sollicit and review comments and improvements.
• Learn web 2.0 (aka social network) technologies to improve SSP's online identity as well as SSP's  communication, learning and operating efficiencies.

Structured Settlement Educational Programs - Fall 2007

Fall of 2007 features many association meetings and educational events that should interest structured settlement attorneys, other structured settlement professionals and stakeholders.

This S2KM blog post:

• Highlights these Fall 2007 meetings and educational events; and
• Features related commentary and analysis from S2KM and structured settlement knowledge leaders.

National Structured Settlement Trade Association (NSSTA)

• 2007 Certified Structured Settlement Consultant (CSSC) Seminar - October 3-7 at the University of Notre Dame.
• 2007 NSSTA Fall Regional Meeting - October 10-12 in Tampa, FL.
• Prior S2KM coverage of NSSTA
  • NSSTA 2007 Winter Meeting
  • NSSTA Bylaw Amendments
  • NSSTA 2006 Fall Regional Meeting
  • NSSTA 2006 Annual Meeting

Society of Settlement Planners (SSP)

• 2007 SSP Fall Meeting - September 7-8 in Scottsdale, AZ
• 2007 SSP Registered Settlement Planner (RSP) Program: First Course - September 10 to December 12 at Texas Tech University.
• Prior S2KM coverage of SSP
  • SSP 2007 Annual Meeting
  • SSP's 2007 Educational Seminar
  • SSP to Create Professional Designation
  • SSP 2006 Annual Meeting
  • SSP's 2005 Annual Meeting

National Association of Settlement Purchasers (NASP)

• 2007 NASP Annual Meeting - October 18-19 in Washington, D.C.
• Prior S2KM coverage of NASP
  • NASP 2006 Annual Meeting
  • How the Primary Market Views Factoring

National Academy of Elder Law Attorneys (NAELA)

• 2007 NAELA Advanced Elder Law Institute - November 2-4 in Memphis, TN
• Prior S2KM coverage of NAELA
  • NAELA Annuity Policy White Paper
  • NAELA 2006 Advanced Institute

Special Needs Planners

• Special Needs Planning associations and educational institutions include:
  • Academy of Special Needs Planners (ASNP): Ask2007 Program - October 18 in Clearwater, FL
  • Special Needs Alliance (SNA): Fall 2007 Meeting - October 20 in Clearwater, FL
  • Stetson Law School - Special Needs Trust Program: October 18-19 in Clearwater, FL
• Prior S2KM blog posts about special needs planning
  • Academy of Special Needs Planners
  • Structured Settlements and Government Benefits
  • The Deficit Reduction Act of 2005
  • Inconvenient Questions
  • Selecting a Settlement Trustee
  • Special Needs Trusts
  • Settlement Trusts
• S2KM wiki for special needs planners
  • Structured Settlement Law

National Alliance of Medicare Set-Aside Professionals (NAMSAP)

• NAMSAP's 2007 Annual Meeting - November 2 in San Diego
• Prior S2KM coverage of NAMSAP
  • NAMSAP
  • Medicare Set-Aside Arrangements

American Association for Justice (AAJ)

• AAJ's two annual conventions for 2007 have already occurred.
• Prior S2KM coverage of AAJ
  • AAJ 2007 Annual Conference
  • AAJ 2007 Winter Meeting
  • AAJ 2006 Annual Meeting

Additional Educational Resources - for structured settlement attorneys, other professionals and stakeholders:

• Attorney Joseph J. Dehner addresses:
  • Structured Settlement Public Policy;
  • The DOJ's Structured Settlement Program
• Attorney Robert W. Wood addresses:
  • Structured Attorney Fees
  • Single Claimant 468B Fund
  • Structured Settlements: Factor vs. Commute?
• Additional S2KM blog posts, podcasts, wikis and concept maps:
  
  • Web 2.0 for Lawyers
• Social Network Technologies
• Introduction to Podcasting
• Knowledge Management and Structured Settlements
• Concept Maps
• Overview of the Structured Settlement Markets
• Structured Settlement Public Policy
• The Future of Structured Settlements
• Structured Settlement Transfers - aka factoring
• Structured Settlements and Government Benefits

• Hardcopy legal textbooks:
  • "Negotiating and Settling Tort Cases" - by Matt Garretson and Guy O. Kornblum
  • "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

Structured Settlements and Government Benefits

The structured settlement industry currently is facing many challenges. Among the most difficult and important is whether and how structured settlement laws and products can be successfully integrated with government benefit laws and funding vehicles.

The primary structured settlement laws include federal tax laws and state protection statutes as well as state periodic payment of judgment statutes. The primary structured settlement product is the annuity funded qualified assignment. The relevant government benefit laws include Medicaid and Medicare. The primary funding vehicles for structured settlements related to Medicaid and Medicare are special needs trusts and Medicare set-aside arrangements.

The Deficit Reduction Act of 2005 (DRA), which is now being implemented by the Center for Medicare and Medicaid Services (CMS) and the state Medicaid agencies, represents the most immediate and serious challenge for structured settlements. Although the DRA does not specifically reference (or exclude) structured settlements, it does impose serious restrictions on annuities as qualification requirements for Medicaid long term care eligibility. These requirements, which potentially negate (or at least reduce) the advantages of structured settlements, include:

• Irrevocable
• Non-assignable

• Actuarially sound

• No balloon payments or deferrals

• State as beneficiary

In an article titled "The DRA of 2005 - What Havoc has Congress Wrought", attorney Sylvius von Saucken analyzes the arguments for and against applying the DRA to structured settlements - including structured settlements used to fund special needs trusts. Earlier this year, von Saucken summarized his article and conclusions in separate presentations to the Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA). For a detailed review of von Sauken's article, see S2KM's three earlier blog posts titled "Inconvenient Questions".

To date, neither SSP nor NSSTA has announced any strategies to address the issues created by the DRA for structured settlements - or any long term plans to successfully integrate structured settlements with government benefit laws. Neither organization has significant internal expertise with government benefit laws or lobbying. As an additional challenge, Medicaid lobbying requires both federal and state strategies and resources. SSP has limited lobbying experience or resources. Although NSSTA has some experience with state lobbying (structured settlement protection statutes), most of its lobbying experience and expertise focuses on federal issues - primarily federal tax issues.

In contemplating their options and strategies for addressing the DRA and for positively integrating structured settlements with government benefits, both SSP and NSSTA should consider developing closer relationships with the following associations which do have expertise with government benefit laws and lobbying - as well as the human resources to effectively track changes and challenges created by state-specific Medicaid rules:

• The National Academy of Elder Law Attorneys (NAELA);

• The Academy of Special Needs Planners (ASNP); and

• The Special Needs Alliance (SNA).

For additional information about structured settlements and government benefits see Release 41 of "Structured Settlements and Periodic Payment Judgments".

Academy of Special Needs Planners

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:

• ASNP's collective legal knowledge is extensive, impressive and important for disabled persons, their families, plaintiff attorneys and structured settlement professionals.
• The ASNP conference speakers and handout materials were excellent. Except for the structured settlement handouts (one written in 1996), almost all of the handout materials appeared to be written or updated specifically for this ASNP conference.
• Although most of the ASNP conference topics related indirectly to structured settlements:
  • None of the ASNP speakers or topics focused directly on structured settlement legal issues;
  • No one from the traditional structured settlement industry attended the ASNP conference or exhibited at the ASNP conference.
• Expanding the structured settlement market requires expanded legal knowledge, scholarship and advocacy.
• One priority topic: how do (and how should) government benefit rules interact with structured settlements?
• Special needs law should incorporate structured settlement legal issues and funding options within its scope of competencies, education and expertise.
• ASNP members should understand structured settlements - and offer legal services to plaintiff attorneys for structured settlement funding options such as:
  
  • Qualified (under IRC section 130) assignments;
  • Non-qualified (under IRC section 130) assignments;
  • Qualified (under IRC section 468B) settlement funds;
  • Self-settled special needs trusts - funded with structured settlement annuities;
  • Pooled trusts - funded with structured settlement annuities;
  • Medicare set-aside arrangements - funded with structured settlement annuities; and
  • Structured settlement factoring transactions - as defined in IRC section 5891 and the 46 state structured settlement protection statutes.

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:

• The roles of SSA, CMS and state Medicaid agencies in determining structured settlement annuity rules for Medicaid eligibility;
• Current SSI rules for structured settlement annuities - and the legal authority for such rules;
• The impact of the Deficit Reduction Act of 2005 on structured settlement annuities.

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:

• What is the scope of legal knowledge, responsibilities and liabilities for special needs and personal injury settlement planning?
• What standards and competencies do (should) plaintiff attorneys possess for special needs and personal injury settlement planning?
• What are the appropriate roles, responsibilities, competencies, and compensation for various settlement and special needs planning participants?
• What are the most important structured settlement legal issues related to special needs planning?

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.

• Notably and coincidentally, MassMutual Financial Group (which recently left the structured settlement industry) was the Platinum Sponsor for ASNP's first conference.
• ASNP conference exhibitors included:
  
  • First Capital Surety & Trust Company;
  • Knights Administration;
  • Krause Financial Services;
  • MetDESK; and
  • Smart Marketing.
• The exhibitor handout materials were surprisingly valuable - especially:
  
  • Krause Financial Services' Medicaid Annuity handouts; and
  • Mass Mutual's 2006 Resource Guide.
• Although MetLife appears to be among the leaders in estate planning for special kids, the MetLife marketing materials do not reference structured settlements.

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.

NSSTA 2007 Winter Regional Meeting-3

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:

• NSSTA Lobbying
  
  • NSSTA lobbyist Eric Vaughn summarized the challenges NSSTA faces with the new Congress including change of control and new membership for both the House Ways and Means Committee and the Senate Finance Committee. 
  • Vaughn did not discuss two lobbying issues which have become increasingly important for NSSTA - government benefits (Medicaid and Medicare) and state laws including: settlement transfer protection acts, state periodic payment of judgment statutes and state Medicaid rules. 
  • One member of NSSTA's government affairs committee stated privately that for the first time in NSSTA history, NSSTA representatives, including Vaughn, recently met with CMS.
  • Two other speakers (Craig Ulman and Peter Vodola) referenced proposed judicial rules which could impact the Pennsylvania structured settlement protection act.

• Tax Issues - Tax specialist Tom Ronce addressed three topics. Ronce warned against potential offsets in current bills in Congress which could impact structured settlements. Ronce provided an update of Murphy v. IRS in which the D.C. Circuit Court of Appeals has agreed to revoke its controversial 2006 decision and to rehear the case in 2007.  Ronce summarized proposed federal tax regulations, including private annuity regulations, which could potentially prevent the structuring of attorney fees.  For additional information about the attorney fee issue, read this prior S2KM blog post.

• Agent Responsibilities and Exposures - Attorney Mike Miller summarized the Law of Agency as it relates to structured settlement consultants. Miller's comments also included a review of the 2006 Saltzburg and Chemerinsky memorandums plus an update on two class actions lawsuits, Macomber v. Travelers and Spencer v. Hartford.  For additional information about the Saltzburg and Chemerinsky memos, read and listen to this "Jack Meligan Interview". For additional information about Macomber v. Travelers, read this prior S2KM blog post.

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.

• Cover, a trust officer, pointed out the lack of knowledge most trust officers have about structured settlements as well as the important role of special needs attorneys when government benefits are an issue.
• Cantwell, a structured settlement consultant and Chairperson of NSSTA's Educational Committee, described how blended products (trusts and annuities) improve settlement planning.
• Sangerman, a special needs attorney, discussed the use of annuities to fund special needs trusts. Responding to this author's question, Sangerman insisted the Deficit Reduction Act of 2005 (DRA) does not apply to structured settlement annuities.
• Read these prior S2KM blog posts for additional information about:
  • Settlement trusts;
  • The DRA and structured settlements.

The Deficit Reduction Act of 2005

Enacted February 8, 2006, the Deficit Reduction Act of 2005 (DRA) is intended to save billions of dollars from mandatory government spending programs, including Medicaid during the next five years. One of the DRA's cost-cutting provisions changes eligibility rules for Medicaid long-term care coverage. As part of those Medicaid eligibility changes, section 6012 of the DRA provides changes for Medicaid annuity rules. The annuity rule changes are incorporated in amendments to Section 1917 of the Social Security Act relating to liens, adjustments, recoveries and transfer of assets.

Medicaid is a joint federal-state program established in 1965 under Title XIX of the Social Security Act. States must comply with the requirements imposed by Congress as a condition for receiving federal funds. The Centers for Medicare & Medicaid Services (CMS), an agency within the Department of Health and Human Services, implements the Medicaid program by issuing regulations, advisory communications, and letters to State Medicaid Directors as well as the CMS State Medicaid Manual. On July 27, 2006, CMS issued a series of communications to state Medicaid administrators with instructions for implementing the DRA's new Medicaid eligibility rules. Each state must operate its Medicaid program pursuant to a state plan reviewed and approved by CMS. States are permitted some flexibility in designing and administering their state plans and substantial variations exist among states concerning categories of individuals covered, scope of services as well as eligibility and income benefits. The states are currently amending their state plans to comply with the DRA for review and approval by CMS.

What impact does the DRA have on structured settlement annuities - and specifically those structured settlement annuities used to fund special needs trusts (SNT)? Neither the DRA legislation nor the CMS July 27, 2006 communications to State Medicaid administrators mentions structured settlements.  To date, the impact of the DRA has received little attention within the structured settlement community. Neither NSSTA nor SSP has offered any educational programs about the DRA. Although NAELA and its members have produced excellent analysis, commentary and seminars about the DRA, NAELA has provided little guidance about the DRA's impact on structured settlements specifically.

On January 31, 2006, Nancy Veillon, Associate Commissioner for Income Security Programs for Social Security, sent a letter to attorneys Jay Sangerman and Roger Bernstein responding to their earlier letters on behalf of NSSTA seeking clarification of the Social Security Income (SSI) program's policy about structured settlements used to fund SNTs under Section 1917(d)(4)(A) of the Social Security Act. Ms. Veillon's letter, posted in the members-only section of NSSTA's website, concludes in part: "...if the beneficiary of a trust which is not a resource for SSI has no right to anticipate, sell or transfer the annuity payments, the payments from a structured settlement annuity that are irrevocably assigned to an SNT, are not income to the trust beneficiary when paid into the trust. Neither is the right of the trust to receive the payments a resource to the trust beneficiary." This correspondence, however, occurred prior to the enactment of the DRA and does not reference the DRA .

In an article titled "Preserving Public Benefits in Physical Injury Settlements: Special-Needs Trusts and Beyond" which appears in the Fall 2006 issue of the NAELA Journal, attorney John Campbell assumes the DRA's asset transfer rules for annuities are not applicable to structured settlement annuities used to fund SNTs. His reasoning appears to be based upon section 1396p(c)(1) which provides the DRA annuity provisions do not apply to annuities purchased by a third party with funds that never belonged to the applicant/beneficiary or community spouse. Structured settlements are purchased with assets belonging to a defendant or a qualified assignee and arguably therefore are not assets for section 1396(c)(1) transfer of assets provisions.

NAELA's preliminary analysis of the DRA, which appears in a June 20, 2006 special edition of the  NAELA Journal addresses section 1396p(c)(1) as follows:

"f. The DRA provisions do not apply to annuities purchased by a third party on behalf of a Medicaid applicant/beneficiary or community spouse  with funds that never belonged to the applicant/beneficiary or community spouse.

"Section 1396p(c)(1) does not apply to an annuity purchased by a third party with funds that never belonged to the applicant/beneficiary or community spouse.  Since such funds never belonged to the applicant/beneficiary or community spouse, they are not assets of the community or the applicant and, hence, are not assets for purposes of [section] 1396p(c)(1)'s transfer of asset provisions."

Importantly, however, neither CMS nor the Social Security Administration (SSA), nor the courts has yet to address whether and how the DRA impacts structured settlements or, more specifically, structured settlements used to fund SNTs.  Structured settlements may be treated differently than other third party transfers.  One distinguishing factor is - factoring.  Both the Internal Revenue Code and 46 state statutes address  the transfer of structured settlement payment rights (aka factoring).  In the members only section of NAELA's website, attorney Donald M. McHugh writes a valuable article titled: "The Case for and Against Medicaid Annuities - an Update from March 2004 through January 2005." McHugh's article provides an excellent historical summary of how CMS, State Medicaid Administrators and the courts look at annuities, structured settlement annuities and factoring in the context of Medicaid.  His article highlights the "saleable = countable" arguments used to characterize annuities as countable resources under the SSI resource rules.  McHugh's article predates the DRA.

What follows is a summary of what CMS does say about annuities in its enclosure titled "Section 6012 Changes in Medicaid Annuity Rules Under the Deficit Reduction Act of 2005" sent on July 27, 2006 to state Medicaid administrators. "Quotations", bold print and italics are taken directly from the CMS July 27, 2006 enclosure - except for topic titles which appear in the CMS enclosure as normal print. Also, the CMS enclosure does include an "Introduction" topic title.

• Introduction: "The DRA adds new provisions to section 1917, which include:
  • The requirements to disclose, in an application for long-term care services, information regarding any interest an applicant or community spouse may have in an annuity;
  • The requirements to name the State as a remainder beneficiary in annuities in which the applicant is the annuitant; and
  • Provisions for the treatment of the purchase of certain annuities as a transfer for less than fair market value."
• Disclosure of Interest in an Annuity
  • "Under the new section 1917(e)(1), all States ... are required to alter their applications for medical assistance for long-term care services, including applications for recertification, to include a disclosure and description of any interest the applicant or the community spouse may have in an annuity. This disclosure is a condition for Medicaid coverage of long-term care services described in section 1917(c)(1)(C)(i), which include:
    • Nursing facility services;
    • A level of care in any institution equivilent to that of nursing facility services; and
    • Home and community-based services furnished under a waiver of section 1915(c) or (d)."
  • "This disclosure requirement applies regardless of whether or not an annuity is irrevocable or is treated as an asset."
  • "If the individual, spouse or representative refuses to disclose sufficient information related to any annuity the State must either:
    • Using the authority of new section 1917(e)(1) described above, deny or terminate coverage of long-term care services only; or
    • Using existing Medicaid program authority, deny or terminate eligibility for Medicaid entirely based on the applicant's failure to cooperate."
  • "The DRA does not provide applicants an option to withhold information about annuities that may impact the computation of services or income."
• Requirement to Name the State as a Remainder Beneficiary
  • "Under new sections 1917(e)(1) and (2), all States must also include in the application for long-term care services, including the application for recertification, a statement that names the State as a remainder beneficiary on any annuity purchased on or after February 8, 2006 by virtue of the provision of medical assistance for institutional care."
  • "The State must also notify the issuer of any annuity disclosed for purposes of section 1917(c)(1)(F) of the State's rights as a preferred remainder beneficiary.
    • The State may require the issuer to notify it regarding any changes in disbursement of income or principal from the annuity; and
    • The issuer of an annuity may disclose information about the State's position as remainder beneficiary to others who have a remainder interest in the annuity."
  • "Under the DRA an annuity must name the State as the remainder beneficiary in the first position for the total amount of medical assistance paid on behalf of the annuitant, unless there is a community spouse and/or a minor or disabled child. A child is considered disabled if he or she meets the definition of disability found at section 1614(a)(3) of the Act. If there is a community spouse and/or any minor or disabled child, the State may be named in the next position after those individuals. If the State has been named after a community spouse and/or a minor or disabled child, and any of those individuals or their representatives dispose of any of the remainder of the annuity for less than fair market value, the State may then be named in the first position."
  • "As a remainder beneficiary, the State may receive up to the total amount of medical assistance paid on behalf of the individual, including both long term care services and community services."
  • "The State should require verification from the issuer that the State is named as a remainder beneficiary in the correct position. States should also require the issuer to notify the State if and when there is any change in the amount of income or principal being withdrawn."
  • "If the State is not named as a remainder beneficiary in the correct position, the purchase of the annuity will be considered a transfer for less than fair value. We interpret the statute to mean that the full purchase value of the annuity will be considered the amount transferred."
• Consideration of Income and Resources from an Annuity
  • "The State may take into consideration the income or resources derived from an annuity when determining eligibility for medical assistance or the extent of the State's obligations for such assistance."
  • "This means that even though an annuity is not penalized as a transfer for less than fair market value .... it must still be considered in determining eligibility, including spousal income and resources, and in the post-eligibility calculation, as appropriate."
  • "In other words, even if an annuity is not subject to penalty under the provisions of the DRA, this does not mean that it is excluded as income or resource."
• Annuity-Related Transactions Other than Purchases
  • "Section 6012(d) specifies that the provisions of the DRA apply to transactions, including purchases, which occur on or after the date of enactment. In addition to purchases, certain transactions which occur on or after that date would make an annuity, including one purchased before that date, subject to the provisions of the DRA. Such transactions include any action taken by the individual that changes the course of payments to be made by the annuity or the treatment of the income or principal of the annuity. These actions include additions of principal, elective withdrawals, requests to change the distribution of the annuity, elections to annuitize the contract and similar actions taken by the individual on or after February 8, 2006. Such transactions result in all provisions of the DRA being applicable to the annuity."
  • "For annuities purchased prior to February 8, 2006, routine changes and automatic events that do not require any action or decision after the effective date of enactment are not considered transactions that would subject the annuity to treatment under these provisions of the DRA. Routine changes could be notification of an address change or death or death or divorce of a remainder beneficiary, and other similar circumstances."
  • "Lastly, changes which are beyond the control of the individual, such as a change in the law, a change in the policy of the issuer, or a change in the terms based upon other factors, such as the issuer's economic conditions, are not considered transactions that cause the annuitant to be subject to the terms of the DRA."
• Annuities Purchased by or on Behalf of an Annuitant Who Applied for Medical Assistance
  • "Section 6012(c) of the DRA amends section 1917(c)(1) by adding a new subparagraph (G) which provides that the purchase of