One of the strategic developments distinguishing the settlement planning structured settlement business model from the claim management model is the interaction of annuities (insurance products) with trusts and custodial accounts (banking products). All structured settlement and settlement planning professionals should understand and utilize settlement trusts.
S2KM has written previously about settlement trusts:
- Settlement Trusts Revisited - 2008
- IRC 468B Funds Revisited - 2008
- Special Needs Trusts X - 2008
- Medicare Set-Aside Update - 2008
- Settlement Trusts - 2004
- Selecting a Settlement Trustee - 2004
Releases 44 and 45 of "Structured Settlements and Periodic Payment Judgments"
(Section 3.07A), co-authored by Daniel Hindert, Joseph Dehner and
Patrick Hindert, feature expanded S2P2J analysis of settlement trusts and structured settlement annuities.
With input from, and thanks to, Benjamin Malsch of First Capital Surety and David Cover of Peoples Bank, S2KM has compiled the following questions and information requests for settlement planning advisers to assist their due diligence about specific settlement trustees. S2KM welcomes additional questions and recommendations.
Trust Company
- What type of company is the trustee?
- How long has the trustee been in business?
- Where is the trustee incorporated?
- Does the trustee have a federal banking charter?
- Where is the trustee qualified to do business?
- Where is the trustee currently doing business?
- Who owns the trustee - or for whom does the trustee work?
- Have ownership changes occurred during the last 5 years?
- Does the trustee have ownership interests in other companies?
Products and Services
- What settlement trust products does the trustee sell or service?
- What non-settlement trusts and/or non-trust products does the trustee sell or service?
Legislation and Regulation
- What laws and regulations apply to the trustee's settlement trust products and services?
- What legislative and regulatory authority supports the trustee's settlement trust products?
- Who regulates the trustee?
- How frequently does the regulator audit the trustee?
- When did the last regulatory audit occur?
- What were the results?
Business Conduct
- Obtain and review copies of:
- Trust company's operating charter;
- Latest financial, investment and regulatory audits;
- Internal audit (SAS70);
- Marketing materials targeting investment returns;
- Complete information about fees and expenses;
- References from clients similarly situated to actual or anticipated clients.
- Which bank(s) share custody of the trustee's funds?
- What lawsuits, if any, have involved the trustee during the past 5 years?
- How many trust accounts does the trustee administer?
- How many of these trust accounts are settlement trusts?
- What amount of assets does the trustee manage?
- What type of insurance coverage does the trustee maintain and in what amounts?
Business Policies
- What are the trustee's policies for:
- Structured settlement annuities;
- Annuity funding of attorney fees and other non (IRC 130) qualified assignments?
- IRC section 468B;
- The secondary life and annuity markets;
- What professional associations does the trustee support?
Performance and Fees
- Review the trustee's most recent audited financial and investment reports;
- Confirm all fees paid to the trustee, the trustee’s affiliated companies and outside vendors and partners.
- How do mutual fund providers compensate the trustee?
- If the trustee utilizes proprietary mutual funds, will management fees be offset against trustee fees?
- Does the trustee assess any penalties, redemption fees, check processing fees, tax preparation fees, termination fees or fees for extraordinary expenses?
Sales and Distribution
- Who sells the trustee's products?
- What licensing is required to sell the products?
- Who regulates the sellers of such products?
- What consumer protections exist for malfeasance or poor performance?
- What insurance do the trustee and its sales network maintain to protect purchasers?
- What educational programs does the trustee provide and/or support for settlement trusts and settlement planning?
- Does the trustee support structured settlement annuities and integrate annuities with settlement trusts?
- Does the trustee have an “approved list” of structured settlement annuity providers and/or producers?
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