Beyond Structured Settlements

University of Texas 2016 SNT Conference

Perhaps less well known nationally than the Stetson Law School Special Needs Trust (SNT) Conference, the annual SNT conference presented by the University of Texas (UT) Law School represents a unique and complementary program that more structured settlement and personal injury settlement planning professionals should consider as an educational priority.

Attended by attorneys, financial advisors, trust officers, government agency representatives and care managers, the 12th Annual UT SNT program not only offered an outstanding faculty and comprehensive resource materials, it also integrated federal and Texas state-specific considerations (laws; regulations; current issues and trends; case examples; strategies; best practices) into a detailed learning mosaic that other national (non-state specific) special needs programs are unable to replicate.

Even for attendees venued outside of Texas, however, this integrated federal/state educational perspective provided a valuable analysis of the challenges and alternatives created by the interaction of the multiple sources of ever-changing special needs laws and regulations which sometimes conflict and often are subject to inconsistent administrative rulings.

Kudos to conference co-chairs, Patricia Sitchler and Renee Lovelace, as well as the entire conference faculty. Given the complicated scope and objectives of the UT SNT program, the resulting synthesis could easily have resulted in confusion. Instead, the 12th annual UT SNT conference served both as an excellent updated guidebook for Texas special needs professionals and as a potential model for other state special needs educational institutions and practitioners.

Topics and Speakers

• How to Make a Special Needs Trust - Craig Reaves
• Maximizing Public Benefits - H. Clyde Farrell and Christina Lesher
• Case Law Update - Rebecca Morgan and Elisa Dillard Rainey
• Medicaid Planning for Kids - Christina Lesher
• Texas Health and Human Services Commission Update - Shari Nichols
• Accessible, Available and Affordable Healthcare Resources - Leah Cohen; Anna Marie Mendez; Tresi Moore Weeks
• Working with SSA and the Trust Reviewer Teams - Pi-Yi Mayo (Moderator); Amanda Flood; Dana Marquez
• SNTs and the New SSA Trust Review Procedures - Neal Winston
• The New Texas Supported Decision-Making Agreement Act - Tresi Moore Weeks and Renee Lovelace
• Texas Legislative Update - Craig Hopper
• SNTs and Tax Planning - Bradley Frigon
• IRAs and SNTs - Renee Lovelace
• The Texas ABLE Act - Stephen Dale and Chris Masey
• Veterans Benefits and SNTs - Hon. Robert Davis
• Getting Families to Spend More Time Planning Ahead - Stephen Dale (Moderator); Matthews Badders; H. Clyde Farrell; Nancy Sosa; Scott Stebler
• Paying Caregivers - Katherine Barr; Scott Stebler
• The Role of SNT Attorneys in Personal Injury Settlement Planning - Patricia Flora Sitchler
• Ethical Issues in SNT Planning - Mary Alice Jackson

S2KM Comments About Selected Issues and Presentations

• UT SNT Conference Resources - As stated above, the conference handout materials (1481 pages of conference-specific legal papers and power points, plus sample forms, drafting tips, and other resources) provide valuable and recommended reference and learning resources. These materials are available for purchase in multiple formats on the UT CLE website.
• SNT Professional Education Resources - The number and quality of educational resources available for special needs professionals continues to increase and improve. In addition to the UT SNT conference, S2KM has attended and reviewed the most recent related conferences sponsored by Stetson, the National Academy of Elder Law Attorneys (NAELA ) and the Academy of Special Needs Planners (ASNP ). ASNP has also sponsored a series of special needs planning webinars. Hal Wright's book: "The Complete Guide to Creating a Special Needs Life Care Plan" represents another valuable resource. Wright, a certified financial planner who focused much of his career on special needs clients, recommends and explains "a comprehensive approach integrating life, resource, financial, and legal planning to ensure a brighter future for a person with a disability."
• Personal Injury Settlement Planning - As S2KM has discussed in numerous blog posts (example), personal injury settlement planning represents a strategic, underdeveloped market for both structured settlement and special needs professionals. UT SNT Conference co-Chair Patricia Sitchler's presentation in Austin (see above) highlighted these opportunities for SNT attorneys. Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) have taken recent steps to expand their collaboration with special needs attorneys. NSSTA has appointed a Special Needs Trust Task Force to develop strategic relationships with special needs attorneys and also featured Sitchler as a speaker at NSSTA's 2015 Fall Conference. SSP's 2016 Annual Conference (March 10-12 in Tucson, Arizona) will include a joint session and social event with ASNP which recently hosted its own settlement planning webinar series.
• Supported Decision-Making - Effective Sept. 1, 2015,Texas became the first state to recognize supported decision-making agreements as a less restrictive alternative to guardianship. As defined under Texas' new law, a supported decision-making agreement is an alternative to guardianship for an adult with a disability who may need assistance with making decisions regarding daily living but is not so incapacitated that he or she needs a guardianship. As explained by Tresi Moore Weeks and Renee Lovelace in their UT conference presentation (see above) and accompanying paper, the supported decision-making process "is an outgrowth of person-centered planning" which in turn "is based on the belief that people with disabilities are people first, with their own gifts and contributions. A person-centered plan develops a life plan for the future by focusing on the individual’s preferences and capacities. It provides supports to the individual while giving the individual as much self determination and independence as he or she wants and is able to take on." Article 12 of the Convention on the Rights of Persons with Disabilities (CRPD), which was adopted by the U.N. in 2006 and signed (but not yet ratified) by the United States and signed or ratified by 159 other countries, requires states to "take appropriate measures to provide access by persons with disabilities to the support they may require in exercising their legal capacity."
• New SSA Trust Review Procedures - As S2KM has previously reported (see: ASNP 2015 Annual Conference and the Stetson 2015 SNT Conference ), the process by which the Social Security Administration (SSA) reviews SNTs has changed dramatically during the past two years as the result of meetings between SSA representatives and advocates who deal with SNT issues. The UT 2016 SNT Conference featured two complementary video presentations explaining the background, processes, status and impact of these changes: 1) Pi-Yi Mayo moderated a discussion with SSA representatives Amanda Flood and Dana Marquez; 2) Neal Winston explained why the problems with inconsistent, erroneous, or vaguely defined SSA SNT decisions occur; reviewed sources of SSA SNT written policy; discussed current SSA SNT policy trends; detailed the new centralized SSA SNT review procedure; and recommended current best practices for communicating with the SSA about SNTs. Both presentations were supported by excellent papers.
• The Texas ABLE Act - Stephen Dale and Chris Masey reported on the Texas ABLE Act under which eligible individuals with disabilities could start an ABLE account, modeled after current Section 529 savings accounts. For additional ABLE Act background, see this S2KM blog post. Their presentations summarized proposed, related IRS regulations as well as new POMS, issued December 21, 2015, in which the SSA explains ABLE accounts and provides instructions for developing and documenting account balances and distributions. In addition, Dale and Masey identified and addressed multiple practical ABLE-related issues to help attendees educate and advise their special needs clients and communities how best and when to utilize this new disability funding option.

For additional S2KM reporting about structured settlements and government benefit issues, see the structured settlement wiki.

Evolve 2014 QSF Symposium

Despite unresolved issues, utilization of IRC 468B Qualified Settlement Funds (QSFs) in "single event" cases, as well as class action and mass tort cases, is expanding, and increasingly represents the preferred method for resolving complex personal injury claims, according to participants at the Third Annual QSF Symposium sponsored by Evolve Bank and Trust on November 14, 2014 in Memphis, Tennessee.

Various speakers estimated the number of QSF cases annually currently exceeds 2500, equally split between single event cases and class action/mass tort cases, increasing by 25% per year. This expansion has occurred as more settlement planning stakeholders learn about the advantages of QSFs - and despite single claimant QSF tax uncertainty.

Although Rev. Proc. 93-34 permits QSFs to make IRC 130 qualified assignments, and no tax authority exists prohibiting single claimant QSFs, structured settlement annuity providers currently refuse to accept single claimant QSFs which they broadly define to encompass claims by family members, plaintiff attorneys, lien holders and creditors.

Organized "to provide a forum for open dialogue that helps shape industry developments", the 2014 QSF Symposium completely avoided the single claimant controversy and focused instead on other important QSF and settlement planning issues.

Topics and Speakers

• Introduction and Welcome - Andrew Cook
• QSF Administrator Control Systems and Fraud Protection - Brian Berning
• QSF State Tax Issues - Mike May
• Tax Issues for Foreign Structured Settlement Assignment Companies - Jeremy Babener
• Calculating Settlement Awards - Chris Lordan
• QSF Settlement Planning Panel - Patrick Hindert (Moderator), Andrew Cook, Wendie Howland, Pi-Yi Mayo, Bryn Poland, Joseph Tombs.
• How New SEC Rules Impact QSF Money Market Fund Investments - John Rush.
• How Plaintiff Attorneys View QSFs - William Burns
• QSF Administrator Compensation Issues - Paige Balnum; Pi-Yi Mayo; Bryn Poland.
• QSF Attorney Fee Programs - Chris Shumate.

QSF Objectives and Benefits

In his legal treatise, "Qualified Settlement Funds and Section 468B", published in 2009, Robert Wood explains QSFs as follows: "Their primary objective is to gather and administer cash or assets and determine the amounts and exact nature of payments that the plaintiffs, attorneys, and other claimants will receive..... QSFs benefit both plaintiffs and defendants alike. They are separate entities for federal income tax purposes and are flexible and easy to establish."

Section 3.08B of "Structured Settlements and Periodic Payment Judgments" (S2P2J) summarizes the benefits of QSFs in more detail: "defendants obtain a binding release from liability by making a currently-deductible payment into a court or government-approved Fund; while claimants, who have no tax consequence as a result of this payment into a Fund, are then afforded as much time as they need to sort out important issues of their own, such as allocating settlement shares, obtaining court approvals for minors or other legally-disabled claimants, resolving liens (which sometimes involve complex pay-back and set-aside issues as to Medicaid and Medicare), and deciding on forms of distribution (whether cash, structured settlements, or special needs trusts that may be used to preserve eligibility for certain government benefits)."

QSFs reconfigure the traditional (ready; shoot; aim) settlement planning process:

1. Needs assessment
2. Design
3. Negotiation
4. Implementation
5. Monitoring

so that needs assessment and settlement design follow the negotiation (and funding) steps rather than precede them.

Highlighted Issues

• QSF Administrator - The QSF Symposium emphasized the important role of the QSF administrator as well as the services he or she may provide and/or require including: investment, expense and distribution management; tax reporting and filing; legal and regulatory compliance; and fraud control. The QSF administer appears best positioned to quarterback the QSF settlement planning team. An apparent need exists for more (and better qualified) QSF administrators.
• Life Care Planners and Case Managers - Life care planners and case managers are frequently overlooked in traditional settlement planning. Life care planners are rarely asked to revise their pre-trial and trial-focused life care plans to account for collateral sources or the actual amount of settlement funding. Case managers (who are separately certified) increasingly are retained to "monitor" settlement plans by providing post-settlement medical advice and services for serious personal injury victims.
• Compensation Issues - For QSFs to achieve their potential improvements for single event settlement planning, multiple compensation issues must still be addressed and resolved:
  • Administrators - The QSF Symposium devoted one of its panels to administrator compensation issues, including: who pays their fee? what fee is appropriate for what services? and how should the fee be calculated (flat fee; per claimant fee; or fee based on QSF earnings)? Complicating these issues, many attorney QSF administrators play multiple roles (trustee; administrator) in addition to drafting QSF documents and making court appearances.
  • Structured settlement brokers - In many single event QSFs, the plaintiff structured settlement broker plays key roles: 1) selecting and paying the QSF administrator; 2) performing "value added" settlement planning services as part of his/her contingent commission compensation. Not only do these arrangements create potential conflicts of interest ("needs based" selling determined by the needs of the broker and administrator), they also increase a broker's risk of loss in the the event of an unsuccessful structured settlement sale.
  • Additional compensation issues arise when: 1) a case settles with no allowance for QSF expenses; 2) a case involves minors or incompetents requiring a guardian and court to approve QSF expenses; and also because 3) in the current low interest rate environment, QSF fees often exceed investment yields. Although not discussed during the Symposium, defense structured settlement brokers have opposed QSFs fearing a reduction or the elimination of their contingent commission compensation.
• Tax topics - The QSF Symposium featured three tax topics:
  • State taxation - State taxation of QSFs is inconsistent with little guidance. Many states have not yet addressed QSF taxation. Potential penalties exist for failure to file including interest on any unpaid liability without any statute of limitations. QSF administrators are advised to follow a two step analysis: 1) can a specific state tax a QSF based upon the situs of the court or the administrator or the bank where funds are deposited? 2) assuming a filing obligation exists, how will a state tax a QSF - as a corporation or a trust?
  • Foreign structured settlement assignment companies - Potential tax issues exist for defendants, plaintiffs and the foreign assignment company. Can a defendant deduct its payment to a foreign assignment company? When does a plaintiff receive payments for tax purposes and what is the character of those payments? Does the foreign assignment company recognize income when it receives an assignment payment? If yes, will it be considered active or passive income or does a treaty override exist?
  • Structured attorney fees - When properly arranged, structured attorney fees allow a contingently-compensated attorney to defer portions of his or her compensation and pay tax upon receipt regardless of the type of case or whether the client receives a lump sum or periodic payments.
• Education issues - Single event QSF education is needed for plaintiff attorneys and judges who are still unfamiliar with the QSF concept. Among the most likely education providers are special needs attorneys who serve as QSF administrators or trustees and structured settlement brokers. In addition to litigating attorneys and judges, QSF educational targets should include other settlement planning stakeholders such as: liability insurers; settlement trustees, guardians; mediators; and life care planners.

Conclusion - Evolve's QSF Symposium offers a valuable and unique addition to the growing number of personal injury settlement planning conferences and educational resources. When Robert Wood's QSF legal treatise was published in 2009, he acknowledged his analysis "clearly enters unchartered ground". Congratulations to Chairman Andy Cook and Evolve Bank and Trust for helping to survey this unchartered QSF terrain by sponsoring an educational event specifically designed to promote discussion and exchange of ideas about QSF issues, standards and best practices.

For S2KM's complete coverage of 2014 structured settlement and settlement planning conferences, see the structured settlement wiki.

QSF Symposium 2012 - 2

Will Qualified Settlement Funds (QSFs) eventually replace structured settlements as the standard business model for resolving complex personal injury claims?

QSFs already represent the standard resolution technique for class action lawsuits - and provide advantages for both defendants and plaintiffs:

• Defendants not only obtain an immediate tax deduction and release, they also can reduce their settlement planning costs and risks.
• Plaintiffs can conduct their settlement planning with a sum certain, using their own advisers, free from the pressures of litigation, with unlimited time to analyze and address tax, investment and government benefit issues.
• QSFs can also be utilized to purchase tax-free structured settlements without any direct involvement by defendants.

The only opponents of QSFs, for becoming the settlement planning standard for all complex personal injury cases, appear to be advocates for the traditional claim management structured settlement business model. These advocates include liability insurers who attempt to direct claim dollars to their affiliate life companies and defense brokers who fear the loss or reduction of their annuity commissions.

Together, with political support from the National Structured Settlement Trade Association (NSSTA), these QSF opponents have spent hundreds of thousands of dollars attempting to limit both the scope of QSFs and the expanded utilization of QSFs. Maintaining that structured settlements are best created when both plaintiffs and defendants actively participate, the QSF opponents argue that broad approval of single-claimant 468B funds would undermine and diminish the use of structured settlements.

To sustain their argument, QSF opponents have organized and promoted a marketing and lobbying strategy that:

• Ignores the IRC section 468B regulations that allow a QSF to be “established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability". (emphasis added)
• Expands their own definition of single claimant to encompass multiple single event claims by family members, their attorneys and lien holders including Medicare and Medicaid.
• Promises defendants questionable structured settlement advantages (e.g. cost savings in a low-interest rate environment) without fully informing defendants of their potential costs and risks using traditional structured settlement business practices.

Fortunately for defendants and plaintiffs, utilization of QSFs (including single claimant QSFs) appears to be expanding as more settlement planning stakeholders learn about the advantages of QSFs and the professional QSF community of practice continues to grow.

That conclusion was S2KM's most important take away from the first QSF Symposium sponsored by Evolve Bank and Trust in Memphis, Tennessee on September 27-28, 2012.

Organized to stimulate dialogue among QSF industry leaders and experts and to help shape industry thinking on QSF issues, the first QSF Symposium was restricted the 20 participants and included the following speakers and topics:

• Sylvius von Saucken - "Establishing the QSF: Account, Fund or Trust / Drafting Considerations"
• Kevin Urbatsch - "Petitioning the Court for Approval"
• Andy Cook - "Investment Policy and Fiduciary Investment Options"
• Peter Wayne - "QSFs and Government Benefits Preservation"
• Will Shapiro - "Lien Holdbacks and Claimant Distributions"
• Jeremy Babener - "QSF Taxation: Filing, Payments, Withholding and Reporting"
• Chris Lordan - "Accounting and Reporting Best Practices"
• Patrick Hindert - "How Structured Settlement Transfers Impact QSF Planning"
• Roundtable Discussion - moderated by Pi-Yi Mayo and Bryn Poland.

The first QSF Symposium provided several benefits in addition to the presentations:

• Networking with QSF experts and hearing multiple QSF professional perspectives.
• Detailed discussions focused on a single (QSF-only) settlement planning topic.
• Open dialogue that encouraged entrepreneurial and collaborative "out-of-the box" thinking.
• Meeting Evolve's officers, shareholders and technology providers.
• Learning how a bank views settlement planning, settlement trusts and QSFs.

For additional information about QSFs, see:

• Robert Wood, "Qualified Settlement Funds and Section 468B"
• Hindert, Dehner and Hindert, "Structured Settlements and Periodic Payment Judgments" - Section 3.08B
• Jeremy Babener, "Structured Settlements and Single Claimant Qualified Settlement Funds"

For additional S2KM analysis of the structured settlement and settlement planning markets, see the structured settlement wiki.

QSF Symposium 2012 - 1

Evolve Bank and Trust will host the first Annual Qualified Settlement Fund Symposium September 27-28, 2012 in Memphis, Tennessee.  Dedicated exclusively to the advancement of qualified settlement fund (QSF) professionals, the purposes of the Symposium are to stimulate dialogue among QSF industry leaders and experts and to help shape industry thinking on QSF issues.

QSF Symposium Speakers and Topics

• Sylvius von Saucken - "Establishing the QSF: Account, Fund or Trust / Drafting Considerations"
• Kevin Urbatsch - "Petitioning the Court for Approval"
• Andy Cook - "Investment Policy and Fiduciary Investment Options"
• Peter Wayne - "QSFs and Government Benefits Preservation"
• Will Shapiro - "Lien Holdbacks and Claimant Distributions"
• Jeremy Babener - "QSF Taxation: Filing, Payments, Withholding and Reporting"
• Chris Lordan - "Accounting and Reporting Best Practices"
• Patrick Hindert - "How Structured Settlement Transfers Impact QSF Planning"
• Roundtable Discussion - moderated by Pi-Yi Mayo and Bryn Poland

Defined in Treasury Regulation 1.468B-1(c),  QSFs represent an important settlement planning tool and provide benefits for both defendants and plaintiffs. Defendants can use QSFs to resolve complex claims in exchange for a release and immediate tax deduction. Plaintiffs and their advisers can use QSFs to marshall assets, determine which plaintiffs and counsel receive which amounts, satisfy government benefits and other lien obligations and engage in thoughtful settlement planning without the pressures that accompany negotiations, mediations and litigation.

Revenue Procedure 93-34

One QSF advantage is the unlimited time QSFs allow for claimants to consider multiple investment options - including structured settlements provided the QSF satisfies rules set forth in Revenue Procedure 93-34 to qualify as a "party to a suit or agreement":

1. Claimants must agree in writing to the assumption by a IRC 130 qualified assignee of the QSF's obligation to make periodic payments.
2. Each qualified assignment must relate to a claim “on account of personal injury or sickness (in a case involving physical injury or sickness)”.
3. Each qualified funding asset purchased by each qualified assignee must relate to a liability to make periodic payments for damages to a single claimant.
4. No qualified assignee can be “related” to the QSF.
5. No qualified assignee can be controlled by nor control, directly or indirectly, the QSF.
6. Each transaction must meet all other section 130 requirements.

Single Claimant QSF Controversy

Whether a QSF can be established for a single claimant remains controversial - especially among structured settlement and settlement planning stakeholders.

The arguments in favor of allowing single claimant QSFs include the language in IRC section 468B and, more specifically, in the 468B regulations. These regulations, which also define a QSF (see above), allow a QSF to be “established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability". (emphasis added)

The Society of Settlement Planners (SSP) requested a ruling from the U.S. Department of Treasury on this single claimant issue in 2004. To date, however, the Treasury has not provided definitive tax authority for the single claimant QSF issue.

The National Structured Settlement Trade Association (NSSTA) historically opposes the issuance of guidance by the Treasury Department or the Internal Revenue Service on the single claimant QSF issue. NSSTA’s position appears to be that broad approval of single-claimant 468B funds would undermine and diminish the use of structured settlements. NSSTA maintains structured settlements are best created when both plaintiffs and defendants actively participate.

For more detailed information about QSFs, see:

• Robert Wood, "Qualified Settlement Funds and Section 468B"
• Hindert, Dehner and Hindert, "Structured Settlements and Periodic Payment Judgments" - Section 3.08B
• Jeremy Babener, "Structured Settlements and Single Claimant Qualified Settlement Funds"

SSP 2009 Annual Meeting - 1

The Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA) hosted sequential annual meetings the week of April 26 in Washington, D.C. This blog post begins S2KM's reporting about those meetings.

SSP's meeting (titled "Securing the Financial Needs of Injury Victims and their Families") was notable for the diversity of attendees, topics and viewpoints. Several NSSTA members were among the attendees as well as settlement planning and secondary market attorneys, annuity and trust providers, primary and secondary market intermediaries, authors, bloggers and law students.

Former NSSTA Executive Director Randy Dyer was a featured SSP speaker. Dyer spoke twice and provided:

• A definitive history of structured settlement insolvencies - annuities and bond trusts.
• An allegorical lesson about how to jump start structured settlement annuity sales.

Kevin Mack, former Director of Travelers' structured settlement program and former Chairman of NSSTA's legal committee, offered insights to "in-house" structured settlement programs. Mack made several recommendations for growing and improving the structured settlement industry including: more plaintiff intermediaries; improved education for judges and plaintiff attorneys; plus mandatory "disclosure" of structured settlement compensation and conflicts of interest.

Joseph Tombs, SSP's new President and Chairman of the Registry of Settlement Planners (RSP) Board of Directors spoke about three topics. Tombs:

• Reported on the status of the RSP program;
• Honored the first 10 RSP graduates;
• Outlined current "state of the art" for settlement planning.

Richard  Risk moderated SSP's settlement planning tax panel headlined by Sylvius von Saucken and Peter Wayne. von Saucken and Wayne responded to a series of Risk's questions addressing qualified settlement funds (QSFs), commutations, estate taxes, punitive damages, non-qualified assignments and sexual battery tax requirements among other issues.

Texas attorney Phillip McCrury surveyed state laws for judicial approval of minors' settlements. Common features in many states: "best interest" test; prohibitions against conflicts of interest; segregated accounts; guardian ad litems; and "reasonableness" of attorney fees.

Mark Popolizio reported on Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA). Popolizio summarized the new CMS NHGP User Guide and addressed reporting triggers, deadlines and issues for "responsible reporting entities" (RREs).

Eric Nordman, Research Director for the NAIC, discussed "life insurance insolvencies". Nordman summarized historic data and warned about future issues including systemic risks and the challenge of defining "transparency".

Christi Fried and David Eichenbaum spoke about settlement trusts and settlement planning software respectively. Tim Nay's presentation about "special needs trusts" outlined relevant laws and added practical advice and perspective.

Anthony Alfieri's "Litigation and Legislative Update" summarized Spencer v. Hartford; the PLR for non-qualified assignments; plus the Fresno County and Rapid Settlement factoring cases among other topics.

John Bowman, Director of Federal Relations for the American Association for Justice (AAJ), discussed how the 2008 elections have impacted AAJ's political priorities. One primary AAJ objective: keep medical malpractice out of anticipated health care reform.

Patrick Hindert, Managing Director of S2KM Limited, offered strategic analysis about the current settlement planning industry.

Congratulations to SSP, and especially Greg Maxwell, Joseph Tombs, Richard Risk and Rhonda Bentzen, for their continuing high education and annual meeting standards.

In subsequent blog posts, S2KM will:

• Summarize the NSSTA 2009 Annual Meeting;
• Analyze and compare the settlement planning and structured settlement industries.

Structured Settlements in 2008 - 2

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Special Needs Trusts X

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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