Beyond Structured Settlements

Wendie Howland Interview - 2

The increasing number, importance and roles of life care planners represents a significant development impacting several overlapping markets including structured settlements, personal injury settlement planning, special needs planning, and Medicare set-asides (MSAs).

This S2KM blog post continues a three part interview with Wendie A. Howland, MN, RN-BC, CRRN, CCM, CNLCP, LNCC, a nationally recognized life care planning expert, in which Wendie addresses life care planning qualifications, case management, industry standards, and criticism of life care planners among other issues. Link for Part 1.

S2KM: The two most important U.S. based life care planning professional associations appear to be the International Association of Life Care Planners (IALCP) and the American Association of Nurse Life Care Planners (AANLCP). You belong to the AANLCP.

• How many nurses belong to AANLCP?
• Who are/were the pioneers responsible for developing nurse life care planning?

Ms. HOWLAND: Currently, there are roughly 350 AANLCP members. Not all have earned CNLCP certification. Some are LNCP-Cs and CLCPs, and/or nurses without formal life care planning credentials. All full AANLCP members are registered nurses bound by the ANA Scope and Standards of Nursing Practice and the nurse practice acts of our respective states. Some CNLCPs and RN CLCPs are not AANLCP members. There are also some associate AANLCP members who are not RNs. AANLCP has some Canadian members who are bound by their own nurse practice act.

These excerpts from the AANLCP Core Curriculum for Nurse Life Care Planning (2013) highlight some of our profession's pioneers:

• Lillian Wald - "In the early 1900s, Lillian Wald promoted the term 'public health nurse,' expanding nursing practice to encompass employment, recreation, health education, and sanitation....By the 1940s, the insurance industry was using case management as a method of cost containment"
• Paul Deutsch - "In the mid-1970s, Paul Deutsch first identified the term 'Life Care Planning,' referring to future needs, to describe a tool to project the costs of medical care in the litigation environment." In "Damages in Tort Actions" (1981), a multi-volume text, Deutsch and co-author Fred Raffa "referenced case management, catastrophic disability case management, and catastrophic disability research as means to project future medical care."
• Kelly Lance - "In 1997, the discipline of nurse life care planning (NLCP) began" when Kelly Lance founded AANLCP. "She developed a NLCP curriculum with the nursing process methodology at its core, including concepts and skills pertaining to LCP application in the medical-legal arena."

S2KM: What advantages and disadvantages do nurse life care planners offer compared with life care planners with alternative professional backgrounds and certifications?

Ms. HOWLAND: Our advantage is our licensure as registered nurses. We explicitly use nursing diagnosis, a recognized scientifically validated taxonomy to justify the items in our plan that are based on our nursing assessments. This means that we do not practice medicine, we stay within our scope of practice, and our recommendations stand independent of approval from any other discipline.

S2KM: As editor of the AANCPL Journal, how do you stay "ahead of the knowledge curve" on life care planning issues and developments?

Ms. HOWLAND: Serving as editor of professional journals and the AANLCP Core Curriculum helps inform my practice of life care planning. Reading submissions and working with peer reviewers and authors are excellent ways to learn and help guide my professional practice. Of course, I also attend national educational forums, speak at some, and write articles.

S2KM: What are the most important current issues and developments facing life care planning?

Ms. HOWLAND: Whether and how the Patient Protection and Affordable Care Act (ACA) affects life care planning is probably our most important current issue. For example, two recent California cases appear to require cost offsets based on past or existing insurance benefits. Historically, only Federal vaccine injury fund cases have required such offsets in life care plans. An upcoming issue of the Journal of Legal Nursing will focus on ACA-related issues.

S2KM: Some commentators have suggested the ACA will eliminate the need for life care plans in personal injury cases. Do you agree or disagree?

Ms. HOWLAND: I disagree. The vast majority of life care plan items and their associated costs are not covered by health insurance, including Medicare or Medicaid. Persons who seriously suggest that the ACA will render the need for life care plans moot are poorly-informed on health insurance, life care planning, or both. They should pull out the big booklet that describes their own health insurance and read it. They will be shocked.

S2KM: How important is the Medicare set-aside (MSA) market for life care planners? How does a life care planner's work product for MSAs differ, if at all, compared to work product for non-MSA applications?

Ms. HOWLAND: MSAs take Medicare’s interest into account in funding settlements. Currently, they are only required for worker’s compensation cases. Most life care plan costs are for items that Medicare does not cover. Therefore, it is comparatively simple for whoever prepares the MSA to abstract the applicable information from the much more comprehensive life care plan. Your readers should also know that although MSA certifications exist, Medicare has no requirement whatsoever for persons preparing MSAs to hold any type of certification.

S2KM: How can structured settlement professionals, settlement planners and special needs attorneys learn more about life care planning?

Ms. HOWLAND: I recommend that they ask us directly. Most life care planners welcome opportunities to visit an office or to attend a conference. Understanding the differences between certified nurse life care planners (CNLCP, LNCP-C) and non-nurse CLCPs is also important. Interested professionals should review the IARP and AANCLP websites for information, attend our conferences, and/or invite us to speak at their conferences.

In Part 3 of S2KM's interview with Wendie Howland, Wendie will respond to criticism some attorneys have directed at life care planners.

Wendie Howland Interview - 1

The most recent S2KM blog post highlights the growing strategic importance of life care planners for structured settlement and personal injury settlement planning professionals.

To gain additional knowledge about life care planners, S2KM interviewed Wendie A. Howland, MN, RN-BC, CRRN, CCM, CNLCP, LNCC, owner of Howland Health Consulting, Inc., which S2KM will publish in three blog posts addressing life care planning qualifications, case management, industry standards, and criticism of life care planners.

In addition to her education and certifications, Wendie's professional background includes work as a critical care nurse; catastrophically-injured workers case manager for multiple insurance carriers; and complex medical records review and analysis for catastrophic workers' compensation and liability cases at the reinsurance level.

Recognized as a national expert for nurse standards of practice and care issues, Wendie's current practice includes life care planning and complex medical records review and analysis for liability, workers compensation, elder/trustee, SSDI and Medicare set-aside (MSA) cases. Among her many professional affiliations, Wendie also serves as Editor for both the Journal of Nurse Life Care Planning and the Journal of Legal Nurse Consulting.

S2KM: Wendie, thank you for participating in this interview. What is your best estimate of the number of life care planners in the United States? How many (or what percentage) of the total have:

• A life care planning certification credential?
• A nursing background?

Ms. HOWLAND: I am not sure it is possible to know exactly how many people hold current life care planning credentials of any kind, but the last numbers I have heard are roughly 800 for Certified Nurse Life Care Planner (CNLCP), 2000 for Certified Life Care Planner (CLCP) (approximately 80% of which are not nurses), and 100 for Lifetime Nurse Care Planners (LNCP-C).

S2KM: One of the impressive characteristics about life care planners appears to be their commitment to certification and continuing education. What is your educational background and what certification credentials have your earned?

Ms. HOWLAND: My primary credential in nursing was a B.S. degree from Boston University (nursing major). I earned my master’s degree from the University of Washington in Seattle, in the thesis program for physiological nursing (cardiovascular/critical care). Since my first clinical work was in critical care as a staff nurse and then as a critical care clinical specialist, I earned certifications in critical care nursing and nursing education.

My second career in nursing was in case management, primarily in worker’s compensation and liability for which I earned certifications in case management (CCM, RN-BC) and rehabilitation nursing (CRRN). Many of us in legal nursing consider life care planning “case management on steroids,” so life care planning was a logical next step as I gained expertise.

Now, as a certified nurse life care planner I hold the CNLCP and LNCP-C credentials, and the LNCC for legal nurse consulting. These credentials require both education and experience, what the military would call “time in grade,” as well as sitting for psychometrically-validated exams. To renew them, I take many hours of continuing education and perform other qualifying activities (such as editing professional journals, teaching, and publishing) and submit proof for approval to the respective certifying bodies every five years.

S2KM: What criteria are most important in selecting a life care planner?

Ms. HOWLAND: There are several, in my opinion. First, of course, is looking at the life care planner’s clinical experience. Does the planner have expertise, experience, and connections in the injury or condition involved in the case? Second, certifications are important as they demonstrate experience, competence, and commitment to continued learning in the field. Certification in life care planning should be a given, but judging by some of the plans I have been asked to review, apparently it is not. Third, looking at the credentials and licensure that underlie the planner’s practice is critical. Do they grant the ability to assess, opine, and prescribe for the injury or conditions involved?

Many people think that only physicians are licensed to assess and prescribe for ill or injured people, but that’s not true. It’s important to know the difference between the legal requirement for physicians to prescribe medications or perform surgery, for example, and an insurance company’s requirement to have a physician’s name on a request for goods and services (such as equipment, physical therapy, visiting nursing, assisted living, and others) solely as a means of financial control. I always collaborate with treating physicians and therapists if possible when I’m formulating a life care plan and include their recommendations.

Registered nurses are required to implement some (not all) parts of a medical plan of care. RNs are also licensed to assess function and response to illness or injury and to develop an independent nursing plan of care. We can and do recommend further assessments by other disciplines, adaptive equipment, hours and kinds of nursing care in any setting, and many other needs found in a good life care plan.

In addition, good research and writing skills are important. Life care plans should never be “canned,” i.e., the same for every case, with no evidence of individualization or current research. Every item should have reference to a current assessment need, availability, replacement/maintenance, and source for cost.

Lastly, since much life care planning work involves litigation and may call for deposition or trial testimony, it is generally a good idea to look for someone with public speaking experience and confidence under questioning.

S2KM: How important is the personal injury market for life care planners? How much of your own work involves personal injury cases?

Ms. HOWLAND: Most (but not all) life care planning practices do work that involves litigation, and that usually involves some kind of injury. Examples include workers' compensation, medical malpractice, and personal liability. MSAs represent a growing field of practice. Almost all of my work involves personal injury cases.

S2KM: When you work on personal injury cases, in what percentage of your cases:

• Are your clients plaintiffs vs. defendants?
• Are you retained as a potential expert witness?
• Are you directly involved in settlement negotiations?

Ms. HOWLAND: My cases are about half plaintiff and half defense. Plaintiff clients are interested in knowing about needs and related costs over life expectancy for a person with an injury or other condition. Defense clients are interested in knowing what potential costs could be and why, so they can set reserves and prepare for negotiations. They also want to know if a plaintiff life care plan is reasonable and fair.

Life care planners who are not employees of a defense or plaintiff entity expect to have their work product introduced as part of litigation. I have never been directly involved in settlement negotiations, nor have most life care planners in my experience. I work with my client to make my work comprehensive enough that it can stand on its own as counsel’s tool for negotiations. Some life care planners also work with trust officers after litigation is settled, to help them understand how the money can be spent most appropriately and identify case managers to implement the plan.

S2KM: How much time does it take to develop a personal injury life care plan and how are you compensated?

Ms. HOWLAND: My life care plans for catastrophic injury cases generally take between forty to sixty hours of work, not including travel and testimony time. Like most of my colleagues, I take a retainer and work against it, having it replenished as needed, and provide a detailed invoice monthly or more often if the client requests it.

S2KM: What is the difference between a life care plan and a medical cost projection?

Ms. HOWLAND: A medical cost projection is generalized for a medical diagnosis, as opposed to a comprehensive nursing assessment. It does not include a personal patient assessment. A medical cost projection may be important early post-injury, for example, to help a client set preliminary reserves. I am usually asked to provide medical cost projections soon after injury or as a preoperative estimate when precision isn’t necessarily critical. Since every case progresses differently, it is not possible to know what complications or special circumstances will arise. So the disclaimer says that further information will be helpful to make a more meaningful estimate.

S2KM: Assuming your work product (life care plan) is utilized to develop a personal injury settlement plan, how frequently are you asked to review the settlement plan: 1) prior to its implementation and 2) subsequent to implementation to adjust for new developments or changed circumstances?

Ms. HOWLAND: I have never been asked to review a settlement plan to see how well it matches my recommendations. It is almost impossible for life care planners to obtain information about outcomes or to discover how much, if any, of their life care plan recommendations were actually implemented, or how effectively. That is one of the major barriers to better research in life care planning. Most responsible life care planners inform their clients that a life care plan should be updated at intervals to account for changes in the individual’s condition and also include provisions for a case manager to implement their plan.

S2KM: How can other settlement planning professionals (including plaintiff attorneys, special needs attorneys, settlement trustees and structured settlement brokers) improve their working relationship with life care planners?

Ms. HOWLAND: They should know what they want, know what they can get from us, and know how to use us to their best advantage. They should communicate clearly, with adequate advance notice, what their expectations are, how much they expect and are willing to pay, and how they will use our work products. Nobody wants surprises.

In Parts 2 and 3 of S2KM's interview with Wendie Howland, Wendie will discuss life care planning associations, industry standards and issues as well as criticism of life care planners.

AAJ 2014 Winter Meeting

More than 2000 personal injury plaintiff attorneys (plaintiff attorneys) converged on New Orleans this past week for the American Association for Justice (AAJ) 2014 Winter Meeting.

Most plaintiff attorneys view themselves primarily as litigators and therefore prioritize their roles and expertise as obtaining the largest possible amount of compensation for their clients. Personal injury settlement planning and negotiation, however, require different subject matter expertise than personal injury litigation. Plaintiff attorneys nevertheless perform multiple settlement planning roles which include:

• Recognizing settlement planning issues which impact their clients;
• Recommending appropriate settlement planning professional resources to their clients; and
• Retaining ultimate responsibility for effectuating settlements.

As one result, plaintiff attorneys represent a critical marketing target for settlement planners including structured settlement professionals.

From a settlement planning and structured settlement perspective, the two most notable features of the AAJ 2014 Winter Meeting were:

• The dichotomy between the general education program and the exhibitors; and
• The absence, among the exhibitors, of structured settlement or settlement planning professional associations.

Significantly, the AAJ Winter Meeting general educational program focused on litigation issues with no structured settlement, and almost no settlement planning, topics. Perhaps the AAJ addressed this educational omission during one or more of its many membership-restricted sections and litigation groups meetings.

Regardless, the most recent, transformative legislative and regulatory developments impacting personal injury settlement planning and structured settlements deserve greater attention when the AAJ plans its 2014 Annual Meeting which will take place July 26-30 in Baltimore.

AAJ Meeting Exhibitors

Contrary to the general education program, the 84 exhibitors at AAJ Winter Meeting featured many companies offering settlement planning services including nine primary market structured settlement brokers and one structured settlement factoring company. Some of the structured settlement brokers were also notable among the platinum, gold and silver AAJ Winter Meeting sponsors. With exhibit space oversubscribed, more than 25 wait-listed companies were denied any exhibit space.

In addition to "structured settlement services", the AAJ Winter Meeting program guide listed 24 exhibitor categories including:

• Mediators
• Case management software
• Client financing
• Computer software - including settlement analytics.
• Financial services
• Lien resolution services
• Life care planning
• Legal lending
• Special needs trusts

Expanding Products and Services

The nine primary market structured settlement brokers who exhibited at the AAJ Winter Meeting generally shared one distinguishing characteristic - product and service offerings which extend far beyond traditional structured settlements. By comparison, most defense structured settlement brokers remain "single product" purveyors who compete with "cash" (and commission splits) even though some now also offer lien resolution services.

Plaintiff structured settlement brokers, however, face direct and ever-increasing competition from financial planners and trust companies. A 2006-2007 survey of plaintiff attorneys conducted by the National Structured Settlement Trade Association (NSSTA) found that trust company or bank trust departments are consulted about 40% of the time, financial planners about a third, and structured settlement consultants close to 30% in cases where plaintiff attorneys use outside financial advisors.

As a consequence, plaintiff structured settlement brokers are expanding their product and service offerings - as evidenced by the following cumulative list S2KM compiled from sales materials of various exhibitors at the AAJ Winter Meeting:

• Structured settlements - qualified and non-qualified
• Structured attorney fees - income tax deferral strategies
• Treasury funded structured settlements
• Post settlement annuities - SPIAs and fixed indexed annuities
• Document drafting and review
• Periodic payment judgment and analysis
• Mediation and negotiation support
• Lien resolution services - for Medicare, Medicaid, ERISA, military & private healthcare liens
• MSA/Medicare secondary payer compliance services
  • MSA allocation reports
  • MSA estimates
  • MSA trusts with professional administration
  • Annuity funding options for MSAs
  • Non-Medicare allowable calculations
• Special needs trust and trustee services
• Complex settlement planning
• Asset management services
• Qualified settlement funds
• Settlement trusts
  • Special needs trusts - self-settled and pooled.
  • Medicare set-aside trusts
  • Spendthrift trusts
  • Minors trusts
  • Settlement preservation trusts
  • Legacy trusts
• Settlement trust services
  • Trust design
  • Tax analysis: Affordable Care Act; Kiddie Tax; IRC 213 medical deductions
  • Document provision review
  • Investment planning - integrated annuity/structured design
  • Special needs pooled trust options
  • Uniquely-designed Minors Pooled trusts
  • Domestic asset protection trusts through multiple fiduciaries
  • Separately managed special needs, revocable, and irrevocable trusts
  • Ongoing monitoring of trust partner

These expanding product and service offerings, and the resulting "blended products" and emerging business models, raise fundamental questions:

• Who monitors and regulates settlement planning companies, products and services?
• What laws and regulations apply?
• What product suitability and disclosure standards apply?
• What licensing and certification are required?

Business Practices and Standards

Historically, regulation of structured settlement business practices has fallen short of compliance requirements applicable to other financial and insurance product providers. For example, both the NAIC Model Annuity Disclosure and Annuity Suitability Regulations specifically exclude structured settlements.

Without substantiation, the following assertions from AAJ Winter Meeting structured settlement sales materials would almost certainly be prohibited by compliance directors at securities firms and/or trust companies:

• "...90% of injury victims dissipate their entire settlement within 5 years of recovery....."
• Our company is "... the premier settlement planning firm in the United States..."
• Our company "provides the following services, free of charge:"
• Our company has "delivered an unparalleled expertise and understanding of the laws and practices that have shaped [the structured settlement] industry"
• Our company provides "the most innovative and comprehensive solutions to the challenges you and your clients face".
• Our company offers "the most cost effective and comprehensive lien resolution service anywhere."
• "A structured settlement ...[avoids] .... the risk of fraud".
• "A structured settlement provides a higher rate of return than other funding vehicles."
• "A structured settlement offer is more likely to be accepted than a lump sum offer."
• "UNMATCHABLE RATES OF RETURN: Structuring your fees gives you an unmatchable rate of return with annual tax equivalent guaranteed returns that can reach:
  • "20+% for a 5-year investment
  • "15+% for a 10-year investment
  • "10+% for a 20-year investment"

The emerging settlement planning profession, featuring structured settlement annuities as a core product, provides increasingly important services for personal injury plaintiff attorneys and their clients. To justify their professional standing, settlement planning individuals and associations, including the AAJ, must continue to improve their related educational programs as well as their business practices and standards.

For S2KM's complete reporting about settlement planning and structured settlement professional association educational conferences, see the structured settlement wiki.

For detailed analysis of primary and secondary market structured settlement business standards and practices, see "Structured Settlements and Periodic Payment Judgments" (S2P2J).

ASNP 2012 Annual Meeting

The Academy of Special Needs Planners (ASNP) hosted its Sixth Annual Conference March 8-10, 2012 in Memphis, Tennessee. Consistent with its prior conferences, ASNP and Conference Chairperson Michele Fuller provided an exceptional educational experience featuring preeminent speakers, valuable topics, quality handout materials, plus effective interaction with sponsors and exhibitors.

ASNP is one of three national associations of attorneys, the others being the Special Needs Alliance (SNA) and the National Academy of Elder Law Attorneys (NAELA), whose members engage in special needs planning. The primary difference between special needs planning and settlement planning is that special needs planning includes clients whose disabilities result from many causes including but not limited to personal injury or workers compensation accidents.

One of the highlights of the ASNP conference was a special introductory program titled "Basics of Special Needs Planning" presented by Fuller and two other nationally renowned special needs attorneys, Kevin Urbatsch and David Lillesand. This program addressed the core components of special needs planning (including the role of structured settlements), explained public benefits, and discussed the basics of special need trust (SNT) administration.

Structured settlements were also addressed by other ASNP presenters:

• Rene Reixach - During his presentation titled "Impact Litigation", Reixach highlighted continuing litigation whereby state Medicaid agencies are attempting to disqualify SNTs funded with structured settlements arguing the existence of the secondary market makes structured settlement annuities "saleable" and therefore "countable" as an "available resource".
• Eric Skidmore - Skidmore, a Supervisor in the Office of SSI and Representative Payee Policy at the Social Security Administration (SSA), provided a "Social Security Update" during which he reconfirmed an unpublished SSA position supporting what Reixach reported - i.e. the SSA believes the existence of the secondary market renders structured settlement annuities "available resources" that potentially disqualify special needs trusts beneficiaries from receiving Medicaid.
• Jason Lazarus - Speaking about "Liability MSAs", Lazarus reconfirmed the current cost advantages of funding Medicare Set-Aside arrangements (MSAs) with structured settlement annuities as opposed to cash. His presentation included structured settlement case examples that underscored this cost advantage.

One glaring omission that characterizes most national structured settlement and settlement planning conferences is the surprising lack of attention paid to real life problems and issues experienced by persons with disabilities and their families. The 2012 ASNP conference emphasized these real life problems and issues with three valuable presentations:

• Annette Hines and Linda Brown - Hines and Brown, both special needs attorneys whose families include persons with disabilities, spoke about "Transition Planning" - the change in status for disabled persons from behaving as a student to assuming emergent adult roles in the community. Subtopics discussed: a "Day in My Life" from a parents' perspective; myths about special needs planning; transition agencies; disability support systems; selecting trustees and guardians; role of guardians; personal budgets; housing options including Section 8 qualification and the rent vs.buy decisions; plus group home issues including expense sharing.
• Vincent Russo and Michael Amoruso - Russo and Amoruso presented a series of video vignette interviews of families with disabled persons in their discussion titled "Creating the Right Plan for the Right Situation." Each of the interviews originally appeared on the television show "Family Comes First" for which Russo serves as a host. After the ASNP audience watched each interview, Russo and Amoruso asked questions and offered observations to help ASNP conference attendees learn to differentiate individuals and families on the basis of such issues as: independence; information needs and overloads; life visions; and legal capacity. They emphasized the need to make special needs trusts responsive to specific family situations.
• Harry Margolis and Jerry Hulick - Margolis and Hulick discussed a special needs case study from a financial perspective that emphasized the role of life insurance.  Note: although life insurance companies feature prominently in both the special needs and structured settlement markets, there appears to be almost no overlap among agents distributing their products even though both markets focus on disabled individuals and their families.

Another glaring omission to date at national structured settlement and settlement planning conferences has been the lack of educational inquiry about how the Patient Protection and Affordable Care Act [Affordable Care Act (ACA) - aka Health Care Reform] impacts their customers, their products and their traditional business models. The justification for this educational omission may be the uncertainty resulting from the current constitutional review of the ACA by the United States Supreme Court.

Fortunately, the ASNP has not been paralyzed educationally by this constitutional uncertainty. At the ASNP 2011 Annual Meeting, Cynthia Barrett offered her introductory analysis of how Health Care Reform impacts persons with disabilities. At the ASNP 2012 Annual Meeting, David Lillesand discussed how the prohibition against "pre-existing condition" exclusions mandated by the ACA (already in effect in 22 states) impacts special needs legal practice generally and self-settled (first party) special needs trusts specifically.

In summary, based upon his experience in Florida, where the ACA's prohibition against pre-existing exclusions currently exists, Lillesand believes:

• The need for self-settled (first party) special needs trusts has decreased (except when a beneficiary requires long term institutional care) because the ACA provides better insurance options than Medicaid for many persons with pre-existing medical conditions including personal injury victims.
• Existing self-settled (first party) special needs trusts should be reviewed, in the context of the ACA's prohibition against pre-existing condition exclusions and available medical insurance options, and in many cases terminated.
• Damages for future medical costs in personal injury lawsuits could be reduced assuming the premium costs of newly available insurance premiums become admissible in proving and/or defending damages.

Apropos to transition planning for persons with disabilities and terminating special needs trusts, Travis Finchum, Fuller and Urbatsch spoke about "Trust Transitions" - what to do when your bank trustee doesn't want you anymore or you don't want them? Their subtopics included: "the dark side of pooled trusts"; security of funds managed by individual trustees and pooled trusts; trust protectors; questions to ask potential private professional trustees; fiduciary certification and standards; plus discussion and analysis of trust provisions and revision issues.

To help ASNP attendees improve their legal practice, Steve Riley addressed "Key Strategies for Growing Your Practice and One Sure Fire Way to Kill It". The killer, according to Riley: "Inertia - which is easy; but change is hard" - which is also a good lesson for structured settlement and settlement planning stakeholders.

Congratulations to Chairperson Michele Fuller, the speakers and exhibitors for another outstanding ASNP educational conference. For S2KM's reporting about prior ASNP educational conferences, see the structured settlement wiki.

SNTs and Structured Settlements

With declining annuity premium and historically low interest rates, structured settlement stakeholders should be discussing how to improve and grow their business. By substantially expanding Medicaid, Federal health care reform potentially increases the market for structured settlement annuities used to fund special needs trusts (SNTs).

Congress created special needs trusts (self-settled; pooled; and third party) as part of the Omnibus Budget Reconciliation Act of 1993. When properly designed and administered, special needs trusts can receive settlement proceeds, including structured settlement payments, without disqualifying the trust beneficiary from SSI or Medicaid.

Whether a special needs trust is advisable in a specific case requires analysis of many factors including the extent of disability, the availability of government benefits, as well as the nature and amount of available personal and family assets. One complicating factor is shared regulatory authority. Medicaid is a joint federal state program. In addition to two federal agencies (SSA and CMS), state Medicaid agencies and state Medicaid plans also provide state-specific rules for special needs trusts. State and county Medicaid case workers interpret and apply federal and state Medicaid laws to individual cases.

The growth of special needs trusts has coincided with a corresponding increase in the number of special needs attorneys. Three national professional associations (ASNP, SNA and NAELA) now exist for special needs attorneys and several legal textbooks have been written about special needs trusts. Most of these textbooks, however, are generic and do not provide detailed state-specific analysis. One exception is a two volume treatise published in 2008 (with updates) by the California CEB titled "Special Needs Trusts: Planning, Drafting and Administration" (CEB SNT). Edited by Kevin Urbatsch, CEB SNT features 17 chapters separately written by leading California special needs attorneys plus detailed appendices with applicable legal forms plus federal and state statutes, regulations, case citations and other references.

Because California represents a large and strategically important state for both structured settlements and special needs trusts, S2KM recently reviewed CEB SNT to evaluate how this legal treatise addresses structured settlements and what opportunities it suggests for improving and growing the national structured settlement market. Most of the structured settlement discussion in CEB SNT appears under a Chapter 8 section titled "Use of Structured Settlements with First Party SNTs" authored by Donna Bradshaw and Leslie Ann Barnett.

Settlement Planning Team

For personal injury cases involving a special needs trust, Bradshaw and Barnett propose a collaborative settlement planning team consisting of a special needs attorney, a structured settlement broker, a SNT trustee, an independent financial planner and a life care planner. Neither Bradshaw and Barnett, nor other CEB SNT authors discuss this proposed planning team in detail. Arguably, such a discussion goes beyond the scope of this CEB SNT treatise.

The concept of a collaborative professional team, however, is critical for settlement planning and the future of structured settlements. Unfortunately, with only a few exceptions (most notably the ASNP 2009 and the SSP 2011 Annual Conferences both of which featured CEB SNT editor Kevin Urbatsch as a speaker), the following issues have to date received insufficient industry discussion:

• What is a settlement plan?
• Who are the necessary team members and what issues should they address?
• What is the settlement planning role, if any, for the plaintiff trial attorney? for the defense structured settlement broker?
• What work product(s) do each of the team members contribute?
• How are the various work products consolidated and by whom?
• How are conflicting recommendations reconciled and by whom?
• What does a settlement plan cost?
• How are the team members compensated and by whom?
• What disclosures should be made to the injury victim?
• What metrics are needed to evaluate the effectiveness of a settlement plan?
• How important are 468B qualified settlement funds for settlement planning?
• Who is liable, and how are damages apportioned, for settlement planning errors and omissions?

Structured Settlements

In the two volume CEB SNT treatise, structured settlements are the only SNT "funding product" that receives detailed coverage. Chapter 8 authors Bradshaw and Barnett justify devoting 12 CEB SNT subsections to "structured settlements" by stating: "special needs planners need to understand how structured settlements work with first party SNTs to best advise personal injury attorneys, persons with disabilities, and their families."

Acknowledging the need to understand how structured settlements work, however, does not mean Bradshaw and Barnett fully endorse structured settlements. To the contrary, they provide several warnings and cautionary notes:

• "Plaintiff's trial attorney may mistakenly believe (or be misled into believing) that a structured settlement annuity is the only effective tool for the major part of the settlement funds."
• "At times a structured settlement is funded for a person with a disability without consideration of the unique needs to that individual."
• "The most common issue is too much cash in the structured settlement and not enough cash outside the structure."
• "It is insufficient to retain just enough cash to purchase a home and a van; there also must be a financial plan to maintain the home and van and consider replacement costs"
• "When a settlement has been funded primarily in a structured settlement annuity, there is little protection from inflation."
• "Annuities purchased in a time of low interest rates are likely to grossly under perform when compared to a well-balanced portfolio of stocks and bonds."
• "If the SNT beneficiary has an emergency or needs cash quickly, the settlement annuity will not advance payments."
• "It is imperative that practitioners insist on a commutation rider whenever there is a possible estate tax situation."
• "Once the structure is funded, [the structured settlement broker's] job is done. It is then left to the SNT trustee and special needs practitioner to work with the structured settlement for the rest of the person with the disability's life."

Without explicitly criticizing structured settlement business standards and practices, these warnings and cautionary notes highlight structured settlement issues S2KM discussed in a recent blog series about "product suitability standards" including the need for full disclosure and informed consent.

Despite 12 CEB SNT subsections discussing structured settlements, Bradshaw and Barnett barely mention three structured settlement-related topics that are important for special needs attorneys:

• Periodic Payment of Judgments - California was the first state to make periodic payment mandatory in certain (medical malpractice) judgments "at the request of either party". Because California's medical malpractice periodic payment statute also influences settlements that include special needs trusts, California special needs attorneys should be familiar with its provisions.
• Structured Settlement Transfers - Structured settlement transfers represent a strategy option for SNT trustees and special needs attorneys to consider if and when they confront some of the potential structured settlement problems Bradshaw and Barnett identify above. California amended its state structured settlement protection statute in 2010 adding factors for the court to consider when determining whether a proposed transfer is fair, reasonable and in the payee's best interest.
• Qualified Settlement Funds (QFS) - Similar to structured settlement transfers, QSFs are controversial within the structured settlement industry. Arguably underused in single event cases, QSFs provide a valuable settlement planning tool that all special needs attorneys should understand and promote.

Conclusion

For a regressive structured settlement industry, first party special needs trusts represent a growing market segment and special needs attorneys provide expanding networks of potential professional allies. Although CEB SNT focuses on California special needs trusts, the subsections discussing structured settlements offer a useful learning resource for all structured settlement stakeholders. Bottom line: the structured settlement industry needs to expand its strategic dialogue with special needs attorneys. The objectives should include better marketing and product feedback plus improved educational programs, business models and business practices.

For additional information about special needs trusts and structured settlements, see the structured settlement wiki and Section 15.04[7] of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

Product Suitability Standards - 4

With declining annuity premium and historically low interest rates, structured settlement stakeholders should be discussing how to improve and grow their business. To help promote this discussion, S2KM's current blog series about "product suitability standards" highlights two fundamental issues rarely addressed during industry educational conferences:

• When is a structured settlement annuity appropriate for a specific physical personal injury claimant?
• What standards exist to help judges, guardians, trustees, mediators, attorneys, settlement planners, structured settlement consultants and other structured settlement stakeholders make this determination?

Potential sources for structured settlement product suitability standards discussed in prior S2KM blog posts:

• Part 1 - NSSTA's Code of Ethics; SSP's Standards of Professional Conduct; and the NAIC's Suitability in Annuity Transactions Model Regulation.
• Part 2 - State minors' statutes and state structured settlement protection statutes.
• Part 3 - The Uniform Prudent Investor Act (UPIA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)

Fiduciary Standard

Among other findings, S2KM's prior review points out a general legislative trend to protect investors and consumers with a more uniform fiduciary, and/or "best interest", standard of care. In general, a fiduciary standard is viewed as the highest legal standard of customer care requiring both a duty of care and a duty of loyalty. A fiduciary is required to act in the best interest of the investor and/or customer and to fully disclose all material facts plus any conflicts of interest. Trustees and investment advisers currently are held to a fiduciary standard which may soon also apply to financial planners and broker dealers. Many state minors' statutes and all state structured settlement protection statutes incorporate "best interest" standards.

Model Annuity Regulations

For some but not all annuity products, the National Association of Insurance Commissioners (NAIC) has created a "Suitability in Annuity Transactions Model Regulation". Significantly, the NAIC Model Suitability Regulation exempts structured settlements and provides less consumer protection than the fiduciary, and/or "best interest" standard. The NAIC has also promulgated an "Annuity Disclosure Model Regulation" "to provide standards for the disclosure of certain minimum information about annuity contracts to protect consumers and foster consumer education." It also exempts structured settlements. The legislative history of the NAIC Model Disclosure Regulation indicates that "[i]nterested parties spoke in favor of an exemption for sophisticated transactions such as ..... structured settlements."

A Hall Pass?

Do these NAIC exemptions mean that structured settlements have been given a "hall pass" for purposes of product suitability requirements? No. If structured structured stakeholders want to improve and grow their business, there are many reasons why they should: 1) understand the meaning and requirements of all three standards (fiduciary duty, best interest, and suitability); and 2) adopt better business practices that address and incorporate one or more of these product standards. Reasons include:

• Blended products - Structured settlement annuities increasingly are paid into trusts (UPIA standard) that also include financial products (Dodd-Frank standard).
• Multiple licenses - In addition to structured settlement annuities, settlement planners increasingly sell securities as well as multiple life insurance and annuity products.
• Competition - To successfully compete in today's economic and legal environment, structured settlement sales persons must adjust upward to match the higher product suitability standards and best business practices of their competitors.
• Clients and Stakeholders - As a matter of self-protection as well as consumer protection, many structured settlement clients (defendants; plaintiff attorneys) and stakeholders ( judges; mediators) will increasingly demand higher product and sales standards for injury victims.
• Lawsuits - In this era of accountability and compliance, all structured settlement participants are likely to be held to higher legal standards.

Three-Card Monte

Why do product suitability standards create issues for the structured settlement industry? At their worst, especially from the perspective of an unrepresented injury victim, some traditional structured settlement business practices not only fall far short of the fiduciary standard - they can resemble a game of "Three-card Monte" .

Misrepresentations or omission of material facts

• Cost or Value - From a claimant's perspective, a core strategy for traditional structured settlements often appears "to make a little money look like a lot of money". The Spencer v. Hartford class action allegations outline one "sophisticated" variation of this strategy which often depends on hiding or misrepresenting annuity "cost" and/or settlement "value".
• Guaranteed payments - Many structured settlement sales brochures continue to promise "guaranteed payments" without specifying who guarantees what if and when an annuity provider like Executive Life of New York (ELNY) becomes insolvent.
• Managed account - Many structured settlement recipients do not understand important product details when their case is settled including how structured settlements differ from managed accounts and why they cannot access funds without court approval pursuant to state structured settlement protection acts.
• Structured settlement myths- historically used to promote sales such as:
  • Studies show that nine out of 10 lump sum recipients squander the entire amount within five years.
  • Structured settlements enable injury victims to live free of reliance on government assistance.

Conflicts of interest - without written, informed client and/or customer consent

• Single product - The danger of single product structured settlement sales persons is not limited to whether his or her product is "suitable" or in the "best interest" of a particular claimant/customer. The danger is also that single product sales persons are inherently conflicted in recommending how much of any settlement should be allocated to their product.
• Multiple roles - A structured settlement sales person introduced into a case by a defendant or liability insurer frequently plays four separate roles each of which potentially conflicts with the other roles: agent for the annuity provider; broker for the defendant; broker for the plaintiff; and agent for the defendant in helping to negotiate and settle the case.
• Compensation sharing - Unless all parties to a settlement are informed about whether and how structured settlement annuity commissions are shared, a structured settlement creates a variety of potential conflicts of interest.
• Funding alternatives - Based upon traditional structured settlement business and compensation models, the potential availability and applicability of 468B qualified settlement funds for "appropriate cases" creates inherent conflicts of interest between defendants and their structured settlement brokers.

Recommendations

• Education - Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) should devote more educational resources to understanding product suitability standards applicable directly and indirectly to structured settlements including standards applicable to their clients and competitors.
• Business standards - SSP's "Standards of Professional Conduct for Settlement Planners" represents an important industry document that has received less attention among structured settlement stakeholders than it deserves. As a result of Dodd-Frank, SSP should review and re-consider the product suitability standards proposed in its current Standards of Conduct.
• Business model - Without violating anti-trust laws, both NSSTA and SSP should encourage their members to continue studying and discussing how transitional settlement planning business models impact traditional structured settlement broker roles, compensation models and business standards.
• Documentation - In the context of transitional business models and standards, structured settlement stakeholders should review and improve core case documents including client requests for proposals, sales materials, settlement agreements, broker of record letters, and commission sharing agreements.

For additional S2KM reporting and commentary about structured settlement business standards and practices, see the structured settlement wiki.

Product Suitability Standards - 3

When is a structured settlement annuity appropriate for a specific physical personal injury claimant? And what standards exist to help judges, guardians, trustees, mediators, attorneys, settlement planners, structured settlement consultants and other structured settlement stakeholders make this determination?

In two prior blog posts, S2KM has addressed these issues in the context of:

• Part 1 - NSSTA's Code of Ethics; SSP's Standards of Professional Conduct; and the NAIC's Suitability in Annuity Transactions Model Regulation.
• Part 2 - Minors' statutes and state structured settlement protection statutes.

This blog post discusses product suitability standards created by the Uniform Prudent Investor Act (UPIA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and highlights a general trend to create a more uniform fiduciary, and/or "best interest", standard of care to protect investors.

UPIA

When investing and managing assets (including settlement proceeds and structured settlement annuity payments), trustees historically have been held to a fiduciary standard. According to uslegal.com, "[A] fiduciary duty is an obligation to act in the best interest of another party..... A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client." (emphasis added)

More recently and comprehensively, a trustee's investment responsibilities have been re-defined legislatively by the UPIA which was adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1994 and approved by the American Bar Association in 1995. The UPIA now serves as the most important reference, external to the trust document itself, for trustees to determine what fiduciary duties their position requires. With some state-specific modifications, 41 states, U.S. Virgin Island, and the District of Columbia have adopted the UPIA.

Prior to the UPIA, courts applied the "prudent man rule" when evaluating trustee investment performance. The prudent man rule required trustees “to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering probable income, as well as the probable safety of the capital to be invested.”

The UPIA, by contrast, adopts "modern portfolio theory" as a different and more appropriate standard for trustees. Compared with the prudent man rule, modern portfolio theory promotes a holistic view of trust assets by focusing on the total return generated by a trust as opposed to viewing a trust's income and principal separately. By viewing all investments comprehensively, modern portfolio theory and the UPIA hold that a trustee (or other investor) can achieve a positive overall investment return despite the poor performance of specific investments. This new standard allows for greater investment diversification so long as the risk/reward ratio matches the purposes and terms of the trust instrument.

Section 2(c) of the UPIA identifies eight factors a trustee should consider when making any investment:

• General economic conditions;
• The possible effect of inflation or deflation;
• The expected tax consequences of investment decisions or strategies;
• The role that each investment or course of action plays within the overall trust portfolio;
• The expected total return from income and appreciation of capital;
• Other resources of the beneficiaries;
• Needs for liquidity, regularity of income, and preservation or appreciation of capital; and
• An asset’s relationship of special value, if any, to the purposes of the trust or to one or more of the beneficiaries.

Significant for structured settlement annuities, the UPIA's list of investment considerations fails to mention mental or physical disabilities of a trust beneficiary. From a settlement planning and/or special needs perspective, injuries or diseases that reduce an individual's normal life expectancy arguably should receive important consideration when a trustee makes investment decisions.

Dodd-Frank

President Obama signed Dodd-Frank into law on July 21, 2010. Among other reforms, this sweeping legislation created the Consumer Financial Protection Bureau (CFPB) and the Federal Insurance Office (FIO). CFPB's central mission is "to make markets for consumer financial products and services work for Americans ....." Among its core functions are addressing consumer complaints and restricting unfair, deceptive or abusive acts or practices under the Federal consumer financial laws. Dodd-Frank provides the CFPB with significant authority that goes beyond existing consumer protection statutes. CFPB has broad authority to ask questions and demand information including consumer complaints. The FIO is part of the U.S. Department of Treasury and has authority to monitor all aspects of the insurance industry.

In addition to creating the CFPB and the FIO, Dodd-Frank directed the Securities and Exchange Commission (SEC) to study the need for a new, uniform, federal fiduciary standard of care for broker-dealers and investment advisers and to apply such a uniform standard if it deemed necessary. The SEC's assignment also required determining the existence of any gaps, shortcomings, or overlaps in legal or regulatory standards for the protection of retail customers.

Historically, investment advisers and broker-dealers have been subject to differing standards of care. Investment advisers are defined under Federal law as persons who “engage in the business of advising others. . .as to the value of securities or as to the advisability of investing in, purchasing, or selling securities. . .” [15 U.S.C. § 80b-2] They are regulated under the Investment Advisers Act of 1940 and owe a fiduciary duty to their clients.

Broker-dealers are defined under Federal law as persons who engage in “the business of offering, buying, selling, or otherwise dealing or trading in securities. . .” [15 U.S.C. § 78b(12)] and may provide a variety of related services. Broker-dealers generally are not subject to any fiduciary duty under the federal securities laws. They do, however, have a duty of fair dealing which includes a “suitability” standard - i.e. broker-dealers must make recommendations that are consistent with the interests of their customers.

Adding further uncertainty for investors, the existing legislative and regulatory system, according to the Securities Industry and Financial Markets Association (SIFMA), also "leaves states free to develop their own often conflicting definitions of fiduciary standards. This can confuse investors and lead to inconsistent definitions and interpretations under existing state law." SIFMA has recommended adoption of a uniform definition of "fiduciary duty" applicable to broker-dealers and investment advisers that includes both a duty of care and a duty of loyalty. These duties, according to SIFMA, should require both broker-dealers and investment advisers "to act in the best interest of the customer, and to provide full and fair disclosure of material facts and conflicts of interest."

In January 2011, the SEC submitted its "fiduciary standard" study to Congress recommending the adoption of a uniform fiduciary standard for investment advisers and broker-dealers when providing investment advice to retail customers. The SEC's proposed standard would be “no less stringent” than the standard currently applicable to investment advisers, and would include the duty to act in the "best interest" of the customer.

Structured Settlement Annuities

Why are the UPIA and Dodd-Frank relevant and important for structured settlement stakeholders?

• Structured settlement annuities increasingly are paid into trusts (UPIA) that also include financial securities (Dodd-Frank).
• Settlement planners, as opposed to traditional structured settlement sales persons, are increasingly licensed to sell financial securities as well as insurance products.
• The UPIA (settlement trustees) and Dodd-Frank (financial planners; investment advisers; broker-dealers) directly impact structured settlement competitors.
• To be successful in the changing financial and insurance environment, anyone selling structured settlement annuities must understand and compete against the highest product suitability standards and best business practices.

Given the diversity, uncertainty and transition of various product suitability standards, how should structured settlement stakeholders address the issue of whether a structured settlement is appropriate for individual physical personal injury claimants? S2KM will offer practical case-specific advice and strategic industry advice in its next blog post.

For additional information about structured settlement business standards and practices, see the structured settlement wiki and Section 6.02 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

Product Suitability Standards - 1

To what professional "product suitability standards", if any, should structured settlement "consultants" be held responsible when they recommend structured settlement annuities for claimants in the context of personal injury settlements? And where should they look for guidance?

Should it matter:

• Whether the structured settlement consultant is working on behalf of the defendant or the plaintiff?
• Whether the structured settlement consultant is also a:
  • Registered Settlement Planner (RSP); or a,
  • Certified Structured Settlement Consultant (CSSC); or a,
  • Registered Representative (RR); or a,
  • Certified Financial Planner (CFP); or a,
  • Registered Investment Adviser (RIA)?
• Whether the proposed structured settlement annuity will be paid into a trust set up for the claimant as opposed to the claimant directly?

The National Structured Settlement Trade Association (NSSTA) is the largest national structured settlement professional association in the United States.  NSSTA has adopted a "Statement of Ethics and Professional Responsibility" (Code of Ethics) to provide "guiding principles" to its members and member organizations.  The Preamble to NSSTA's Code of Ethics provides:

"Implicit in the acceptance of this Statement is an obligation to act in a professionally responsible and ethical manner when providing structured settlement services."

Although Principle VI directs NSSTA members to:

"…comply with all material federal and state laws and regulations applicable to the structured settlement services that are provided",

NSSTA's Code of Ethics does not directly address product suitability standards. Nor does NSSTA's Code of Ethics include any penalties or enforcement procedures for member violations.

By comparison, the Society of Settlement Planners (SSP), whose members also sell structured settlement annuities, has adopted the "Standards of Professional Conduct For Settlement Planners" (Standards of Conduct).  Related to product suitability, Rule 5 (Conflict of Interest and Loyalty) of SSP's Standards of Conduct states in part:

"A settlement planner shall make and implement only recommendations that are appropriate for the client and consistent with the client’s objectives" (emphasis added).

In the event of a conflict between SSP's Standards of Conduct and any:

"laws, court rules, licensure requirements or other standards imposed on any regulated profession such as law, accounting, financial planning, securities trading or insurance", the SSP's members "should abide by the laws or professional standards imposed on the members discipline (emphasis added) ..."

Rule 5 also requires SSP members to obtain their client's "informed consent" which their Standards of Conduct define as:

"…agreement by a person to a proposed course of conduct after the settlement planner has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct."

The Preamble to SSP's Standards of Conduct addresses enforcement, stating in part:

"Compliance with these Rules depends upon voluntary adherence and, secondarily, upon reinforcement by peer and public opinion.....Although it is not intended that a violation of these Rules will, in itself, subject a settlement planner to civil liability to a person injured by such a violation, it is expected that these rules may be used as evidence of the conduct expected of reasonable settlement planners."

What does "appropriate" mean under the SSP Standards of Conduct? And what "laws or professional standards" could impact whether a structured settlement is appropriate for a particular injury victim?

One potential source for answers is the "Suitability in Annuity Transactions Model Regulation" (Suitability Regulation) promulgated and most recently revised in 2010 by the National Association of Insurance Commissioners (NAIC) and subsequently enacted by several states.  The purpose of the NAIC Suitability Regulation is:

“…to require insurers to establish a system to supervise recommendations and to set forth standards and procedures for recommendations to consumers that result in transactions involving annuity products so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed."  However, the NAIC Suitability Regulation adds:  "Nothing herein shall be construed to create or imply a private cause of action for a violation of this regulation."

Section 6A of the NAIC Suitability Regulation provides in part:

"In recommending to a consumer the purchase of an annuity or the exchange of an annuity that results in another insurance transaction or series of insurance transactions, the insurance producer, or the insurer where no producer is involved, shall have reasonable grounds for believing that the recommendation is suitable for the consumer on the basis of the facts disclosed by the consumer as to his or her investments or other insurance products and as to his or her financial situation and needs, including the consumer's suitability information ..."

The NAIC Suitability Regulation defines "suitability information" to include: age; annual income; financial situation and needs, including financial resources used for the funding of the annuity; financial experience; financial objectives; intended use of the annuity; financial time horizon; existing assets, including investment and life insurance holdings; liquidity needs; liquid net worth; risk tolerance; and tax status; prescribes duties and penalties for insurers and insurance producers.

The NAIC Suitability Regulation applies "to any recommendation to purchase, exchange or replace an annuity made to a consumer by an insurance producer, or an insurer where no producer is involved, that results in the purchase, exchange or replacement recommended."

Significantly for structured settlements, however, Section 4 of the NAIC Suitability Regulation exempts "settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process".

Does this exemption encompass structured settlements?

By way of explanation, the legislative history of the NAIC Suitability Regulation specifically references "structured settlements" and adds:

"A regulator pointed out that this type of contract did not generally result from a recommendation by an insurer or producer but agreed that it did not hurt to have the exemption there."

If the NAIC Suitability Regulation exempts structured settlements, why is it relevant to structured settlement consultants and/or settlement planners?

• First, some structured settlement consultants and most settlement planners also sell annuity products (example SPIAs) that are covered by the NAIC Suitability Regulation.
• Second, some states now require all licensed insurance agents to complete a one-time annuity suitability training program as a condition for selling any annuity products. NSSTA already offers qualifying training programs for its members.

• Third, some structured settlement consultants may also be licensed to sell financial securities in addition to annuity products and may therefore be held to a higher product suitability standard by their broker-dealer.

• Fourth, some structured settlement consultants and/or annuity providers may proactively decide to adopt product suitability standards regardless of legal requirements. See, for example, the SSP "appropriate" standard highlighted above. Also note: under Section 8 of the NAIC Suitability Regulation, insurers are responsible for compliance and subject to penalties for non-compliance.
• Fifth, many structured settlement competitors (examples: financial planners and settlement trustees) are held to higher, more specific product suitability standards. To improve their sales success, structured settlement consultants should understand their competitors' product suitability standards including "fiduciary" and "best interest" standards in addition to, and in contrast with, the NAIC annuity suitability standard.

In subsequent blog posts, S2KM will identify and discuss product suitability legislation and regulations, in addition to the NAIC Suitability Regulation, that could impact structured settlement consultants and settlement planners.

For additional S2KM blog posts concerning structured settlement business standards and practices, see the structured settlement wiki and Section 6.02 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

SSP and NSSTA 2011 Annual Meetings - 5

One of three fundamental transitions reshaping the structured settlement industry is the change from a singular, illiquid and non-assignable product to multiple products with greater flexibility to address changing needs and circumstances of injury victims. This transition includes the potential of greater product liquidity for traditional structured settlements provided by IRC section 5891 and the state protection statutes.

During their 2011 annual meetings and educational conferences, both the Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA) addressed this structured settlement industry transition.

NSSTA's Legal Committee organized two educational programs featuring secondary market structured settlement issues:

• Peter Vodola, Katherine Scanlon and Amy Ravitz - "Legal Committee Update on Developments in the Law"; and
• Judge Edward Burke and Judge Steven Denton (moderated by Vodola) - "Judicial Perspective" (on structured settlements).

The Legal Committee Update approached "factoring" from the perspective of "what is it and why should we [NSSTA] care?" Their "what is it" segment:

• Introduced NSSTA members to IRC section 5891;
• Highlighted the "best interest" test and disclosure requirements of state protection statutes; and
• Summarized the Ceron v. Henderson case which S2KM previously reported as part of S2KM's "business standards and practices" series.

NSSTA's "why should we care" (about factoring) comments focused upon:

• How factoring companies are "adversely defining" the term "structured settlement" with aggressive television and internet advertising;
• How structured settlement factoring cases have inundated many state court dockets; and
• How NSSTA members should respond to plaintiff attorneys and judges who resist structured settlements because of proliferating factoring transactions.

The theme of NSSTA's "Judicial Perspective", as stated by participating Judge Denton, might have been: "don't presume that judges understand structured settlements". Previously a plaintiff attorney, Judge Denton claimed a familiarity with structured settlements but acknowledged he had never been asked to approve a structured settlement transfer application. Conversely, Judge Burke stated that his structured settlement experience was limited to reviewing and approving transfer applications.

Among his NSSTA comments, Judge Burke identified his "heroes" to include the superior court judges involved in the California Fresno County factoring cases. Judge Burke's judicial praise is both noteworthy and difficult to understand. In Henderson v. Scieteco (one of the Fresno County factoring cases) , a California appellate court subsequently reversed the entire consolidated order from the Fresno County Superior Court because of "multiple prejudicial errors in making its factual findings and in reaching legal conclusions" (emphasis added).

Also in Henderson v. Scieteco, the California appellate court held that public policy supports state court approved structured factoring transactions (emphasis added). NSSTA's Legal Committee representatives failed to mention this case when they discussed "public policy" and factoring during their structured settlement legal update.

Some judges not only understand structured settlements, but also have experience with both primary and secondary market structured settlement cases and publish local court rules for structured settlements. See, for example, Rule 68.2 and Rule 68.3 of the Local Rules for the Hamilton County, Ohio Probate Court.

SSP offered three presentations about non-traditional structured settlement products as part of its educational program segment titled "Practice Improvement: Marketing and New Products",

• Anthony Prieto and Tim Denehy - "The Use of Structured Settlement Annuity Payment Rights";
• Brian Michaels - "Expanded Use of Non-Qualified Assignments"; and
• Rick Miller - "Equity Indexed Annuities and Settlement Planning".

Prieto and Denehy introduced a product called "The Settlement Asset Management Trust (SAM trust) with Enhanced Structured Income (ESI)" which is essentially an irrevocable spendthrift trust generating level monthly income payments for durations of 10-30 years plus access to discretionary distributions.

The ESI component, according to Prieto and Denehy, consists of payment rights previously sold (i.e., transferred or factored) by a structured settlement recipient to a third party purchaser (factoring company) with an approved court order pursuant to a state protection statute. The SAM trust product managers purchase the payment rights from one or more factoring companies and transfer the payment rights to the SAM trust.

According to Prieto and Denehy, the resulting SAM trust can produce a taxable interest rate that is "typically three (3%) percent higher than comparable fixed products with similar guarantees and safety." Their explanation for the enhanced interest rate: the ESI does not have the same high internal costs as a typical annuity during the first few years of the annuity policy.

Although the flow of structured settlement payment rights purchased from various factoring companies is typically uneven, Prieto and Denehy maintain the SAM trustee can consolidate selected payment rights to create an even payment flow to the SAM trust beneficiary who might be an injury victim or a plaintiff attorney.

In addition to an interest rate risk, Prieto and Denehy acknowledge the ESI has an insurance company insolvency risk similar to a traditional structured settlement. According to Prieto and Denehy, however, a typical SAM trust will include between two and ten separate payment rights purchases thereby diversifying the insolvency risk.

Although some secondary market brokers and factoring companies have previously sold "re-cycled" structured settlement payment rights to individuals, Prieto and Denehy believe their product is different because the SAM trust integrates multiple streams of separate payment rights and also includes a cash allocation permitting discretionary distributions.

For additional S2KM reporting about the SSP and NSSTA 2011 Annual Meetings, see the structured settlement wiki.

See "Structured Settlements and Periodic Payment Judgments" (S2P2J) for additional information about:

• Non-qualified (under IRC section 130) assignments and products - Section 3.08A; and
• Judicial review of transfer applications - Section 16.05

SSP and NSSTA 2011 Annual Meetings - 4

One of the notable features of the 2011 educational conferences sponsored by the Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA) was how relatively few speakers focused on traditional structured settlement issues.

Of those who did, some offered external perspectives on structured settlements (attorneys, judges, financial planners, unions). In addition, NSSTA's Legal Committee provided an update on structured settlement legal issues.

Most of the other SSP and NSSTA 2011 educational speakers addressed structured settlements in the context of either:

• Peripheral topics such as: strength of life companies; state guaranty associations; Executive Life of New York (ELNY); internet marketing; certification programs; and the sale of structured settlement payment rights; or
• Settlement planning topics such as: Medicare set-asides (MSAs); special needs trusts (SNTs); 468B qualified settlement funds (QSFs); taxation (income and estate) of damages; lien resolution; non-qualified products; and allocation of medical expenses.

Two SSP presentations were also noteworthy for providing both a general understanding of settlement planning and the role of structured settlements as a core component of settlement planning:

• Kevin Urbatsch and Michele Fuller - "Working with a Special Needs Attorney";
• Jack Meligan - "Dissecting a Settlement Plan".

Urbatsch and Fuller, special needs attorneys and members of the Academy of Special Needs Planners (ASNP), addressed a variety of settlement planning topics:

• What is a settlement plan?
• What types of injury victims require settlement planning?
• What professionals should comprise a settlement planning team?
• What special needs issues should a settlement plan address?
• In addition to Medicare, Medicaid and Social Security, what government programs should a settlement plan consider?
• What benefits do these various government programs provide?
• Why are damage allocations important for settlement planning?
• Who is, and who is not, qualified to make damage allocations?
• What are the disadvantages of, and alternatives to, special needs trusts (SNTs)?
• How does health care reform impact settlement planning, Medicaid and SNTs?
• Why are 468B Qualified Settlement Funds (QSFs) important for settlement planning?

Meligan's discussion focused on a case-specific settlement plan. Meligan's recommended planning considerations included: "better quality of life"; new care facility; medications and therapy; estate planning; whether an SNT is appropriate; and whether a Medicare set-aside (MSA) is necessary. His proposed settlement plan recommended specific products and product and service providers for:

• A structured settlement payable into a SNT.
• An MSA funded in part with a structured settlement.
• Resolution of Medicaid and Medicare liens.
• A Treasury bill money market account.
• A "laddered" certificate of deposit portfolio.
• Investment in silver coins to address inflation.
• A will plus consideration of estate taxes.
• Prescription medications.
• Family evaluation to assist with life style changes.

S2KM comments about structured settlements and settlement planning:

• The future of structured settlements depends upon whether, how, when and by whom structured settlements are integrated into settlement planning.
• Settlement planning requires and deserves greater educational attention - by SSP and NSSTA as well as by special needs attorney associations.
• The SSP discussions led by Urbatsch, Fuller and Meligan provided a good introduction to many settlement planning issues.
• If NSSTA continues to study settlement planning (or settlement consulting), it might be valuable to review and compare:
  • SSP's "Standards of Professional Conduct for Settlement Planners" with NSSTA's "Code of Ethics";
  • SSP's "Registered Settlement Planner" (RSP) certification program with NSSTA's "Certified Structured Settlement Consultant" (CSSC) program;
  • SSP's 2011 educational agenda with NSSTA's 2011 educational agenda.
• New settlement planning standards need to be identified and established. For example: definitions and vocabulary; knowledge requirements; professional planning team composition; roles and responsibilities; individual and integrated work product; product recommendation criteria; licensing and certification; business practices including compensation disclosure, conflicts of interest and informed consent; documentation; and financing products and mechanisms.
• QSFs and structured settlements can improve settlement planning and therefore should be considered in every complex personal injury case.

S2KM comments about Meligan's sample settlement plan:

• At least until someone else presents a personal injury settlement plan featuring structured settlements in an educational forum, Meligan's plan represents the industry standard.
• It would be valuable to study and compare settlement plans developed by different professionals (trustees, special needs attorneys, and financial planners) for the same case example.
• Every settlement plan recommending a structured settlement should:
  • Justify why structured settlements are appropriate (product suitability) and more appropriate than comparable alternatives products - for example: SPIAs and indexed annuities.
  • Include some tax analysis to determine whether "tax-free" products are needed or justified.
  • Justify recommended amounts allocated to purchase structured settlements. Among the most frequent and severe settlement planning criticisms of structured settlements:
    • Single product structured settlement agents have an inherent conflict of interest that should disqualify them from allocating settlement proceeds;
    • Structured settlement agents invariably over-structure cases which limits planning options and increases the likelihood of future factoring transactions.
  • Disclose compensation (including shared compensation) from all recommended products subject to the recipient's informed consent.
  • Reference IRC section 5891 and the applicable state structured settlement protection statute(s).
  • Include a comparison of projected revenues from all sources and projected expenses.

For additional S2KM reporting about:

• SSP and NSSTA 2011 Annual Meetings - see the structured settlement wiki;
• Structured Settlements and Settlement Planning - see this earlier S2KM blog post.