Beyond Structured Settlements

Spencer v. Hartford - 9

If you are a defendant or liability insurer or re-insurer or structured settlement annuity provider re-thinking your structured settlement business practices following the Spencer v. Hartford class action lawsuit and Hartford's publicly announced proposed settlement, you should read a recent paper written by Jeremy Babener.

Babener's single claimant 468B paper is one of several structured settlement papers he has written during the past 12 months. In his single claimant 468B paper, Babener reviews structured settlement public policy history and finds public policy support for single claimant 468B qualified settlement funds.

Section IV of Babener's single claimant 468B paper is titled "Helping the Wrong Party" in which:

• Babener reports his research and analysis about how defendants (and their liability insurers) save money using structured settlements.
• Babener argues that defendants' ability to save money using structured settlements may contravene the basic purpose for why Congress subsidizes structured settlements.
• Babener's paper was published prior to Hartford's public announcement of its proposed settlement of the Spencer v. Hartford class action lawsuit.

Although Babener did not discover much empirical evidence to support defense savings through the use of structured settlements, his research uncovered plenty of historical anecdotal evidence. According to Babener's research, industry estimates of defense structured settlement savings have decreased:

• From between 50% and 75% in 1974;
• To between 20% and 40% in 1978; and
• More recently to between 20% and 25%.

For comparison:

• In Spencer v. Hartford, plaintiffs have alleged that Hartford utilized a program called "Secured Benefit Services" (SBS) to systematically retain for its own benefit at least 15% of amounts it should have used to fund its structured settlements.
• Primary market leaders criticize secondary market companies for charging in excess of 10-15% discount rates for structured settlement factoring transactions.

Regardless of whether defendants continue to obtain structured settlement savings, Babener maintains defendants and their liability insurers have proven themselves capable of utilizing three structured settlement strategies to reduce their personal injury settlement costs.

What follows are S2KM comments about defense structured settlement strategies identified and discussed by Babener in Section IV of his single claimant 468B paper.

• For Babener's own analysis, see Babener's structured settlement writing generally and his single claimant 468B paper more specifically.
• S2KM's structured settlement public policy wiki features S2KM interviews with Babener and related S2KM commentary.

Defense Strategy 1: Negotiating with nominal terms rather than real value.

• Examples
  • A defendant offers (negotiates) to pay a plaintiff's future damages using an annuity without any annual increases for future inflation.
  • The 2004 CMS policy memorandum addressing discounting and inflating workers compensation Medicare set-aside arrangements (MSAs) resulting in lower costs and underfunding with annuities as opposed to cash.
• Issues
  • When do any case-specific defense cost savings result from this structured settlement strategy:
    • As opposed to other negotiation factors (such as a weak plaintiff negotiation position on liability issues) forcing plaintiffs to compromise on case value and/or future damages?
    • Or, as a result of some legislation or regulation (CMS 2004 MSA memo) specifically allowing defendants to share with injury victims the related structured settlement tax subsidy?
  • Why would an informed plaintiff, and/or a plaintiff represented by a competent attorney, ever accept nominal value instead of real value for future damages unless other negotiation factors (or legal requirements) exist?

Defense Strategy 2: Profiting from the purchase of a structured settlement annuity.

• Examples
  • The plaintiff allegations in Spencer v. Hartford including Hartford's use of its affiliated life company to fund its structured settlement annuities.
  • When a defendant or liability insurer, with or without an affiliated life company, shares a commission (whether or not disclosed) with one or more structured settlement agents directly or indirectly.
• Issues
  • How much money do defendants and their liability insurers save if and when they profit from the purchase of structured settlement annuities?
  • What disclosures, if any, are required by defendants (post Spencer v. Hartford) if and when defendants (or their liability insurers) profit from the purchase of structured settlement annuities?
  • What risks exist for defendants with various methods for funding structured settlements (compared with cash settlements) - including buy-and-hold; 130 qualified assignments; and 468B qualified settlement funds?

Defense Strategy 3: Negotiating to benefit from the tax subsidy.

• Examples
  • A defendant offers to settle for $100,000 or, alternatively, to pay some cash and fund a structured settlement with a combined cost of $95,000.
  • A defendant initially reserves a case for $120,000, then subsequently settles a case including a structured settlement for $100,000.
• Issues
  • In the first example:
    • How many plaintiff attorneys are willing to accept a lower attorney fee to obtain a structured settlement for their clients?
    • For unrepresented claimants, what structured settlement disclosures should a defendant and/or its liability insurer make to the unrepresented claimant?
  • In the second example:
    
    • Assuming a cash (or cash equivalent) negotiation (and/or an alternative $100,000 cash settlement offer),
    • Why and when (from a risk management perspective) should a defendant or liability insurer (post Spencer v. Hartford) ever credit a structured settlement with saving claim management dollars - compared with a prior case reserve or an alternative cash settlement?

For complete S2KM reporting and commentary about Spencer v. Hartford, see S2KM's structured settlement wiki.

Spencer v. Hartford - 7

What are the critical questions for defendants (and your insurers and your re-insurers and your attorneys) resulting from the proposed settlement of the Spencer v. Hartford class action lawsuit - assuming YOU, as a defendant, participate in funding structured settlements?

Question number 1: What are your risks for non-disclosure and/or lack of full disclosure?

Question number 2: What information do you need to disclose - and to whom and when?

Question number 3: Assuming you fully disclose, how do you save money using structured settlements?

For a valuable (pre - Spencer v. Hartford settlement) analysis about how defendants save money using structured settlements, see Section IV "Helping the Wrong Party" in Jeremy Babener's article titled: "Structured Settlements and Single-Claimant Qualified Settlement Funds: Regulating in Accordance with Structured Settlement History".

Spencer v. Hartford - 6

Why and when should defendants, and/or their insurance companies and/or their reinsurance companies, ever agree to fund a structured settlement using either a "buy and hold" strategy or an "IRC section 130 qualified assignment" - as opposed to paying cash or using an IRC section 468B Qualified Settlement Fund?

The traditional answer from the traditional structured settlement industry:

• YOU, the defendant, save money using structured settlements - and;
• YOU face no future risk (or almost no future risk) so long as:
• YOU use IRC section 130 qualified assignments.

How does this traditional answer square with the recent Spencer v. Hartford class action lawsuit and proposed class action lawsuit settlement?

What are the most important lessons for defendants, and their insurers and reinsurers, and their attorneys, from the proposed Spencer v. Hartford settlement?

For prior S2KM reporting about Spencer v. Hartford, see S2KM's blog post Spencer v. Hartford - 5.

SSP and NSSTA 2010 Annual Meetings - 8

NSSTA scheduled something totally unexpected and outrageous for its 2010 Annual Meeting. NSSTA invited Dan Clark to discuss NSSTA, the structured settlement industry and ethics.

When has NSSTA and/or the structured settlement industry ever engaged a better or more timely critic?

Clark was introduced by Joseph O'Reilly and presented himself as a former disabled person who advises professional athletes and teams (among others) on achieving high performance.

Clark's discussion about ethics and structured settlements was the antipodal response to the Rev. Oliver William's ethics discussion during the NSSTA 2009 Winter Meeting. Rev. Williams asked his NSSTA audience to identify structured settlement business conduct that caused "shocked disbelief" among NSSTA members. The only answer from NSSTA in 2009 was "structured settlement factoring".

Clark's primary message for NSSTA: "what the F... is the matter with YOU?"  Clark started his discussion by answering his own question and then educated and challenged his 2010 NSSTA audience using stories and analogies. Clark's examples, highlighting current industry conduct and performance, were simple and accurate.

Clark compared NSSTA and the structured settlement industry with the "1976 Tampa Bay Buccaneers". The "professionals" who play the game for commissions but never win championships. "Professionals" who create problems rather than solve problems.

Clark challenged NSSTA to change from within: "To improve industry performance, you must discuss both sides of every issue and do what is right."

Strategic questions:

• Will Dan Clark's message wake-up the structured settlement industry?
• Who among the NSSTA leaders: 1) attended Dan Clark's presentation? and, more importantly, 2) understood Dan Clark's message?
• If Karen Meyers, quoting the late James Corman, is correct - that structured settlement professionals are "on the side of the angels":
  • Why is NSSTA so secretive?
  • Why the closed-door meetings?
  • Why the lack of disclosure and transparency for NSSTA's own members?

Strategic follow-up: among the NSSTA presentations S2KM attended in Washington, D.C., only Joseph DiGangi acknowledged and appeared to understand Dan Clark's message. In less than 30 minutes, DiGangi repeated and improved his one hour discourse from the NSSTA 2009 Winter Meeting about settlement consulting.

For S2KM's complete reporting and analysis of DiGangi's 2009 NSSTA presentation about settlement consulting plus S2KM's continuing coverage about structured settlement associations, see S2KM's structured settlement wiki.

Structured Settlement Public Policy - 1

The Society of Settlement Planners (SSP) has invited Patrick Hindert, Managing Director of S2KM Limited and The Settlement Services Group (TSSG), to organize a discussion about "Structured Settlement Public Policy" for the SSP 2010 Annual Meeting May 3 in Washington, D.C.

For additional information about the SSP and NSSTA 2010 Annual Meetings, see this prior S2KM post.

S2KM's objectives:

• Improve and grow the structured settlement market.
• Promote public discussions about structured settlement public policy. S2KM has previously published a structured settlement public policy wiki featuring Joseph Dehner, Robert Wood and Jeremy Babener.
• Invite and challenge the best and brightest structured settlement knowledge experts to:
  • Attend the SSP 2010 Annual Meeting; and
  • Participate in a public discussion about structured settlement public policy.

Preliminary public policy questions - also posted on S2KM's public policy wiki.

• What is a structured settlement?
  • Google search
  • wikipedia definition
  • transaction diagram
• What does "public policy" mean generally - and specifically for structured settlements?
• Why is public policy important for structured settlements?
• Who and what defines structured settlement public policy?
• What changes have occurred in structured settlement public policy?
  • Before 1982
  • Between 1982 and 2000
  • Since 2001
• Based upon existing structured settlement public policy, what constitutes best business practices, bad business practices and illegal business practices?
• What are the most important structured settlement public policy issues?
• Does structured settlement public policy support:
  • Single claimant IRC section 468B qualified settlement funds?
  • Court-approved structured settlement factoring transactions pursuant to IRC 5891 and state structured settlement protection statutes?
  • Tax exclusions for non-physical injuries as well as physical?
  • Tax credits rather than the current tax exclusion?
• How many structured settlement recipients pay federal income taxes - or gain any financial advantage from the structured settlement tax exclusion?
• Do personal injury victims have a greater propensity to dissipate their financial resources than non-personal injury victims?
• Or, does public policy actually require and promote dissipation by injury victims and other disabled persons? For example, Medicaid asset requirements and resulting asset "pay down" strategies.
• Should the existence of the secondary market disqualify annuities as a funding option for special needs trusts?
• Does the Deficit Reduction Act of 2005 apply to structured settlement annuities?
• Why should structured settlement annuities cost less than lump sum alternatives to fund Medicare set-aside arrangements (MSAs)?
• How has health care reform changed structured settlement public policy?
• Does public policy support expanded use of the Internet for marketing, communication, education and collaboration? If yes, how does the Internet and Internet public policy impact the future of structured settlements?
• How can SSP members and attendees influence structured settlement public policy?
• How can members of NSSTA, SSP, NASP, NAMSAP and NAELA better identify and promote their collaborative public policy knowledge and shared public policy interests?
• Should the structured settlement industry encourage public policy analysis and promote best business practices in the context of public policy?
• Does public policy analysis and promotion of best business practices strengthen or weaken the structured settlement industry?

For additional S2KM reporting about SSP and NSSTA, see:

• S2KM's blog post titled "SSP and NSSTA 2010 Annual Meetings" and
• S2KM's structured settlement wiki.

Jeremy Babener Interview - 2

Since first meeting Jeremy Babener at the SSP 2009 Annual Meeting, S2KM has reviewed, analyzed and featured his writing about structured settlements. For prior S2KM blog posts about Jeremy Babener and his structured settlement writing, see S2KM's structured settlement public policy wiki.

S2KM published an advanced summary ("Babener Proposes Expanded S2 Tax Subsidy") of Babener's most recent structured settlement article (titled "Expanding the Structured Settlement Tax Exclusion") which is featured in this week's edition of Tax Notes. The article also appears on Babener's website TaxStructuring.com. Babener has granted S2KM the following exclusive interview about his most recent article.

S2KM: Greetings Jeremy. Our first and only prior S2KM interview (Jeremy Babener Interview) was published June 23, 2009 and highlighted your research about dissipation studies. What structured settlement articles have you written since your dissipation paper?

Jeremy Babener: I have written several articles since. The first provided context when the Treasury removed the single-claimant qualified settlement fund issue from their Priority Guidance Plan. The second discussed a Treasury hearing on Section 104(a)(2) regulations focused on the different tax treatment for physical and non-physical damages, as well as a recent proposal to eliminate the distinction by the National Taxpayer Advocate. The third, a longer law journal article, provides the history of the structured settlement and factoring industries, and makes the public policy argument in favor of Treasury regulations for single-claimant qualified settlement funds. This most recent piece introduces the possibility of converting the structured settlement tax exclusion into a tax credit.

S2KM: What reactions have you received to your structured settlement writing?

Jeremy Babener: I have enjoyed receiving feedback from industry practitioners. Many have contacted me with questions, which I am happy to discuss. In terms of recommendations that I have and am making, while I have received a lot of positive responses, the question is whether those with decision-making powers will consider them.

S2KM: Let's talk about your most recent article. What is the title and where and when was it published?

Jeremy Babener: It is titled, "Expanding the Structured Settlement Tax Exclusion," and was published on April 19th in Tax Notes.

S2KM: Who is your target audience and why should they read your most recent article?

Jeremy Babener: The article is aimed at legislators and those interested in affecting structured settlement policy. It is meant to restructure the 1982 legislation that established the current tax exclusion to better accomplish the purpose of the 1982 Congress. Of course, those in the structured settlement industry are the more practical audience. They would economically benefit from the proposal and are therefore the likeliest group to be interested.

S2KM: What is your core message?

Jeremy Babener: My article focuses on who benefits from the structured settlement exclusion. Like all exclusions, it is of little use to those who, even without the exclusion, would incur no taxable income. The article suggests that a uniform refundable tax credit for structured settlements, or a financial supplement to structured settlement recipients with less income, might better accomplish Congress’ purpose of discouraging premature and inappropriate dissipation.

S2KM: What is the difference between an exclusion and a credit?

Jeremy Babener: Let's say that my taxable income is $100,000, and that I have a 50% tax rate. That means that I pay $50,000 in taxes. A $1,000 exclusion reduces my taxable income to $99,000, and thus I pay $49,500 in taxes. As you can see, the $1,000 exclusion was only worth $500 to me. Tax credits, quite differently, are generally "dollar for dollar." This means that a $1,000 tax credit actually reduces my taxes, not my taxable income, by $1,000. Thus, I would pay $49,000 after the tax credit, rather than $49,500 after the tax exclusion. Of course, someone with a lower tax rate, such as 10% will get even less out of a tax exclusion. For them an exclusion would be worth $100, as opposed to $500 for someone with a rate of 50%.

A refundable tax credit provides the value of the tax credit to someone whether or not they have any tax liability. Thus, $100 of tax credit to someone with no tax liability results in a $100 check from the government. A uniform refundable tax credit provides the same value to all, regardless of tax brackets. Thus, everyone might subtract the same $100 tax credit from their tax liability. A person who owes $50,000 in taxes would subsequently owe $49,900. A person who owes nothing in taxes receives a $100 check from the government ($100 in "negative taxes").

S2KM: Who gets the most out of the structured settlement exclusion, and who gets the least?

Jeremy Babener: Those who generate sufficient income after a settlement to place them in the highest tax-bracket get the most out of the exclusion. As illustrated above, the higher one's tax rate is, the more one gets out of an exclusion. Those who have no tax liability do not benefit at all from the exclusion.

S2KM: Recent estimates state that 47 percent of potentially eligible U.S. taxpayers pay no federal income tax. Is that statistic accurate and, if so, how does that statistic impact your proposal?

Jeremy Babener: Yes. The Tax Policy Center found this to be the case. We do not know how many personal injury victims pay no federal income tax, but since injury often makes work difficult, I would guess that the percentage would be even higher. That means that the current tax exclusion may fail to incentivize half or more of those who could choose to structure, providing them with no economic benefit for doing so.

S2KM: Why does it matter that some structured settlement recipients get more out of the exclusion than others?

Jeremy Babener: The purpose of the exclusion is to prevent premature and inappropriate dissipation of lump sum settlements. Unless Congress believes that such dissipation is more likely among plaintiffs earning higher incomes after their settlements, which seems unlikely, the exclusion’s design is not economically efficient.

S2KM: Should we be particularly concerned that potential structured settlement recipients expecting lower incomes have a weaker incentive to structure?

Jeremy Babener: Probably. We do not have proven data on this, but it seems likely that those with lower income are those more likely to dissipate. A low income after settlement might result from a debilitating injury and high injury-related expenses. It would seem that persons in such a situation are more likely to need every last cent of their settlement compensation because they may not be able to make up for dissipation by working more. Thus, they may be the most likely people to end up requiring government assistance as a result of dissipating.

S2KM: How could the exclusion be modified to incentivise potential structured settlement recipients expecting lower incomes?

Jeremy Babener: If Congress wishes to incentivise all potential structured settlement recipients equally, the exclusion could be turned into a uniform refundable tax credit. Such a credit would provide the same amount of value, whether by reducing tax liability or providing a tax refund, to all structured settlement recipients.

S2KM: If those earning a lower income are more likely to dissipate, why should we not just direct the structured settlement subsidy to them?

Jeremy Babener: Congress could do just that. But, there are reasons not to at this time. First of all, we do not have proven evidence on the matter. Economic literature posits that when we lack such evidence, it is most economically efficient to incentivise all equally. Secondly, not everyone knows what they will be making after a settlement. Since the exclusion is meant to encourage a particular decision at the time of settlement, it may be best to guarantee the benefit to all potential structured settlement recipients.

S2KM: Who would win and who would lose if Congress goes with a uniform tax credit?

Jeremy Babener: Clearly, those who could take advantage of the structured settlement exclusion, who could not before, would benefit. The “loser,” if there is one, depends on the structure of the credit. The tax credit would cost the government, just as the current exclusion does. Since the benefit would go to more people under this proposal, Congress would have to decide whether to allow an increase in lost revenue, or decrease the benefit to potential structured settlement recipients. Of course, allowing an increase in lost revenue may save the government from future increases in government assistance payments due to dissipation.

S2KM: What are you hoping to accomplish by writing this article?

Jeremy Babener: The article is not a sophisticated and ready-to-go proposal for Congress. It introduces an idea that I hope the structured settlement industry will take on and make its own. An expansion of the exclusion could benefit plaintiffs (by increasing their settlement value), defendants (by decreasing their settlement cost), brokers (who will earn more commissions), and insurance companies (who will increase annuity sales). I encourage the National Structured Settlements Trade Association (NSSTA) and the Society of Settlement Planners (SSP) to consider the proposal in the future. In fact, even the National Association of Settlement Purchasers (NASP) might weigh in, as the secondary market would be impacted by such a policy change. When the entire structured settlement industry stands to gain, these three associations should work together to further their mutual interests.

S2KM: Given your previous finding that no empirical data has proven that 90% of lump sum plaintiffs dissipate their money in five years, why would you recommend an expansion of a tax exclusion meant to prevent dissipation?

Jeremy Babener: In my research I found that the many citations to statistical findings of dissipation are not substantiated. However, I have also spoken with many in the industry. The anecdotal evidence certainly exists. It is the responsibility and prerogative of Congress to decide how much evidence is needed to legislate, and this was certainly not the first or last time that anecdotal evidence was relied upon for that purpose. My recommendation for a uniform refundable tax credit is meant to better accomplish Congress' goal.

S2KM: As a participant in the upcoming SSP tax panel (May 3 - Washington, D.C.), what tax issues interest you the most about structured settlements and personal injury settlement consulting?

Jeremy Babener: Clearly, I am interested in reactions to this proposal. Among other issues, I am also very interested to discuss the National Taxpayer Advocate's proposal to eliminate the difference in tax treatment between physical and non-physical injury. Currently, the proposal does not take the purpose of the structured settlement exclusion into account. The Advocate's proposal seeks to repeal the 1996 amendment to Section 104(a)(2) limiting the favorable tax treatment of damages to those received on account of "personal physical injury or physical sickness," rather than simply "personal injury or sickness." Unfortunately, the proposal does not seek to repeal the amendment to Section 130 in the Tax Reform Act of 1986 limiting the favorable tax treatment for structured settlement assignment companies to cases "involving physical injury or physical sickness." Thus, while the purpose of the Advocate's proposal is consistent with bringing non-physical damages back into the structured settlement tax-favored fold, it does not.

For prior S2KM blog posts directly or indirectly related to Jeremy Babener, see:

• Babener Proposes Expanded S2 Tax Subsidy
• Legislation to Expand the Structured Settlement Industry
• Jeremy Babener Interview
• SSP 2009 Annual Meeting
• NSSTA 2009 Fall Educational Conference

25 Questions to Evaluate Pooled Trusts

Health care reform (Patient Protection and Affordable Care Act), enacted on March 23, 2010, has re-defined the structured settlement and personal injury settlement consulting marketplace: whether current participants realize it - or (more probably) do not.

Among the strategic consequences of health care reform:

• An estimated 16 million more Medicaid participants - and therefore:
• More special needs trusts;
• More special needs attorneys;
• More structured settlement annuities payable to trustees.

Without focusing specifically on health care reform (not then enacted), the ASNP 2010 Annual Meeting included valuable presentations and handout resources indirectly related to health care reform, structured settlements and settlement planning/consulting.

Among those valuable presentations was Evan J. Krame's analysis titled "Not Very Special Trusts: Fixing Trusts to be Special and Using Pooled Trusts". As part of his ASNP trust analysis, Krame introduced a document he wrote titled "25 Questions to Evaluate Pooled Trusts".

In addition to his legal practice and teaching activities, Krame serves as President of Shared Horizons, Inc. Shared Horizons is trustee of the Wesley Vinner Memorial Trust (a pooled trust) serving people with disabilities in the District of Columbia and Maryland.

Krame has granted permission for S2KM to re-publish his list of 25 Questions here in S2KM blog format.

Trust Structures

• Check the Trust Agreement and Joinder Agreement? What do the documents say? For example, what powers does the trustee have?
• Is the trust approved and monitored by any state agencies?
• Who/what is really serving as the trustee? Is it the non-profit organization that created the trust or is it a third party hired to administer the trust?

Is this Trust Right for You?

• What are the costs of participation? Is there an initiation fee, an annual fee or a termination fee?
• How are the disbursements approved? What is the ease and method of disbursements? Who signs disbursement checks?
• What is the availability of advocacy on behalf of the beneficiary?
• How do they manage public benefit issues?
• How do they monitor the beneficiaries?
• Will the trust own illiquid or uncommon assets such as cars or homes?

Trust Management

• What is the reputation of the non-profit and/or trust management organizations?
• What is the organizational structure? Check on staff, space and activities.
• Who are the officers of the non-profit? What are their skills and background?
• What is the function of the board of the non-profit trustee?
• How long has the trust been in existence? Is there any reason to believe it could fail? How appropriately is the pooled trust compensated?
• How are the trust assets invested? Is there an investment policy in force that is followed? Is there an independent investment adviser? Is there an investment review committee? Is there an allocation model?
• How do they maintain separate shares? Do they uphold the duty to segregate?
• Is there liability and casualty insurance in place?
• How do they meet their duty to inform? Are statements provided to beneficiaries and state agencies (as required)?
• How do they meet their duty to account?
• How do they maintain their records? Are they precise, complete and accurate?
• How do they meet their duty of confidentiality?
• Do they have and/or employ legal counsel?
• Are there termination procedures in place?
• What is the policy as to funds at the death of a beneficiary?
• How do they handle income tax reporting?

Additional S2KM resources about settlement trusts:

• Settlement trusts re-visited
• Settlement trusts
• Single claimant 468B funds
• Selecting a settlement trustee
• Settlement trust due diligence
• Special Needs Trusts X
• Richard Halpern

Structured Settlements in 2009 - 2

This S2KM post follows "Structured Settlements in 2009 - 1" and features topical links to S2KM 2009 blog reports.

For 2010 industry updates, please continue to visit S2KM's blog as well as S2KM's structured settlement wiki.

Prior S2KM annual industry reports:

• Structured settlements in 2008
• Structured settlements in 2007
• Structured settlements in 2006

Professional Association Meetings

• NSSTA - National Structured Settlement Trade Association
  • Winter meeting
  • Annual meeting
  • Fall meeting
• SSP - Society of Settlement Planners
  • Preview
  • Annual meeting
• NASP - National Association of Settlement Purchasers
  • Part 1
  • Part 2
  • Part 3
• ASNP - Academy of Special Needs Planners
  • Annual meeting
  • Tim Nay interview

Settlement Consulting

• Part 1
• Part 2
• Part 3
• Part 4

Spencer v. Hartford

• Report 1
• Report 2
• Report 3
• Report 4

IRC 468B Qualified Settlement Funds

• Single Claimant 468B QSF Update
• IRC 468B and 5891
• Robert Wood's QSF Book
  • Summary and Review
  • Robert Wood Interview
• Jeremy Babener's QSF Paper
  • Summary
    
  • Review
    • Part 1
    • Part 2
  • Jeremy Babener Interview
• US Treasury Priority Guidance Plan 2009-2010

Dissipation Studies

• Introduction
• Jeremy Babener's Dissipation Paper
  • Summary and Review
  • Jeremy Babener Interview
  • Jeremy Babener Responds

Structured Settlement Credo

• Part 1
• Part 2
• Part 3
• Part 4
• Part 5

Rapid Settlements

• Pacific Life v. Rapid Settlements
• Allstate v. Rapid Settlements

Fresno County Factoring Cases

• Report 1
• Report 2
• Report 3

Additional S2KM Analysis

• Re-Thinking Structured Settlements
• Structured Settlement 2009 Mid-Year Update
• Structured Settlement 2009 Strategic Analysis
• Structured Settlements and Government Benefits
• Settlement Trust Due Diligence

Additional Primary Market Developments

• Forge Purchases TSSG
• Richard Halpern

Additional Secondary Market Developments

• S&P Withdraws JG Wentworth Credit Ratings
• Structured Settlement Securitizations

"Structured Settlements and Periodic Payment Judgments"

• S2P2J Release 45
• S2P2J Release 46

Richard Halpern

Richard Halpern, founder and President of The Halpern Group , died December 14, 2009 at age 64.

Halpern was one of the most important and controversial pioneers, critics and contrarian thinkers in the history of the structured settlement industry.

Halpern's education and training included electrical and computer engineering. Halpern started his professional practice in 1973 as a financial planner. At one time his insurance brokerage company was one of the largest in New Jersey.

Halpern entered the structured settlement industry in 1982 and subsequently clashed with the National Structured Settlement Trade Association (NSSTA) and the traditional NSSTA structured settlement business model. The Halpern Group business model focuses on plaintiff attorneys (especially the American Association for Justice) and their clients instead of defendants and their insurers.

Risa Lower, who worked with Halpern for 31 years and now serves as Acting President of the Halpern Group, offered this assessment of Halpern's contribution to the structured settlement industry: "Rich believed in the civil justice system and helping plaintiffs. Rich introduced products other than annuities. He gave plaintiffs a choice and changed how plaintiffs and plaintiff attorneys look at structured settlements."

U.S. Treasury Priority Guidance Plan 2009-2010

The tax treatment of single-claimant 468B qualified settlement funds (QSF) has been eliminated from the Priority Guidance Plan for 2009-2010 announced jointly on November 24, 2009 by the United States Treasury Department and the Internal Revenue Service.

Neither the Treasury-IRS announcement nor the 2009-2010 Priority Guidance Plan explain why the single claimant 468B tax issue was omitted following five years during which the controversial structured settlement issue has appeared on the Priority Guidance Plan - without ever being addressed.

The purpose of the Priority Guidance Plan is to focus United States government resources "on guidance items that are most important to taxpayers and tax administration." According to the announcement, the 2009-2010 Priority Guidance Plan contains 315 projects to be completed during the twelve months beginning July 2009. The Priority Guidance Plan also lists more routine tax guidance that is published each year.

Both the announcement and the Priority Guidance Plan state generally:

• "We intend to update and republish the Priority Guidance Plan during the plan year to reflect additional guidance that we intend to publish during the plan year. The periodic updates allow us flexibility throughout the plan year to consider comments received from taxpayers and tax practitioners relating to additional projects and to respond to developments arising during the plan year" and
• "The published guidance process can be fully successful only if we have the benefit of the insight and experience of taxpayers and practitioners who must apply the rules. Therefore, we invite the public to continue to provide us with their comments and suggestions as we write guidance throughout the plan year. "

A 468B QSF is a temporary fund into which defendants in certain cases can deposit settlement monies and receive an immediate tax deduction. QSFs represent an alternative for a defendant paying settlement monies directly to the plaintiff(s). QSFs allow time for plaintiffs and their advisers to organize and fund a settlement plan with a settlement sum certain and judicial approval - without negotiation and sales pressures from defendants and their insurers.

Despite "one or more" qualification language in the 468B regulations, various stakeholders within the structured settlement industry dispute:

• Whether single claimants qualify for 468B QSFs and
• What constitutes a single claimant for purposes of IRC 468B.

Jeremy Babener, a QSF analyst and author, summarized the primary tax dispute:

• "Legal arguments have revolved around whether economic benefit is incurred where defendant monies are transferred to a single-claimant QSF.
  
• "Where multiple claimants, and thus possibly competing interests are not involved, some have argued that the transfer to a QSF represents an unconditional and irrevocable transfer to the single-claimant.
• " If the existing QSF regulatory structure does not prevent this from being the case (a hotly contested fact), transfers to single-claimant QSFs would withhold eligibility to the structured settlement tax subsidy for any structured settlement between single-claimants and QSFs."

Richard Risk, an attorney who advocates for single claimant QSFs, interprets the decision to remove the single claimant 468B project from the Priority Guidance Plan as evidence that sufficient guidance favoring single claimant 468B QSFs already exists. Risk points to I.R.C. § 7805(d) which requires the Treasury Secretary to “prescribe all needful rules and regulations for the enforcement of [the Internal Revenue Code].” Risk concludes that Treasury’s decision is an acknowledgment that additional guidance is not “needful.”

Robert Wood, a leading tax attorney and author of the recently released treatise Qualified Settlement Funds and Section 468B, has recommended that the use of single-claimant QSFs be avoided without additional clarification, though he believes that the regulations “seem to allow the possibility of the single claimant QSF.”

Most recent S2KM analysis of QSFs:

• "Single Claimant 468B QSF Update" featuring Jeremy Babener's QSF paper; and
• "Robert Wood and 468B Funds" featuring Wood's new QSF book.