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Society of Settlement Planners Founding Mmeber

National Structured Settlements Trade Association Member

Guides for the Plaintiff Attorney

Why You Need A Plaintiff Broker On Your Side
The use of structured settlements in resolving personal injury claims is growing each year. And each year the defense industry comes up with new ways of saving money on unsuspecting plaintiffs and their attorneys. Read the top ten reasons the defense wants to control the process by clicking here. Many plaintiff attorneys feel it is professional malpractice to entertain structured settlements without the use of a plaintiff-loyal structured settlement specialist or “plaintiff broker.”

A plaintiff broker is your expert, held accountable and legally liable to you. The defense will use their own specialist called a “defense broker.” The defense broker is their expert and is not held accountable or legally liable to you [see Lyons v. Medical Malpractice Insurance, 730 N.Y.S.2d 345 (2001)].

Nearly all settlement agreements release everyone on the defense side, including the defense broker. So who will you turn to if the defense broker made an error or omission. With a plaintiff broker participating in the placement of the actual annuity, you have the plaintiff broker’s Errors and Omissions policy available. But unless the plaintiff broker actually participates in the placement (i.e. earns a commissions from the annuity provider), you may find yourself alone." 

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Structuring the Plaintiff's Settlement
Ninety percent of adult injury victims will squander their entire settlement within five years, regardless of the size of the award. These adults suffer from poor investments or lose out by having to pay taxes on their good investments. The courts require that minors’ settlements be placed in protected accounts that earn very little interest and even that interest is taxable. Worse yet, these children have complete access to the entire amount upon reaching the age of majority.

Bodily injury settlements are often the largest amount of money your client will ever have at one time, other than perhaps the sale of their home. Very few injury victims have any experience in investing and it is outside the scope of the attorney’s responsibility to provide financial counseling. But that is not so say that plaintiff attorneys do not have a responsibility to engage the services of a settlement planner.

A settlement planner has experience working with the unique needs of injury victims and uses that experience to put together financial plans that best meet the client’s future needs. This will typically involve consultative meetings with the injured victim and/or other family members or care givers. The process should commence prior to reaching a definitive settlement to maximize the effectiveness of the settlement plan. The plaintiff attorney may or may not be actively involved in the settlement planning process but minimally needs to know the parameters of the financial plan. For consider the case of the plaintiff attorney who neglects to consider the effect the settlement may have upon the injured victim’s government assistance benefits. Or if the injured victim has a reduced life expectancy but the plaintiff attorney settles for cash, the benefits of a rated age annuity have been lost forever.

The settlement planner should be well-versed in all aspects of planning for the financial needs of the injured victim, but not necessarily an expert in all fields. Instead, the settlement planner should have access to and experience with the individual fields of expertise required to implement the financial plan. Many plaintiff structured settlement specialists are experienced settlement planners. These “plaintiff brokers” work exclusively on personal injury cases and have network alliances with tax attorneys, trust attorneys, life care planners, and economists. Their training is unique to the ever-changing field of settlement planning for the injured victim and very few specialists are qualified to act in this capacity.

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Is Your Broker Really a Plaintiff Broker?
Nowadays it seems nearly every structured settlement broker claims to be a plaintiff broker. The truth is that of the five hundred structured settlement brokers in this country, only a few are really plaintiff loyal. The majority of these newcomer plaintiff brokers still derive the vast majority of their business from their defense clients, helping to perpetuate the plaintiff-abusive structured settlement processes so long enjoyed by defense. So how do you know if your broker is really plaintiff loyal?

Think back to how you first met our “plaintiff broker.” Did you bring him into your case or was he thrust upon you by the defense? Almost certainly he was working for the defense, working to save them money via the structured settlement. And after your case concluded, did this defense broker contact you and offer to assist you with your future structured settlement needs?

Sometime later you were again confronted with a defense-proposed structured settlement offer. You may have called your newly found “plaintiff broker” for assistance with evaluating offers and/or making counterproposals. And if your case concluded with a structure, chances are your “plaintiff broker” was compensated directly by the defense broker for his assistance in getting this matter resolved under the terms and control of the defense. These two brokers, whether you knew it or not, were successful at perpetuating the defense control of structured settlements and you assisted them.

These brokers were probably also involved in the creation and/or review of settlement documentation which gave them a full release of any and all liability from errors, omissions and professional misconduct in their handling of your structured settlement. Both you and your client signed off on these release terms.

Believing that your “plaintiff broker” had looked after your best interests, you may have subsequently contacted him on other cases. You may now seldom even question his recommendations. And that is precisely how he wants you to treat your relationship. So if your plaintiff broker is so helpful, why is it that your “plaintiff broker” doesn’t work exclusively for plaintiffs counsel?

Because if he did commit himself to the plaintiff side, his defense broker comrades would not be so willing to split commissions with him. Instead, he would be viewed as a defense adversary, an adversary that could not be trusted to help the defense save money by controlling the structured settlement process. He also would be sacrificing his lucrative and dependable stream of defense cases if he ever publicly declared his plaintiff loyalty. He would also be excluded from all Department of Justice claims under the newly enacted bill entitled, “The 21st Century Department of Justice Appropriations Authorization Act."

We stand at a unique point in time when the plaintiff attorney is rapidly gaining ground in the control of the structured settlement process and the defense is fighting aggressively to regain their absolute control. Private Letter Rulings in favor of the plaintiff’s control are now abundant, yet the defense brokerage community still bombards you with outdated and untrue reasons why you cannot control your plaintiff structures. Still, your continued use of defense-loyal “plaintiff brokers” will delay and compromise any chance of significant legislative changes in how your structured settlements are negotiated in the future.

It is important to remember that structured settlements are voluntary agreements. Should your client really be subjected to the self-serving rules and regulations that the defense industry created? Isn’t it time you join the plaintiff revolution and take control of your structured settlements using a plaintiff-loyal broker?
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Questions You Do Not Want To Hear After Settlement

• "I spent all my money already and now I heard I could have been protected using a structured settlement. Why didn’t you tell me about this option?”

• “I just found out the defense misrepresented their annuity cost on my structure. Don’t you owe me a refund on your attorney fees?”

• “Somebody told me that I would be getting higher annuity payments if we used a plaintiff broker to aggressively shop the market. How come you let the defense control this deal for me?”

• “My friend said with my medical background, I should be getting much larger payments on my lifetime income. Why didn’t you pursue this further with a plaintiff broker?”

• “I heard that the defense insurer received a kickback of commissions on my annuity. Does that mean they didn’t spend what they said they spent on my settlement?”

• “My friend used a plaintiff broker for his settlement. It didn’t cost anything and he got a much better structure than the defense offered. We had our own experts for everything else, why didn’t you tell me we could have our own expert for the biggest financial transaction of my life?”

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Top 10 Ways Defense Saves Money Writing Your Structured Settlements

1. In-house annuity programs that are noncompetitive and huge profit centers (the biggest abuse)
2. Defense broker commission rebates and kickbacks (25-50% are common)
3. Post-settlement medical underwriting (tremendous savings here)
4. Daily-rate annuity pricing (could be substantial dollars saved here)
5. Jumbo-case annuity discounts (there’s always room to sharpen a pencil for defense)
6. Last-minute switching of annuity carriers (why do they hide the company’s name until the end)
7. Inferior financially-rated annuity carriers (often the case with in-house programs)
8. Approved lists of annuity carriers (restricts free market competition)
9. Cash refund settlement options (Department of Justice loves to use these)
10. Cost savings fuel even more tort reform (need we say any more)
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468B QSF’s Can Be Your Most Powerful Tool as a Plaintiff Attorney
The use of a Internal Revenue Code Section 468B Qualified Settlement Fund (QSF) has long been recognized as a powerful tool in the plaintiff attorney’s quiver. The use of a 468B QSF permits the plaintiff to settle and release the defendant in exchange for a lump sum payment. Once the monies have been paid into the QSF and the defendant has been released, the QSF may be petitioned for distribution of funds, including a structured settlement. There are some restrictions and the defense industry will mount a serious challenge to almost any use of a 468B QSF, so you will want to contact your plaintiff broker before settlement negotiations commence in order to preserve this potent tool.
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The Grillo Release
In response to the “Grillo” case (Grillo v. Pettiette, et al, 96th District Court, Texas: Tarrant Country, Cause No. 96-145090-92 and Grillo v. Henry, 96th District Court, Texas: Tarrant Country, Cause No. 96-167943-97) in which plaintiffs counsel was accused of legal malpractice for failing to offer a structured settlement to his client, we suggest execution of some type of “Grillo Release” be kept in your file. A draft version is shown below. This should not be considered legal advice and you should only use this information as a guide.


I, the undersigned state that I have been advised by my attorney(ies) of the description and benefits of a structured settlement utilizing an annuity issued by a major life insurance company.
I understand the proceeds from a properly executed structured settlement would be tax free from both federal and state income taxes. I also understand a structured settlement would provide benefits to me under a number of settlement options, including as long as I and/or my spouse may live, and could guarantee benefits to my heirs after my death. I further understand that proceeds paid to my heirs would also remain tax free under current tax laws.
I understand that if I should not choose a structured settlement, I will be solely responsible to manage the proceeds based upon my own abilities. If the investments I choose should have any taxable gains or interest earnings, I understand that I am responsible to pay any and all taxes due each year. I also understand that I am responsible for budgeting my monies and recognize that my recovery proceeds may not last as long as I anticipate.
I understand that if I am, or become, unable to manage an all-cash settlement properly, I will not be allowed to obtain a structured settlement hereafter.
Based upon the information furnished to me by my attorney(ies), I decline any structured settlement of any kind and elect to take the entire settlement proceeds in cash.
Date: _______________ at ______________________________
Claimant/Plaintiff: ______________________________
Witness: ______________________________ 
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Notice of Plaintiff Broker of Record

Mr. Defense Attorney
Smith, Smith & Smith
1234 W. Defense Drive
Big City, IL 00000

Re: Jones v. Defendant

Dear Defense Attorney:

[Opening Comments]
As a part of any settlement which may be reached in this matter, we may be wishing to structure a portion of the settlement for the plaintiff.

Our next comments in this letter do not imply that we are anticipating trouble with [defendant’s insurer(s)]. However, we have experienced trouble with other insurance companies when we have asked for a structure, but the insurance company has made very thinly veiled attempts to gain financial advantage by attempting to control the structured settlement placement. This has led to lengthy delays while these issues were resolved. We raise these issues in advance to avoid trouble with [insurer].

We have a broker who represents the plaintiff. He has worked directly with the plaintiff in helping them select a format for the structure and in selecting the best rates from financially qualified companies. This broker also advises us on tax issues and assists in the creation and review of requisite settlement documentation.
We are designating the broker, Charles J. Derenne of Premier Settlement Services, Inc., to set up the plaintiff’s structured settlement. We will give [defendant] a release and we will then agree to a qualified assignment of the structure to the assignee of the annuity company selected by the plaintiff. This will remove [insurer] completely from this matter with a full release.

Some insurance companies attempt to say that they will dictate the annuity company. Unless [insurer] is willing to assume the role to become the entity to directly pay the future periodic payments and not be fully released until those structured payments are all made, and unless they are further willing to meet the best bid our broker can obtain for the structured payments, [insurer] cannot insist on naming themselves or an affiliated company as the provider of structured payments.

Some insurance companies attempt to dictate the broker to place the annuity. This is a thinly veiled attempt to get the annuity premium and/or commissions back to an affiliated company. This is bad faith, pure and simple. Often in these cases, the release attempts to release this broker from liability, thus absolving the broker from a breach of his fiduciary duties to be independent, from all the advice and statements which we have relied upon from this broker.
[Insurer] has to allow the broker to be independent from them and we have a broker who represents us so there is no conflict by the broker in getting the best annuity rates and terms for the plaintiff’s structure. This broker is also able to provide specialized information and assistance to the plaintiff to protect the plaintiff’s structure. We not only will not release this broker, but the brokers who work on our cases know that we are relying on them for this specialized information and we intend to hold them liable in the event their advice is not up to professional standards.

Any attempt of [insurer] to dictate the annuity company or broker, or any attempt to release the broker or otherwise control the structured settlement, would be an act of bad faith, attempting to link the settlement of this case to the interaction of a person who is not selected by the plaintiff and who does not represent the plaintiff but who has a long association with defendants and defendant insurers and who will not act independently to (a) advise the plaintiff on the best structured form, rates, tax issues and documentation and (b) will try to place the plaintiff’s annuity and/or rebate commissions with some insurance affiliate of the liability company.

As a final note, it is my custom to not add to a release an additional release to the insurance company for bad faith in settlement. In fact, I think it is bad faith to ask for such a release along with the release for the underlying claim. A claim for bad faith is a separate claim, with separate facts, from the demand of this claim. I do not release the bad faith issues unless they are negotiated and are the subject of additional consideration. I have found that some attorneys throw in the bad faith language into every release and then seem shocked when I strike it.

I trust that by raising these issues early we will avoid any problems.

Plaintiff Attorney
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Code Section 468B
Copyright (c) Tax Analysts - 2001 (May) Release.
Chapter 1 -- Normal taxes and surtaxes
Subchapter E -- Accounting periods and methods of accounting
Part II -- Methods of accounting
Subpart C -- Taxable year for which deductions taken
Sec. 468B. Special rules for designated settlement funds
IRCODE Sec. 468B
(a) In general
For purposes of section 461(h), economic performance shall be deemed to occur as qualified payments are made by the taxpayer to a designated settlement fund.
(b) Taxation of designated settlement fund
(1) In general
There is imposed on the gross income of any designated settlement fund for any taxable year a tax at a rate equal to the maximum rate in effect for such taxable year under section 1(e).
(2) Certain expenses allowed
For purposes of paragraph (1), gross income for any taxable year shall be reduced by the amount of any administrative costs (including State and local taxes) and other incidental expenses of the designated settlement fund (including legal, accounting, and actuarial expenses)--
(A) which are incurred in connection with the operation of the fund, and
(B) which would be deductible under this chapter for purposes of determining the taxable income of a corporation.
No other deduction shall be allowed to the fund.
(3) Transfers to the fund
In the case of any qualified payment made to the fund--
(A) the amount of such payment shall not be treated as income of the designated settlement fund,
(B) the basis of the fund in any property which constitutes a qualified payment shall be equal to the fair market value of such property at the time of payment, and
(C) the fund shall be treated as the owner of the property in the fund (and any earnings thereon).
(4) Tax in lieu of other taxation
The tax imposed by paragraph (1) shall be in lieu of any other taxation under this subtitle of income from assets in the designated settlement fund.
(5) Coordination with subtitle F
For purposes of subtitle F--
(A) a designated settlement fund shall be treated as a corporation, and
(B) any tax imposed by this subsection shall be treated as a tax imposed by section 11.
(c) Deductions not allowed for transfer of insurance amounts
No deduction shall be allowable for any qualified payment by the taxpayer of any amounts received from the settlement of any insurance claim to the extent such amounts are excluded from the gross income of the taxpayer.
(d) Definitions
For purposes of this section--
(1) Qualified payment
The term “qualified payment” means any money or property which is transferred to any designated settlement fund pursuant to a court order, other than--
(A) any amount which may be transferred from the fund to the taxpayer (or any related person), or
(B) the transfer of any stock or indebtedness of the taxpayer (or any related person).
(2) Designated settlement fund
The term “designated settlement fund” means any fund--
(A) which is established pursuant to a court order and which extinguishes completely the
taxpayer’s tort liability with respect to claims described in subparagraph (D),
(B) with respect to which no amounts may be transferred other than in the form of qualified payments,
(C) which is administered by persons a majority of whom are independent of the taxpayer,
(D) which is established for the principal purpose of resolving and satisfying present and future claims against the taxpayer (or any related person or formerly related person) arising out of personal injury, death, or property damage,
(E) under the terms of which the taxpayer (or any related person) may not hold any beneficial interest in the income or corpus of the fund, and
(F) with respect to which an election is made under this section by the taxpayer.
An election under this section shall be made at such time and in such manner as the Secretary shall by regulation prescribe. Such an election, once made, may be revoked only with the consent of the Secretary.
(3) Related person
The term “related person” means a person related to the taxpayer within the meaning of section 267(b).
(e) Nonapplicability of section
This section (other than subsection (g)) shall not apply with respect to any liability of the taxpayer arising under any workers’ compensation Act or any contested liability of the taxpayer within the meaning of section 461(f).
(f) Other funds
Except as provided in regulations, any payment in respect of a liability described in subsection (d)(2)(D) (and not described in subsection (e)) to a trust fund or escrow fund which is not a designated settlement fund shall not be treated as constituting economic performance.
(g) Clarification of taxation of certain funds
Nothing in any provision of law shall be construed as providing that an escrow account, settlement fund, or similar fund is not subject to current income tax. The Secretary shall prescribe regulations providing for the taxation of any such account or fund whether as a grantor trust or otherwise.
Background Notes
Sec. 468B Background Notes
(Added Pub. L. 99-514, title XVIII, Sec. 1807(a)(7)(A), Oct. 22, 1986, 100 Stat. 2814, and amended Pub. L. 100-647, title I, Sec. 1018(f)(1), (2), (4), (5)(A), Nov. 10, 1988, 102 Stat. 3582; Pub. L. 101-508, title XI, Sec. 11702(e)(1), Nov. 5, 1990, 104 Stat. 1388-515.)
1990 - Subsec. (e). Pub. L. 101-508 substituted ‘This section (other than subsection (g))’ for ‘This section’.
1988 - Subsec. (b)(2). Pub. L. 100-647, Sec. 1018(f)(4)(B), substituted ‘No other’ for ‘no other’ in concluding provisions.
Subsec. (b)(2)(B). Pub. L. 100-647, Sec. 1018(f)(4)(A), substituted ‘a corporation.’ for ‘the corporation,’.
Subsec. (d)(1)(A). Pub. L. 100-647, Sec. 1018(f)(1), inserted ‘(or any related person)’ after ‘taxpayer’.
Subsec. (d)(2)(A). Pub. L. 100-647, Sec. 1018(f)(2), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: ‘which is established pursuant to a court order,’.
Subsec. (d)(2)(E). Pub. L. 100-647, Sec. 1018(f)(1), inserted ‘(or any related person)’ after ‘taxpayer’.
Subsec. (g). Pub. L. 100-647, Sec. 1018(f)(5)(A), added subsec. (g).
Amendment by Pub. L. 101-508 effective as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such amendment relates, see section 11702(j) of Pub. L. 101-508, set out as a note under section 59 of this title.
Amendment by Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.
Section effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99-514, set out as an Effective Date of 1986 Amendment note under section 48 of this title.
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI (Sec. 1101- 1147 and 1171-1177) or title XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99-514, as amended, set out as a note under section 401 of this title.
Section 1807(a)(7)(C) of Pub. L. 99-514, as amended by Pub. L. 100-647, title I, Sec. 1018(f)(3), Nov. 10, 1988, 102 Stat. 3582, provided that: ‘In the case of any settlement fund which is established for claimants against a corporation which filed a petition for reorganization under chapter 11 of title 11, United States Code, on August 26, 1982, and which filed with a United States district court a first amended and restated plan of reorganization before March 1, 1986 -
‘(i) any portion of such fund which is established pursuant to a court order and with qualified payments, which meets the requirements of subparagraphs (C) and (D) of section 468B(d)(2) of the Internal Revenue Code of 1954 (now 1986) (as added by this paragraph), and with respect to which an election is made under subparagraph (F) thereof, shall be treated as a designated settlement fund for purposes of section 468B of such Code,
‘(ii) such corporation (or any successor thereof) shall be liable for the tax imposed by section 468B of such Code on such portion of the fund (and the fund shall not be liable for such tax), such tax shall be deductible by the corporation, and the rate of tax under section 468B of such Code for any taxable year shall be equal to 15 percent, and
‘(iii) any transaction by any portion of the fund not described in clause (i) shall be treated as a transaction made by the corporation.’
Section 1807(a)(7)(D) of Pub. L. 99-514, which provided that nothing in any provision of law be construed as providing that an escrow account, settlement fund, or similar fund established after Aug. 16, 1986, not be subject to current income tax and that if contributions to such account or fund are not deductible then the account or fund be taxed as a grantor trust, was repealed by Pub. L. 100-647, title I, Sec. 1018(f)(5)(B), Nov. 10, 1988, 102 Stat. 3582.
SUMMARY: Code Section Summary
Section 468B. Special Rules for Designated Settlement Funds.
Qualified payments, made under a court order, to a designated settlement fund established to satisfy claims against the taxpayer are excluded from the income of the fund. Gross income of the fund is taxed at the maximum rate under section 1(e), in lieu of other taxes. (Section 468B(b)(1);(4)) Deductions allowed for the settlement fund include administrative costs and legal fees. (Section 468B(b)(2)) Qualified Payments. Qualified payments are payments of money or property made to a designated settlement fund under a court order, excluding any stock or indebtedness of the taxpayer and amounts that may be transferred from the fund to the taxpayer. (Section 468B(d)(1))
Requirements for a Designated Settlement Fund.
1) The fund must be set up under a court order. (Section 468B(d)(2)(A))
2) The fund must be established for the principal purpose of satisfying present and future claims against the taxpayer arising out of personal injury, death, or property damage, and the fund must completely extinguish that liability. (Section 468B(d)(2)(A);(D))
Exception. Section 468B does not apply to contested liabilities under section 461(f), nor does it apply to claims under a workers’ compensation act. (Section 468B(e))
3) There may be no transfers from the fund except in the form of qualified payments. (Section 468B(d)(2)(B))
4) The majority of those administering the fund must be independent of the taxpayer, and the taxpayer may not hold any beneficial interest in the fund. (Section 468B(d)(2)(C);(E)) Exclusion of Qualified Payments from Income of Fund. Qualified payments to the fund are excludable from the income of the fund. (Section 468B(b)(3))
Deductible Expenses. The only deductions allowed to the fund are administrative (including State and local taxes), legal, and accounting costs incurred in the operation of the fund and that would otherwise be a deduction for a corporation. (Section 468B(b)(2))
Economic Performance. Economic performance occurs with each designated payment by the taxpayer to the designated settlement fund. (Section 468B(a) and (f))
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Commutation Riders
Commutation Riders, available upon request on structured settlement annuity contracts, can provide immediate liquidity upon the annuitant’s death. This can be especially useful to satisfy any possible estate tax obligations on larger settlements. Commutation riders should also be considered when the death of the annuitant would negate the need to continue receiving periodic payments in favor of receiving an immediate lump sum liquidation. Commutation riders are elective and must be requested at time of application.

Commutation Rider guidelines from Metropolitan Life Insurance Company are shown below but each annuity company sets their own rules. Contact your plaintiff-only structured settlement specialist for more information on this structured settlement feature.

• May commute up to 100% of any remaining guaranteed payments after payee’s death.
• Commutation election must be made at settlement.
• Commutation should be considered for all large cases especially those concerning a minor.
• Prior to making decision, claimant or claimant’s atty should consult with his or her tax advisor.
• Following language should be inserted into the SA, QA, and application after beneficiary designation:

If the claimant dies after the purchase of a structured Settlement Annuity by the Assignee, and there are any remaining and unpaid guaranteed payments under this structured settlement annuity, a percentage (1% to 100%, as applicable) of such payments will be commuted and paid to the designated beneficiary (or to the claimant’s estate, where no beneficiary is designated in the Settlement Agreement) in a single sum.

A commuted value equal to 95 percent of the cost of the annuity, which would provide such remaining commuted payments will be paid. MetLife will compute this cost based on its annuity purchase rates offered on this class of business at the time of the claimant’s death.

If such annuity rates are not available, the commuted payment will equal the present value of such guaranteed payment, and calculated using the following interest rate: the annual effective yield based on the current 30-year LIBOR swap rate plus 120 basis points (Source: Federal Reserve Statistical Release H.15) at the close of business on the date of the court order. If this date is not a business day, we will use the interest rates reported on the next following business day.

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In House Programs Injure Plaintiff

The common practice of defense-imposed “approved lists” of annuity providers injures the claimant once again by restricting the claimant from using the competitive forces of a free marketplace to maximize their structured settlement payments. Oftentimes the most extreme injury occurs when a captive affiliate of the defense insurer is used to write the structured settlement annuity.

These “in-house” programs generally are not competitive because there is no need to be competitive. Liability insurers use these in-house programs to financially gouge your clients and set you up for a malpractice complaint should the client ever want to know how you arrived at your valuation of the structured settlement offer when the free marketplace valuation was much lower than the value you placed on the annuity portion of the settlement.

A One-Two Punch in the Stomach

A recent example involved a young girl who was savagely attacked by multiple pit bulls while under the care of a paid caregiver. One of the liability insurers had a $1,000,000 policy which was reluctantly offered at mediation with the condition that $700,000 would be paid in cash and $300,000 would be structured with the in-house annuity carrier. The plaintiff attorney agreed to these terms without consulting their plaintiff-only structured
settlement advisor.

Because the deal involved a structured settlement, the plaintiff attorney later asked us to calculate the value of the structure so that she could show the judge how she calculated her fee. Chuck shopped the periodic payment schedule with all available markets and found numerous highly rated annuity markets that would charge $250,000 or less. When the plaintiff attorney confronted the liability insurer with this startling realization, she was told that there was already an agreement in place and it would not be renegotiated.

Bottom line:
The plaintiff lost out to the tune of $50,000.
The liability insurer saved $50,000 to help fund more tort reform legislation.

The second phase of the settlement negotiations involved two excess insurers. Each excess carrier had their own list of “approved” annuity markets with only two markets being common to each carrier. The plaintiff attorney negotiated a settlement with the two excess insurers for $2,000,000, with the condition that any structure be done with the most competitive carrier on their approved list. For all the obvious reasons, the plaintiff attorney needed to structure the little girl’s recovery. But once again, the plaintiff attorney negotiated the settlement without consulting with their plaintiff-only structured settlement advisor.

After settlement, we were contacted to work with the little girl’s parents and designed a split-funded (two annuity carriers) program using two highly-rated annuity carriers. These carriers were already very price competitive but became even more competitive because they offered a “jumbo case discount”, offered “daily rates”, and increased their “rated age” as the victim’s injuries affected their opinion of her remaining life expectancy.

When the plaintiff attorney presented her client’s wishes to the excess insurers, she was reminded of the terms of the mediation she agreed to which limited her client’s choices to what turned out to be only two annuity providers. It was only then learned that one of these providers was not even able to write the type of annuity program the client selected and the other grossly overcharged to do so. Faced with the circumstances, the plaintiff attorney
reluctantly recommended the overpriced program and the plaintiff reluctantly took a significant financial punch to the stomach.

Bottom line:
The plaintiff lost out again, but this time to the tune of over $100,000.
The liability insurer saved over $100,000 to again help fund even more tort reform.

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Rated Age Cost Savings Comparison
Injury victims may be assigned a “rated age” by the medical underwriters of the structured settlement annuity providers after they review summary medical information related and/or unrelated to the victim’s claim. This subjective determination often results in a wide range of rated ages among annuity carriers. A full-market, rated age study should be conducted by the plaintiffonly structured settlement specialist to ensure maximum benefits are obtained for any lifecontingent benefits. Because medical underwriting is a subjective process and is often associated with larger personal injury settlements, it is recommended that plaintiff’s counsel consult with only experienced and plaintiff-only structured settlement specialists to maximize recoveries and prevent plaintiff abuse by liability insurers and their structured settlement advisors.

To illustrate the financial impact a rated age may have on a structured settlement annuity, consider the cost of an annuity which would pay a 40 year-old, female a lifetime payment stream of $1000 per month with payments increasing 4% each year. Unfortunately, this woman suffered several spinal cord injuries as the result of an automobile accident. Failure to consider a rated age could either result in having to spend roughly $390,000 for an annuity that may cost as low as $235,000. And if only the defense insurer had access to this rated age information, they could offer a stream of payment which plaintiff’s counsel may believe to have a value of $390,000 when, in fact, the insurer is only going to pay $235,000. Now consider the very real problem of calculating a contingency fee based on a settlement that cost over $150,000 less than what was represented to the injured victim.

$1000/month for life, increasing 4%, 40 year-old female

Rated Age

Rated ages represent a very powerful tool in the right hands and an equally dangerous weapon in the wrong hands. Plaintiff’s council are strongly encouraged to seek assistance on any case which may even possibly involve a rated age. Annuity carriers are well aware that they are often in competition on rated age cases and will often give a second and even third rated age assessment to be price aggressive. Not all carriers choose to compete aggressively and some carriers pick and choose which cases they want to write. This is one area where a plaintiff attorney should look for a plaintiff-only structured specialist with significant experience and expertise.
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Taxable Annuities

SPIA’s and SPDA’s

There are certain occasions where a tax-free structured settlement is not possible. Perhaps the case does not involve physical personal injuries or you have already received the settlement proceeds. For these situations, two types of tax-advantaged annuity products should be considered.

The first annuity product is a Single Premium Immediate Annuity (SPIA pronounced “spee-uh”). SPIA’s can provide payments for either a period certain or lifetime basis. Lifetime annuities can be written with or without a period certain feature. Annual Cost of Living Increases (COLIs) are available. Payments must commence within one year of funding. Provided funds going into the annuity were tax-free under IRC Section 104(a)(2), annuity payments are tax-preferred when received. As such, a portion of each payment is taxable and a portion is tax-free. This tax-free
portion as a percentage of the total payment is referred to as the exclusion ratio. The exclusion ratio is calculated by the annuity carrier and varies depending on the payment schedule and life expectancy of the annuitant (for lifetime payment plans). SPIA’s have no cash value.

The advantages of a SPIA are similar to those of a structured settlement annuity. SPIA’s provide protection from reinvestment risk, mortality risk, and dissipation risk. The rate of return is similar to that of other safe investments. The exclusion ratio is additionally attractive.

The other tax-advantaged annuity product is a Single Premium Deferred Annuity (SPDA). As the name implies, SPDA’s accept a single premium deposit. Generally, funds may be withdrawn from the SPDA at any time, but are usually limited to once per year and ten percent of the account value without incurring penalties. The advantages are that you can defer paying income tax, enjoy compounded growth, and retain liquidity. At any point in time, the annuitant can also elect to annuitize their SPDA into a SPIA SPDA’s come with initial interest rate guarantees of various duration. Renewal rates are subject to market conditions. Most SPDA’s offer minimum interest rate guarantees. SPDA’s can be fixed interest or variable interest. Variable SPDA’s yields are tied to equity markets or indices.

Fixed-interest SPDA’s are excellent products for unneeded cash. Sales of SPDAs and SPIAs have increased dramatically in recent years with concerns about the equity markets, the longevity of the aging population, and the loss of other tax-advantaged opportunities.

Not all structured settlement specialists have experience with these products.

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The Society of Settlement Planners
The Society of Settlement Planners (SSP) was formed by plaintiff-loyal structured settlement specialists with the common interest of promoting and preserving the right of the injured plaintiff to choose their own advisor and the financial providers that will be legally and financially responsible to them for the rest of their lives. As a Founding Professional Member, Founding Board of Director and Past President, Chuck Derenne of Premier Settlement Services, Inc. invites you to consider joining the Society of Settlement Planners as an Associate Member. Your $250 annual dues support our political and legislative efforts to further the SSP’s Mission, which is:
To assist injury victims, claimants and attorneys in resolving their legal financial claims, and to advocate the injury victim’s right to choose settlement planning advisors and financial and guarantee providers.
Apply Online Here.
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Last modified: July 24, 2012