Randy Levine

Know Your Facts Before Purchasing Your Structured Settlement in the Secondary Market

February 2, 2015 by Randy Levine 2 Comments

If you’re a member of the TV watching world you’ve probably seen tons of commercials offering to purchase structured settlements for “Cash Now”, especially in the last twelve months.

Designing and setting up a structured settlement provides the settlement recipient with a guaranteed steady income stream for the rest of their life or a specific time period. The money grows in a tax-free annuity, so for example a $400,000 settlement can grow to be worth $1 million, that will pay out in monthly installments over time, in a structured settlement.

JG Wentworth and other purchasers offer to buy these annuity streams for straight up cash now, so that the structured settlement holder does not have to wait for each installment. For example, they might entice the recipient of the $400,000 settlement with an offer of $600,000 although the structured settlement is worth $1 million. This is called “Factoring.” The danger for our clients is: where do these factored/purchased annuities go and can it affect your future clients?

The Factoring companies (Purchasers) “warehouse” these annuity streams and try to sell the recycled payment rights back to new injured parties through originators a.k.a structured settlement firms like ours. The theory is that these secondary market recycled annuities would be more appealing because the internal rates of return (IRR) on purchased/recycled annuities tend to be higher than brand new ones. However, when the stream is transferred there is a high risk that the annuity may lose its tax-free status, as it is no longer is a qualified assignment under IRS section 130. In addition, the recycled annuity’s protection from the various State’s health and life guaranty association may be lost. There may be legal challenges from the SEC and FINRA to the new ownership too, as securities may not be registered with the SEC. Plus, the purchaser may charge an expensive commission.

Here at ESS, we would be uncomfortable putting our stamp on one of these re-bundled annuities. We find the secondary market these purchasers are creating shady and unreliable, as they often fail to inform people about the tax-status of the stream. We know that 3.5 percent IRR that is tax-free is better than a recycled false 5 percent IRR that is now taxable growth. Not everyone is properly advised and people often get lost in the false rates of return. While what they are doing is legal, the gray areas concern us and we think that people should know the facts before purchasing a secondary market structured settlement annuity.

What has your experience been in the secondary market? Share your comments with us and let us know your thoughts.

Are ABLE accounts, used to provide for people with severe disabilities, a replacement for structured settlements?

January 13, 2015 by Randy Levine Leave a Comment

There is a valuable new tool for settlement recipients with severe disabilities: an ABLE account. With the passage of the “Achieving a Better Life Experience Act of 2014” or the ABLE Act on December 3, 2014, individuals with special needs or disabilities can now own tax-free savings accounts with up to $100,000 in funds without losing needs-based government benefits, such as Medicaid and Supplemental Security Income, or SSI.

The Act’s stated purpose is “to encourage and assist individuals and families in saving private funds for the purpose of supporting individuals with disabilities to maintain health, independence and quality of life.”

The ABLE Act amends Section 529 of the Internal Revenue Code, which formerly only made college savings plans tax exempt. ABLE accounts are intended to provide for disability-related expenses for the individual such as education, housing and transportation so that people with severe disabilities can live and work independently. ABLE accounts are strictly for people with severe doctor-certified disabilities incurred prior to age 26 who qualify for needs-based benefits. Individuals over age 26 are eligible as long as there is documentation proving they’ve had the disability since before their 26th birthday. [Read more…]

Our Favorite Apps for Lawyers

January 6, 2015 by Randy Levine Leave a Comment

As we kick off 2015 we want to just pause and review some of the best apps out there for lawyers. Through our work here at ESS, we sit in on as many as ten settlement mediations per week, so we see all sorts of presentations and we notice when lawyers use technology effectively. Part of getting the maximum return on a case is being trial ready and prepared so having reservoirs of information within just a few clicks or swipes of your fingers goes a long way. These apps are useful not only for mediation, showing you are trial ready, but are also very useful for trial preparation and the trial itself. Between computers, tablets and mobile devices there are many options for lawyers to enhance their practice by leveraging the latest technology.

Here are some of our favorites apps:

1) TrialPad: Don’t even get us started on how much of a game changer the iPad was for lawyers in 2014. Though it comes with a hefty $89.99 price tag, this is one of our favorites for importing files because it integrates with Dropbox and lets you highlight, redact and scribble on your notes.

2) Exhibit A: As the name suggests, this app enables you to share a presentation with a jury or mediator. Digitally presenting your information saves many trees, as these presentations are easily 50-60 pages long. This app, while not as highly recommended as TrialPad only costs $9.99.

3) Circus Ponies Notebook: We don’t just love it for the funny name. This electronic notebook helps you record meetings and take notes so you won’t need to lug boxes and binders. Outfitted with a traditional “notebook” look, it helps you keep everything in one place, capture every detail and find facts quickly. [Read more…]

What Are The Benefits of Life Insurance for Structured Settlements?

December 22, 2014 by Randy Levine Leave a Comment

Structured settlements are great for personal injury clients who will need care for years to come — maybe for the rest of their lives — but sometimes even that is not enough. What if this client is completely reliant on someone else, a parent or child, who provides care almost 100 percent of the time? What if something were to happen to that person? What will happen to the client then? Who will take care of them and how will they pay for that care?

A child with a terrible birth defect who was going to need care for her entire life received a settlement for her birth injury. We established a settlement preservation trust, into which a structured monthly payment would cover all of her needs. Fortunately her parents were able to take care of her. We wanted to make sure that she would be taken care of in the worst case scenario: if something were to happen to her parents and one or both of them were no longer able to care for her.

Through her trust we purchased a life insurance policy for each of her parents. The premiums were paid over the course of five years with five structured payments. If something were to happen, the trust would receive a $2 million cash influx to cover the costs of professional care, school and any other needs that could arise. Obviously, we hope that her parents will be around for a long time, but now we know we’ve gone above and beyond to plan for the worst curve ball life can throw. And if nothing happens, there will be tax-free income from the cash value of the policy waiting for her when she’s older.

We recommend adding life insurance for caregivers to structured settlements for clients with a catastrophic chronic or permanent condition, such as a brain injury. Each case has its own needs, whether they are medical, home care or special education; but life insurance should always be considered. This is a great way to be prepared for unforeseen circumstances while providing maximum flexibility.

Life insurance policies provide an additional source of tax-free income that can always be liquidated. They diversify the income sources for a client as well. Life insurance is also an investment that provides the potential for growth to supplement the fixed income from the structured settlement.

They say that nothing can prepare you for the grief of losing a parent or child, but you can be prepared financially for the ultimate worst-case scenario.

How are you accounting for worst-case scenarios? Do you have any examples of how life insurance was helpful in a structured settlements situation? Please share your thoughts and ideas with us.

How Dennis Rodman and Confidentiality Clauses may Affect Your Legal Settlement

December 2, 2014 by Randy Levine Leave a Comment

There’s something we’re seeing more and more of here at ESS Settlement Services. It’s subtle, quiet and often sneaks in at the last minute, when all but the sharpest sets of eyes are no longer paying attention. It’s something we think more lawyers should know more about and be wary of: one-sided confidentiality clauses.

It’s no secret that a large percentage of settlements have a confidentiality clause thrown in at some point. This is to ensure that both parties keep the contents of the document private and it’s often important to many clients. The problem arises when only one side is subject to confidentiality and that problem is taxes.

Take the now famous Amos case, for instance, where prominent Chicago Bulls basketball player Dennis Rodman chased a ball out of bounds and fell onto a group of photographers. As Rodman, who was known for erratic behavior, disentangled himself from the throng he kicked photographer Eugene Amos in the groin.

Amos alleged that the kick was intentional and lawyered up, seeking damages for his injuries. Rodman’s attorney contacted him shortly after and the parties agreed to a $200,000 settlement, before a lawsuit was filed. The settlement imposed an obligation on Amos to keep the terms confidential.

Settlements for physical injuries or illnesses are ordinarily tax free, so Amos excluded the full $200,000 from his taxes. However, the IRS audited him and declared that only a nominal amount was tax-free because his injuries were minor and the bulk of the amount was simply to keep the settlement confidential and prevent Amos from defaming or disparaging Rodman. Ultimately, the court ruled that 60 percent was exempt, while 40 percent of the settlement was taxable. [Read more…]

Affordable Care Act-How the ACA Affects our Industry

September 19, 2014 by Randy Levine 1 Comment

Essentially, the ACA protects insurance coverage for the uninsured. It eliminates lifetime limits on benefits for any participant or beneficiary. (ACA, Sec. 2711) and provides coverage for pre-existing conditions (ACA Sec. 2705). No longer can people be denied coverage for the following factors:
1. Health status/medical condition
2. Claims experience
3. Medical history
4. Genetic information
5. Disability
Insurance companies must now cover ‘essential health benefits’ (ACA, Sec. 1320) to at least include the following:
1. Ambulatory patient services (out care received without being admitted to a hospital)
2. Emergency Services
3. Hospitalizations, example surgeries.
4. Maternity and newborn care
5. Prescription drug coverage
6. Laboratory services
7. Pediatric services
8. Preventive and wellness services
9. Rehabilitative and habilitative services
10. Mental Health & Substance Abuse Disorders (Added February, 2013, by Sec. Sibelius of Dept. HHS. [Read more…]

IRS Approves New Option for Structured Settlements!

September 12, 2014 by Randy Levine Leave a Comment

The Internal Revenue Service (IRS) on August 29, 2014 issued a Private Letter Ruling (PLR-143928-13) approving a Pacific Life Structured Settlement annuity with an annual payment adjustment based on the S&P 500 Index’s performance. In addition, the claimant can request an immediate present value lump sum commutation payout of their annuity by submitting a Notice of Hardship Conversion request to the Life Company’s Assignee who will review and consider it on a case by case basis.

Pacific Life launched the Index-Linked Annuity Payment Adjustment Rider and has published a brochure that helps educate attorneys and their clients on the program and its benefits. . It has hypothetical examples showing how the payments of one’s annuity can increase annually based on a positive S&P 500 index returns with a 5% cap and the annual payment cannot decrease if the S&P 500 Index return decreases or remains flat. [Read more…]

Go Take a Hike Rawlings!

September 10, 2014 by Randy Levine Leave a Comment

Dealing with Medicare, Medicaid and with ERISA plans can be extremely frustrating for personal injury attorneys. Lawyers that perform services pursuant to a retainer agreement on a contingency basis are forced to spend many months in the post settlement stages fighting liens that generate no revenue to the firm. Some lawyers and firms choose to outsource these problems to lien counsel experts, however in many instances a lawyer is tempted to tell the collection companies like Rawlings to “Take a Hike” on their ERISA lien. The good news is that now NY lawyers can do that when it comes to fully funded ERISA liens!

On July 31, 2014, The U.S. Court of Appeals, 2^nd Circuit issued a decision reversing the Eastern District Court in Wurtz v. The Rawlings Company, that states that New York General Obligation Law 5-335 shall not be pre-empted by the Federal ERISA statute. So as a result, lawyer no longer need to fight with collection companies when it comes to Fully Funded ERISA Plans. [Read more…]

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