Since it was first published in 1986, “Structured Settlements and Periodic Payment Judgments” , has provided structured settlement stakeholders with an authoritative reference guide, consisting of 16 chapters with extensive footnotes and Appendix documents, to help them understand historical development as well as current issues and fashion settlements and judgments utilizing periodic payments.
Personal Injury Settlement Planning
The book also discusses, “personal injury settlement planning” a term that can describe an emerging profession, a settlement process, a product and service market and/or a structured settlement business model. Structured settlement annuities are considered by many personal injury settlement planners to represent a strategic core product as part of a personal injury settlement plan.
From some perspectives, the definitions for a “structured settlement” and a “personal injury settlement plan” could overlap or be deemed to be identical. In practice, they generally are not. Originally, a defense concept, a structured settlement is generally viewed as consisting of cash and periodic payments funded with a structured settlement annuity.
Originally a plaintiff concept, a personal injury settlement plan is generally viewed as product neutral. It may include one or more structured settlement annuities but also other financial products frequently integrated with government benefits and trusts.
Release 70 of “Structured Settlements and Periodic Payment Judgments” continues to update its analysis of structured settlements and settlement planning as new products and markets increasingly reshape their overlapping marketplace.
Co-authored and updated semi-annually by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert, S2P2J features an online version as well as the traditional hard copy. Online S2P2J includes a search feature and download capability as well as link features to access individual book sections, appendices, footnotes, cases and statutes.
Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) have utilized “Structured Settlements and Periodic Payment Judgments” as an educational resource for their certification programs.
Next month, publisher Law Journal Press will distribute hard copy supplements of Release 70 with online subscribers receiving their update simultaneously with no additional subscription charge.
Guest Author Jeremy Babener
Among the new features in Release 70 are updates to multiple chapters and sections which have been impacted by The Tax Cuts and Jobs Act of 2017. Guest authored by Jeremy Babener, these additions explain how this legislation disallows the miscellaneous itemized deduction for years 2018 through 2025, thereby preventing many personal injury plaintiffs in taxable cases from deducting their legal fees. Jeremy’s book additions also discuss a specialized strategy to mitigate this double tax problem, first offered by Eastern Point Trust Company as the “Plaintiff Recovery Trust.”
Jeremy’s recommended solution to avoid this double taxation involves settlement planners helping plaintiffs transfer their taxable claims into split-interest charitable remainder trusts where the attorneys have an interest in the trust instead of a contingency fee claim on the settlement. These trusts can then subsequently pursue the claims and either receive the recovery or effect a structured settlement with the attorneys getting their share of the trust property and the plaintiffs their share only, thereby avoid double taxation.
Because non-qualified assignments are often used in taxable cases, Jeremy’s analysis also updates the section of the book addressing non-qualified assignments as well as the sections covering trusts and taxation of damages.
Chapter 16 and Factoring
The “secondary market” (aka “factoring”) represents one of the most significant, and arguably the most controversial, issues to emerge within the structured settlement industry since “Structured Settlements and Periodic Payment Judgments” was first published in 1986.
The book devotes the entire Chapter 16 (titled “Transfers of Structured Settlement Payment Rights”) to this subject consisting of eight sections and 174 pages including tables, charts and extensive footnotes.
The purpose of Chapter 16 has never been to attack or support the right of structured settlement claimants to transfer their rights to receive periodic payments under structured settlements. Nor has it been to criticize or applaud what the factoring industry does.
Rather, the purpose has been, and continues to be, to analyze the issues that have resulted from structured settlement transfers in the context of related legislation and judicial decisions as well as the terms and conditions of specific settlement agreements.
In addition, Chapter 16 offers an historical view of how the structured settlement transfer market has developed since 1986 and provides added insights about how it might further evolve in the future.
IRC § 5891 and the state structured settlement protection statutes have indeed accomplished important objectives. IRC § 5891 confirms the federal tax subsidy for structured settlements not only for qualifying claimants but also for Qualified Assignees under IRC section 130.
The state-run system for reviewing and approving transfers that has been enacted replaced a chaotic, “wild west” era that put all parties including annuity providers at risk. A 40 percent excise penalty now exists for transferees who fail to obtain a qualified judicial order in advance.
Unfortunately, however, the system has proven costly – both to create and to operate. And the system has not entirely eliminated ill-advised factoring or the problems factoring has caused for annuity providers.
Although IRC § 5891 and the state structured settlement protection statutes have not eliminated factoring abuses, they have arguably reduced the abuses – and perhaps saved the structured settlement industry in the process.
Updates to Chapter 16
Release 70 continues to provide important updates to Chapter 16 – and represents a “must read” chapter for every structured settlement and settlement planning professional who purports knowledge of the secondary market.
In addition to case updates, Release 70 features a new Chapter 16 subsection titled “Critics and Alternatives” which highlights supplemental and suggested alternative solutions to the current statutory scheme.
In retrospect, some critics have argued the primary market annuity providers should have eliminated the factoring problem from the start by offering commutations or aggressive defeasance programs. Some annuity providers eventually have offered commutation riders and or aggressive defeasance strategies. See, for example, Independent Life’s own Payee Protection Policy. However, these developments have occurred long after factoring and factoring companies had gained an entrenched position in the marketplace.
Other critics have suggested statutory or non-statutory strategic alternatives. For example, Professor Karen Czapanskiy, writing in the University of Detroit Law Review has proposed repealing the exemption of judicially approved state structured settlement protection act factoring transactions from the confiscatory 40% excise tax imposed by IRC section 5891 (a) which, she argues: 1) is supported by critical tax policy; and 2) would provide a significant disincentive to factoring companies who might otherwise want to purchase periodic payment rights.
Similarly, in a 2020 Columbia Law Review article, James Gordon argues the state legislative scheme to approve transfer petitions “has fundamental substantive and procedural flaws that prevent it from achieving its purpose.”
Mr. Gordon further maintains that annuity providers violate their contractual obligation of good faith to a personal injury victim payee when they accept an administrative fee from a factoring company to waive an anti-assignment clause.
As a solution, Mr. Gordon proposes that courts: 1) recognize that personal injury victims are direct or third-party beneficiaries of the anti-assignment clauses incorporated in virtually all structured settlement agreements; and 2) require annuity providers (or their assignment companies) responsible for structured settlement payments to exercise their contractual obligation of good faith when choosing whether to waive these clauses.
“Structured Settlements and Periodic Payment Judgments” represents a unique and essential everyday reference guide for structured settlement and settlement planning professionals. Updated Release 70 will be available next month in both online and hardcopy formats. Every member of NSSTA, SSP and the newly formed American Association of Settlement Consultants (AASC) should own and regularly utilize a current copy.