“Our son sustained a horrible injury during birth that will require life-long medical care. There will be a large malpractice settlement. Our lawyer strongly recommends a structured settlement annuity, but my financial adviser says he can significantly grow the funds with proper, managed investments. What should I do?”

Interest in structured settlement annuities has been growing in 2024. Insurance companies issued about $2.6 billion of these specialized annuities from July to September, according to John Darer, a Connecticut expert on structured settlements. Darer sees demand for structured annuities topping $9 billion this year.

The reason for this growing demand is easy to see. Accident victims need a secure place for their settlement funds. Financial or political uncertainties could do real damage to stock portfolios.

Listen to your attorney!

When a child is involved, financial planning is completely different from ordinary investing. There’s often no room for error. While stock investments have the potential for growth, they can and do fall, bonds can be called, and either can result in serious economic risk for your child.

Your child’s health is at stake, and you need financial security. Even a well-diversified mix of stocks and bonds can’t offer the guaranteed tax-free income you get with a structured settlement annuity.

Retain experienced counsel

“It’s good that your reader is working with an experienced personal injury attorney who can recommend a structured settlement professional to help design a payment stream that matches his child’s future needs,” Darer said.

He offered some other important information to know about this process:

Your biggest benefit: peace of mind. Ponzi schemes hit a seven-year high in 2023, according to the website Ponzitracker.com. If you get a large cash settlement, you can expect friends, neighbors, distant relatives and swindlers everywhere to hound you for money. They will pressure you for help repairing their car, going to Las Vegas or investing in crazy get-rich-quick schemes.

If you are someone who can’t say no, then your protection and safety lie in a structured settlement annuity held by an insurance company that pays according to the plan you designed with your attorney and settlement consultant. That way, no one can pressure you to put your future at risk. You get what is paid each month — nothing less and nothing more.

Your payments are guaranteed by a state insurance fund. Insurance companies are regulated at the state level, and each state has an insurance guaranty fund. These funds provide minimum guarantees (up to $250,000 in most states) in the unlikely case your structured settlement annuity holder becomes insolvent. The concept is similar to how the FDIC guarantees the first $250,000 of your bank account. Often, large settlements are placed with several insurance companies, assuring adequate protection.

Payments are exempt from income tax. Under the federal tax code, 100% of your structured settlement payments are exempt from federal, state and local income taxes. They are also exempt from taxes on interest, dividends and capital gains. This is an especially big benefit if you live in high-tax states such as New York, California, Illinois, New Jersey and Massachusetts.

No ongoing fees. Advised to have a stockbroker manage your settlement for you? Get ready to pay and pay and pay. Advisers charge in several ways including flat fees, commissions and an annual percentage of your assets. You may not deduct these fees on your taxes. By contrast, there are no ongoing fees with a structured settlement. The professional you work with on your settlement receives a commission from the insurance company. You pay nothing.

Three additional suggestions

Finally, if you consider a structured settlement, here are three suggestions I can make as a lawyer who has represented accident victims for over 30 years:

Make sure your structured settlement consultant has a certification. The University of Texas, among other institutions, runs a certification program requiring graduates to demonstrate competency in insurance and financial strategies. “The program does a good job in promoting industry competence,” says Peter Arnold, a certified structured settlement consultant for 20 years. “It’s also been effective in freezing out people outside the structured settlement industry, especially financial planners and the settlement purchasing industry.”

Get annuity quotes in writing. Many solid insurance companies issue structured settlement annuities. Make sure your structured settlement consultant gets quotations on the annuity cost directly from the insurer and in writing. Do not rely on a defense attorney or their structured settlement consultant.

Insist on written disclosure of “backdoor” benefits to your broker. A shady underside of the structured settlement industry involves swanky trips and other benefits insurance companies put on for brokers to gin up business.

Several years ago, I wrote about Pacific Life Structured Settlements offering agents a trip to Dubai and the Maldives. In my view, these trips violate financial trust and the industry’s written code of ethics. Make sure the consultant you work with discloses in writing any benefits, including junkets, they have received from insurers during the past three years and may reasonably be expected to receive in the next 12 months.

In a future story, we’ll look at the perils of selling your structured settlement.

Dennis Beaver Practices law in Bakersfield and welcomes comments and questions from readers,
which may be faxed to (661) 323-7993,
or e-mailed to Lagombeaver1 – at – Gmail.com.

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Friends of this column, Brian Kabateck of Kabateck LLP, and his partner Shant Karnikian have earned a nationwide reputation as among the most successful plaintiff’s lawyers handling cases on behalf of consumers against insurance companies, large corporations, and wrongdoers.

Brian Kabateck has served as President of the Los Angeles County Bar Association and the Consumer Attorneys of California. Concerned that the actions of a select few nefarious lawyers have risked the reputation of an entire profession, Brian and Shant felt the need to share some guidelines for the average consumer to keep in mind when hiring an attorney.

1. Understand timing and expect reporting from your lawyer. Generally, cases have important dates or events like status conferences, hearings, and trial setting conferences during which important decisions may be made. Your lawyer should be advising you of all important dates and rulings.

2. Always be aware of the agreement you entered into. If this is a contingency fee agreement there should be specific percentages laid out in the contract also known as the “retainer agreement”. Understand those percentages. This is particularly important when you are settling the case. Often clients misunderstand the percentages because some attorney agreements might have a sliding scale starting at a lower percentage if the case settles early and going to a much higher percentage if the case goes to trial or gets close to trial.

3. The lawyer’s fee is earned when the case settles and when the settlement funds. Unless you dispute the amount of fees, the lawyer is entitled to take his or her fees upon payment of the settlement. This fee is dictated by the retainer agreement, and it is compensation for the lawyer’s time and effort.

4. In addition to the lawyer’s fee, expect that you will be charged costs and expenses. The case is not free. Not only does the lawyer earn a fee but often the lawyer is advancing costs like filing fees, the cost of ordering court reporters, or copies of transcripts. Those costs may be deducted before or more likely after the attorney fee is charged.

5. Look closely at the costs that you are being charged. Ask for a breakdown. Watch out for certain “hidden costs” which may be impermissible such as an administrative cost to set up a file for the lawyer or a cost to review a file. These are more traditional legal fees which are being disguised as costs. On the other hand, the agreement you have signed may authorize the lawyer to charge a cost for setting up a file.

6. When reviewing costs, determine if it is an in-house fee that the lawyer is charging or if it is an outside vendor. Often lawyers may charge you costs for an in-house fee which is perfectly permissible if it was outlined in the retainer agreement.

7. At the end of the case, often the net recovery for the client can be put into a “structure” or an annuity which will provide a substantial tax benefit to the client, but be very careful if the lawyer claims they are investing money for you or promises to invest your money. This is most often impermissible and is a red flag.

8. Another red flag would be any long delay after settlement. After you enter into a settlement you can usually expect anywhere from two to four weeks before the settlement will fund (sometimes longer if it takes longer to execute a settlement agreement) but any delay beyond that is worth an explanation. Also, within a short period of time after a settlement funds you should receive your net proceeds. Delays are a warning flag.

9. Another warning flag is asking for money during the case when it is not called for. Sometimes lawyers will ask their clients to pay for costs or expenses that they have already contractually agreed to advance.

10. If you win the case and the other side appeals or if you lose and you decide to appeal, your retainer agreement or contract with your lawyer may not cover an appeal. Be sure you understand that in advance and be sure the lawyer is not charging you for something you have not agreed to. It is completely permissible for the lawyer to ask the client to sign a new agreement for an appeal, but they cannot charge you more money unless you have agreed to it.

11. Make sure the lawyer you hired is the lawyer who is actually going to try your case. It is not uncommon for lawyers to handle lawsuits and then refer it out to somebody else to try, but you want to know that up front. Are you hiring a lawyer who is going to try your case? Or are you hiring someone to simply present the claim and then, if it does not settle, hand it off to somebody else? Most states require the client to agree in writing if the lawyer is going to share his or her fee.

12. If you fire your lawyer, they may put a lien on your case but, in most situations, they cannot demand payment upon firing unless the retainer agreement calls out for it. Conversely, if the lawyer withdraws from the case or decides to stop representing you in the case, many states do not allow the lawyer to recover fees.

13. Remember that the case is going to take a long time to work its way through the courts, particularly in the post-COVID world. Courthouses across the country have become log jammed with cases and trials. A case that could go to trial in 18 to 24 months before the pandemic may now take three to four years or longer because of the backlog. Delays are expected, but make sure your lawyer keeps you informed about the reasons for such delays.

14. You may have a great case with clear liability and substantial injuries or damages, but you need to find out early from your lawyer if the defendant has the ability to pay or if there is adequate or inadequate insurance. Make sure your lawyer communicates with you.

15. Communication is the great panacea for all difficulties in an attorney-client relationship. No client has ever complained because they have gotten too much information. Conversely, be wary of a lawyer who is not keeping you posted on what is happening in your case or ignoring your requests for updates.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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Regular readers of this column will recall that I strongly support structured settlement annuities for accident victims. But as you will see, while extremely rare, at times it is not all smooth sailing.

If the term “structured settlement” is new for you, let me explain why I believe most plaintiff’s attorneys in the country like this method of settling personal injury and workers compensation cases.

Recognized and encouraged by the Federal tax code since 1983, structured settlements are financially appealing for anyone settling a physical injury or wrongful death insurance claim. The Federal tax code gives you the choice to have some or all of your settlement funds used to purchase an annuity with a highly-rated life insurance company that will provide safe, tax-free income on a schedule you determine.

A structured settlement is like having your own pit bull who bares its teeth and growls when “family and friends” pressure an accident victim for a large loan. The annuity pays a specific amount on a certain time table, and this prevents the accident victim from becoming his own worst financial nightmare, because the amount of payments can’t be changed.

With Federal and State tax rates likely increasing, the prospect of long-term tax-free income is incredibly appealing. That’s why I have counseled accident clients for years to look at structured settlements’ benefits.

Every industry has its rotten apples

On Wednesday, Sept. 23,  financial broker Joe Gargan, who pled guilty in June to embezzling nearly $8 million meant for child victims of medical malpractice injuries, will learn his fate. Gargan was CEO of one of the country’s largest structured settlement companies, and according to his guilty plea, he used that position to siphon $6.9 million intended to purchase structured settlement annuities to benefit injured minors.

Gargan also admitted to embezzling more than $1 million from a hospital settlement that was supposed to purchase an annuity for a child’s benefit.

The Gargan scandal is the second time in 3 years that a structured settlement broker has been sentenced to prison for crimes involving insurance settlements. In July 2017, Michael Woodyard, a broker with structured settlement company Ringler Associates, pled guilty to a $4.6 million insurance fraud and was sentenced to 87 months in prison.

But as the Gargan and Woodyard felonies show, the structured settlement industry unfortunately has its share of unethical players. So if you’re settling an injury or wrongful death claim, here are a few ways to protect yourself.

Rule 1: Settlement money that funds a structured annuity must be sent directly to the life insurance company. The critical mistake defendants in the Gargan cases made was to send settlement money to his firm, not to the insurers that were to issue the annuities. This allowed Gargan, according to his guilty plea, to embezzle millions while concealing his activity through false documents showing that he had purchased the annuities.

Rule 2: Insist that your lawyer use a plaintiff broker to represent your interests. It’s not certain from Gargan’s guilty plea whether he represented the plaintiff or defense, though an industry insider tells me that he worked for the defense.

I’m also told that none of the cases had a broker representing the plaintiff. If they could have but did not, then attorneys for the accident victims made a huge mistake and could face being sued for malpractice.

As Peter Arnold, a respected structured settlement consultant, correctly notes, “For all but the smallest injuries, plaintiffs and their attorneys should insist on using their own structured settlement consultant in negotiations.”

Bottom line: Do NOT rely on the defense’s structured settlement broker any more than you would rely on the defense’s attorneys!

The insurance company issuing a structured annuity pays a commission (typically 4% of the annuity cost) to broker(s) involved. Your structured settlement broker will receive a portion (often half) of the commission so there’s no out-of-pocket cost to the plaintiff.

Rule 3: Deception between an insurer and the defense’s structured settlement broker could cost you. Sometimes plaintiff counsel might only rely on the details provided by the defendant’s structured settlement consultant.

You’ve got to make sure your attorney insists that all annuity pricing quotations, including injury details–which can be used to calculate the amount of the annuity–be submitted to you in writing. Your attorney should also insist that the insurer confirm in writing all information supplied by the defense broker. If the defense objects, find a plaintiff broker!

Rule 4: Be on the look-out for unethical conduct. While I’m a strong supporter of structured settlements, I’m appalled when industry players use obviously unethical practices.

Here’s a nice example of an arguable conflict of interest. For years, Pacific Life Insurance has been running junkets for favored structured settlement brokers at 5-star hotels in places like Bora Bora, Dubai, and the Maldives. Evidence appears to show that brokers have responded by channeling hundreds of millions in annuity sales to the company.

The losers are the accident victims, who might have been better off with an annuity from a competing insurer, as rates offered by annuity companies vary.  Senators Elizabeth Warren and Richard Blumenthal, if you’re reading this and would like more detail, please call my office.

Brokers who go on life insurance junkets are clearly violating the industry’s code of ethics, in my opinion. So, what should your attorney do? Have any broker state in writing whether he or she has been on an insurer junket or received freebies. Name the insurer. If the broker tries to convince you to use that insurer’s annuity, demand competing estimates from different companies.

Rule 5: Understand how your private data is protected and obtain this in writing. Some unethical structured settlement brokers pocket huge sums by selling client information to companies which then contact those clients and promise “quick cash” for selling future payment rights. This can completely destroy one of the main benefits of a structured settlement: preventing the injured person from squandering the money!

The money to be made from selling your information is jaw-dropping. John Darer is another respected structured settlement consultant who writes the industry’s all-important “Watchdog” blog. He recently reported on structured settlement brokers “trafficking hundreds or even thousands of names of annuitants, details of their annuities, annuity issuer, payment streams and contact information in exchange for hundreds of thousands or even millions of dollars.”

Before agreeing to work with a structured settlement broker, have them detail in writing how their firm protects your information. If someone at the firm misappropriates your information and you can show it, you can take the firm and the broker to court.

Structured settlements are an excellent way to ensure long-term financial stability. But there are bad apples in every industry. Accident victims and their attorneys must protect themselves.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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“Three of my employees were involved in a very serious auto accident which will result in a large settlement to provide for future care, loss of income and general compensation.

“They are out of a job and will have trouble finding employment going forward. Financially, they are not sophisticated and look to me for advice.

“What should they do with the money?

That question has become a real family fight. Their adult children want them to put the proceeds into an investment account with a large brokerage firm, and others want the funds deposited into bank CD’s and checking accounts. We are talking well in excess of a million dollars.

“Their lawyers insist the money is put into insurance annuities–Structured Settlements–but today’s interest rates are so low. What is your recommendation? Thanks, Theo from Chicago.”

Structured Settlement = Safety and Security

I ran Theo’s question by Washington D.C. based Peter Arnold who has been in the structured settlement field for over 20 years and is a former Deputy Director of NSSTA, the National Structured Settlement Trade Association.

“In 1982 the United States Congress passed legislation that to this day is helping accident victims live financially secure lives, benefitting from the many advantages of a Structured Settlement,” Arnold explains, adding, “and perhaps the main one is that funds are paid completely tax free, both federally and at the state level.

“Instead of handing an accident victim hundreds of thousands of dollars and told to manage the funds, with a structured settlement a secure stream of payments over a lifetime can be obtained through the purchase of an annuity issued by a highly rated life insurance company. They are ideal for:

–Persons with temporary or permanent disabilities;

–Guardianships for minors or persons found to be unable to manage their money;

–Workers compensation;

–Wrongful death where the surviving spouse and/or children need monthly income;

–Severe injuries, especially with long-term needs for medical care, living expenses and replacement income to support the family.

Mechanics of How a Structure Works

If I woke up tomorrow morning, turned on the radio and heard that they were now required in all major personal injury cases, that would make me–and I believe most attorneys–very happy campers for one reason alone: Flexibility and Safety.

“With a structured settlement, present and future needs of the injured person can be addressed. This can include money to pay for medical care now and, with a child, funds to pay for college or help with housing expenses years down the road. Payments can be scheduled almost any way imaginable.”
Ask Yourself – What’s More Important – Safety or a Higher Interest Rate?

“I get it,” you’re thinking. “The case settles and funds go into an insurance annuity which are paid out over the years. But interest rates today are next to nothing, and I assume that applies to insurance contracts as well. So, when you consider inflation, in reality the funds held in that insurance contract may lose purchasing power over the long-run. Am I correct?”

–That’s right, and, from my perspective–and that of the many lawyers I’ve discussed these issues with–the lowered amount of interest earned is completely irrelevant to the safety and other benefits a structure offers. Arnold observes:

“As structured payments are guaranteed, the ups and downs of the stock market do not affect annuity payments. Those regular, steady annuity payments will remain constant.

“Before structures, stories of accident victims–just like lottery winners–spending the money in a couple of years were common. And let’s not forget family and friends who held their hands out for loans which were never repaid.

“But with a structured settlement, the funds themselves are not reachable by the accident victim; instead, they are paid according to the terms of the contract. This keeps greedy hands away from the money.

“So it is important to understand that the main selling point of a structured settlement isn’t the financial return, rather, it is the security offered the accident victim and tax-free status. However, some insurance companies offer an inflation-adjusted cost of living adjustment.

And if the Economy–And the insurance company–goes into a tailspin?

“Any company can go bankrupt,” you might be thinking, “so what happens if the life company that issues the annuity goes bust? What about the people who have structured settlements with them? Would they lose everything?”

“It’s a great question,” Arnold notes, “But each state has an insurance guarantee association that steps in to cover all or part of payments due. This information can’t generally be used in the sale of an insurance policy, but it is a strong level of protection.”

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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Later this month, Newport Beach Pacific Life will host a fabulous six-day event halfway around the world for the U.S. structured settlement industry.

According to the invitation, the gathering at the Four Seasons Maldives isn’t a junket but rather “an educational setting” to “exchange ideas on how to promote” annuity sales to accident survivors. Attendees are encouraged to bring a guest.

Since the Four Seasons advertises pristine, white sand beaches and turquoise waters, I suspect that settlement planners will do more than discuss insurance.

Pacific Life will also host U.S. structured settlement planners and their guests at a four-day gathering at the Four Seasons in Dubai, later this year.

Pushed toward a Pacific Life structured settlement annuity?

These trips raise a disturbing possibility: Will structured settlement planners push accident victims to certain companies even if others offer better or less expensive options?

If someone in your family has a structured settlement annuity from Pacific Life purchased in 2015 or after, can you be sure that your lawyer’s recommendation to go with them wasn’t influenced by a broker just itching to go on one of these trips?

Here are a few interesting numbers. Industry data from The Life Insurance and Market Research Association reveals that Pacific Life’s structured annuity sales dropped nearly 10 percent between 2013 and 2014.

But starting in 2015, when it announced a week-long industry gathering at the Four Seasons in Bora Bora, its sales surged from about $770 million in 2014 to nearly $1.2 billion in 2017, even as the overall structured annuity market was flat.

Lawyers expect settlement brokers to be fiduciaries for the client

Accident victim lawyers I know expect and view structured settlement brokers as acting in a fiduciary capacity for their clients and develop trusting relations with these people. Yes, brokers are paid fairly standard commission by the insurance companies who issue structured settlements, and that’s normal.

But if I knew that advice to influence my client to select a certain insurer had any connection with one of these incredible trips, it would be the last time I would ever use that broker.

While “Saturday Night Live” and Congress at times have a lot in common, one of the best things our representatives in Washington ever did for injury victims took place in 1983 when the tax code was changed to encourage structured settlements. This allowed an opportunity to put some or all of the settlement into an annuity that provides long-term financial support, completely exempt from both federal and state taxes.

Often clients must be persuaded to accept a structured settlement

Lawyers are fiduciaries, watching out for their client’s best interests with settlement funds and it is usually a challenge to persuade clients to consider protecting their future with a structured settlement.

Plaintiffs typically like the idea of taking as much cash as possible, which is generally the world’s worst decision. Hand most people several hundred thousand dollars and in less than three years it’s all gone; these people are likely to go on public assistance. However, a structured settlement can prevent such an awful outcome.

Time for the feds to take a look at these incentives

Congress has the power, and many would argue, the duty to investigate these incentives and the possible negative impact on accident victims.

Structured settlements protect the security of innocent people. That’s why both Congress and the structured settlement industry must pay attention to these troubling problems that are beginning to harm the industry’s reputation. Insurance incentive programs threaten to undermine confidence in structured settlements generally.

Congress needs to shine a powerful light on this situation. It may cause temporary pain in the industry but it will bolster long-term confidence in a program that has unmatched potential to help those in need.

Pacific Life’s response? – Where can this all lead?

So, what does Pacific Life have to say?

I left two voice mails and sent an email to Pacific’s man in charge of structured settlements, Geoff Kissel. He referred me to Steven Chesterman in their Communication Department, who emailed, “Wanted to let you know I received your message and we have no comment for your story.”

Finally, I would not be surprised to see these successful efforts to supercharge their structured settlement business result in class action litigation. In my legal opinion, thousands of annuitants could argue they were victims of a monumental consumer fraud and conflict of interest.

Because that’s what it smells of. And even if simply by appearance only, the harm done to the reputation of the structured settlement industry is significant.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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If you have any type of insurance policy from MetLife – in fact from any insurance or annuity company – our story should cause you to take certain steps to protect future payments, and we begin with this question:

“Does the insurance company know where you live? Can they contact you or your family members?”

MetLife is one of the world’s largest insurance companies. Stand on any street corner from Hong Kong to cities in South America and in no time a bus will come by with an ad for MetLife.

While “big” may have advantages, it can also have considerable drawbacks, such as “too big” to know who they insure, and who is supposed to receive monthly annuity payments.

Last December, this mammoth insurance company announced that it had a little problem. MetLife admitted “Internal failures resulting in not making payments to tens of thousands of pensioners stretched back a quarter of a century.”

Downplaying the significance of this event, the company “Believed the group missing out on the payments represented less than 5 percent of about 600,000 people who receive a type of annuity payment with average benefits of less than $150 a month.”

“But that’s 30,000 workers harmed by this failure!” outraged New York attorney Edward Stone tells You and the Law. “Metlife does not even know how many years back these unpaid pension obligations go, but retirees were owed a defined amount of monthly income when MetLife took on responsibility for the pensions from their employers, which is known as pension risk-transfer or pension de-risking.”

While Stone is one of a handful of attorneys in the nation who deal with the consequence of life insurance companies getting in financial hot water, he was quick to point out that “No one is concerned about MetLife’s immediate financial viability, and policyholders shouldn’t panic and jump to another insurance company without careful thought, but these events are highly disturbing.”

Stone points out retiring workers with pensions were promised a defined amount of money from their employer, designed to last a lifetime. “Pensions are a very different animal today than in the past, and it is something that people working or retired need to be aware of.”

That’s because, in large part, over the past few years “It became apparent to companies that retirees were living much longer and costs were ballooning from having to write years of additional pension checks,” he notes, adding, “And the major life and annuity companies saw this fear as a huge source of new money, billions of dollars in new money and so they did something about it.”

And what they did was highly attractive to huge corporations with substantial pension obligations. “Some of the world’s largest life insurance and annuity companies approached industry and said, ‘We will take over paying benefits to your retired employees. Just give us the billions of dollars you are now managing, and we will assume responsibility for their monthly payments. We know what we’re doing, as we’ve been at it for years. We’ll invest the money and keep your retirees happy – and in the dark!”

The term “pension-risk transfer” means that, “The risk to the employers’ bottom line in being able to earn enough money to pay retirees gets transferred to an insurance company. This phenomenon has grown at a worrisome rate over the past few years. When this happens, pension benefits are no longer governed under ERISA and retirees become subject to non-uniform state law.”

An annuity is a promise by a life insurance company to pay out a certain amount of money to a policyholder for their lifetime or a set number of years. If you spoke with insurance company executives before the Great Recession they would have told you that funding an annuity is pretty simple.

As Stone explains: “Traditionally insurance companies would simply match fund liabilities with government or high-grade corporate bonds that paid out enough interest to satisfy what its payment obligations were to annuitants or certificate holders But with rates at virtually nothing these past few years companies are scrambling to earn more on their assets with things that are far less safe than highly rated corporate or municipal bonds.”

Edward Stone has this advice for all policyholders and their family members:

“Keep the company aware of where you are. Check in at least once a year. Prevent them from losing you by being pro-active.”

Edwardstonelaw.com is a website we recommend for anyone who can see themselves or their family affected by these issues.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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“Mr. Beaver, we have a very unique, messed up family situation, desperately needing some guidance,” the phone call from “Jimmy” began. The longer we spoke, what he described was anything but unique as many families confront similar challenges.

“My parents are in their late 70s, own their small home, are financially secure with no debt, but recently dad has begun attending free steak dinner seminars and investing in all kinds of things, losing money. When I talk with him about this, he gets defensive and tells me, ‘I know what I’m doing – I don’t want to out-live our money.’

“Even though everyone in the family gets along well, he is talking about moving to a retirement community, two thousand miles from us!

“Next,” Jimmy continued, “two of our three adult sons are total failures – lazy, irresponsible goof-offs. One is a 30 year-old momma’s boy from my first marriage. She gives him an allowance, pays his rent, car payment, cell phone, and he works part-time at a medical marijuana dispensary.

“The other is 21 and until we gave him a 30 day notice to move out, he did nothing except for playing video games. He has no ambition, is lazy with a capital L and financially irresponsible, like his older brother. Yet, we love them and worry about their future.”

And Jimmy’s concerns?

“How do I deal with my dad and address his worries of outliving his money so he doesn’t lose any more or moving away from their support system, our family. Is there a way we can provide our sons an income source that will keep a roof over their heads for the rest of their lives, but which they could not cash out and blow? Is there some book you can recommend we read?

“What to do when I get stupid”

“What To Do When I Get Stupid,” by Professor Lewis Mandell is the answer to Jimmy’s prayers. The former Dean of Business at the State University of New York at Buffalo has thoughtfully – and clearly – prepared a financial road map for the elderly, their children, and families with kids who will likely remain life-long failures, needing to be protected from their own financial incompetence.

Mandell is a founder of the field of Financial Literacy, and the book’s sub-title is, “A Radically Safe Approach to a Difficult Financial Era.” The opening chapters are what my reader and his father must read.

“After 60,” Mandel points out, “our ability of making sound financial decisions begins to decline.

Unfortunately, confidence in financial decision-making abilities, particularly in the areas of investment and insurance, actually increases with age as ability declines, leading to the likelihood of disastrous outcomes.”
I read Jimmy that paragraph the January day California emerged from its drought.

“That’s my dad!” he shouted. He would repeat that after hearing:

“Of far greater importance is the fact that as we age, we become more susceptible to sales pitches and pressure from those who target older people with assets…[at] free luncheons or dinners offered with sales seminars. We should resolve to not hurt the ones we love while we still have the mental capacity to do so.”

Why move? Aging in place

Introducing the concept of “Aging in Place,” you can almost hear Mandell asking readers: “If your house is the right size for just the two of you – and is paid for – then why move away from family and friends?”

“Living safely and comfortably in accessible homes as we get older, often to the very end of our lives,” that’s aging in place and requires, “accepting the fact that mobility decreases with age….ideally this means the safety of a single story,”

An income stream you can’t outlive

Who wouldn’t like to have a guaranteed monthly income for the rest of your life, regardless of how long you live or what dumb mistakes you might end up making along the way? “This is what an annuity can do for you,” Mandell tells us, and observes that, “Social Security or a defined benefit pension are forms of annuities, paying lifetime income.”

Benefits the elderly and Jimmy’s sons

Mandell is not selling annuities, rather, he strongly believes in this method of securing a guaranteed income stream which cannot be outlived. His book tells you which types to avoid, and looks at ways to make it impossible to cash it in early, thereby remaining clear of temptation – or being swindled.

In our discussion, he referred us to www.stantheannuityman.com, which is a highly informative annuity website. And, yes, there is a “Stan,” whom we spoke with, finding him a knowledgeable source of accurate information.
Regardless of your age, “What to do When I get Stupid” is an eye-opener, a great read.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

The post The problem with insurance annuities appeared first on Dennis Beaver.

Watching the manager of his apartment house get a barbecue fire going using gasoline instead of normal starting fluid, 8-year-old Daniel was burned over 80 percent of his body when a ball of flames erupted. His father immediately hired a lawyer who obtained a policy limit offer from the apartment’s insurance company — $100,000.

That money was used to purchase a Structured Settlement Annuity from a life insurance company, payments starting at age 18, and running for 50 years, would cover education, future medical care and help improve the quality of Daniel’s life and family-to-be.

Over $600,000 — tax free — would have been received over those 50 years. But one day 23-year-old Daniel saw a TV commercial, “Which said I could get cash now for my structured settlement.”

Substantial Legal Protections Exist Today – But Beware of the Sharks

Within days, all the efforts of his lawyer to create financial security would be at great risk. “I was lied to. They said my settlement didn’t have much value, but agreed to buy part of it. Immature and a lacking guidance, I blew $30,000 in a few weeks,” he told You and the Law.

Years later, Daniel was contacted by another company and asked if he wanted to sell more of his payments, or even all of them. But this time, as a result of laws enacted after 9/11, intended to protect people just like him, any sale of structured settlement payments must be approved by a judge.

Daniel’s attorney told him selling these valuable payments was a terrible idea. He then asked for our opinion and we told him the same thing. Fortunately a superior court judge agreed. The sale was not approved and today he is a grateful father of four children with a secure financial future.

We ran the facts of Daniel’s case by New York attorney, Edward Stone, considered as one of the nation’s leading experts in structured settlements and a friend of this column.

“To combat those types of abuses,” Stone explained, “in 2002 President George W. Bush signed into law the Victims of Terrorism Tax Relief Act, which imposes a punitive tax on anyone who acquires structured settlement payment rights unless:

(1) The transaction is approved in advance by a judge;

(2) Who issues an order finding that the transaction is in the seller’s best interest, taking into account welfare and support needs of the payee’s dependents.

Stone described key protections which sellers now have, and, while state-to-state differences exist, at a minimum a seller is entitled to:

• Full disclosure of all costs and fees, including the discount rate, showing how much of a loss will result from the sale;
• The right to cancel within a pre-determined time frame;
• –The opportunity of having professional advice on the financial advantages or disadvantages of a lump sum payment.

“After selling some of their payments, sellers — like Daniel — are contacted by other companies who engage in Court Scraping. They go to courthouses all over the country, obtain copies of settlement documents and then solicit sellers to buy even more payments.” Stone points out.

“Often, a check arrives in the mail, looking like ‘free” money. But the small print states that by cashing it, you have agreed to sell them all your payments.” The ‘best interest’ standard required by the IRS and state laws doesn’t disappear for a second, third and even fourth transaction but some companies pretend that it doesn’t exist at all. Seller Beware is my best advice,” Stone cautions.

Get another set of eyes before signing

A seller has a clear right to independent professional advice and this can be anyone with common sense and, especially, good financial sense. Ideally, this would include a lawyer or accountant — someone who can help you understand if the transaction is in your best interest.

Stone points out that bad things happen when a seller gives up important rights:

“There are companies which encourage people to give up important rights and advice, and where a lot of the bad things happen. They want sellers to waive independent professional advice, handing them a document which states: ‘I have consulted with independent counsel who has approved my sale of the structured settlement.’ Or, ‘I waive this requirement.’

“Be wary of companies who encourage you not to seek independent professional advice. The slick companies say sign here, waive counsel or you will slow the deal down,” Edward Stone warns, adding, “Don’t be in a rush to sell, ever.”

Sell your payments only for compelling reasons

To Stone’s comments, we add these thoughts:

A structured settlement isn’t free money. The death of a parent or terrible personal injuries led to those payments. Sell them only for the most compelling reasons.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

The post You have rights when selling a structured settlement appeared first on Dennis Beaver.

“Unless your readers who are thinking of selling all or part of their structured settlement payment rights exercise caution and take their time, they could lose an enormous amount of money,” warns New York attorney, Edward Stone, recognized as one of the country’s leading experts in the area of Structured Settlements.

“Many companies advertise cash now, offering to buy your settlement payment rights at good rates, but how are you going to know? It’s only when you obtain competing offers from different companies that you will discover if you have a good rate or not.”

As we will explain how in a moment, buying payments due under a structured settlement annuity can be hugely profitable for the buyer, and a monumental loss for the seller.

“On a lot of levels, buyers of structured settlements have become very aggressive. I’ve seen far too many accident victims give up huge amounts of money because they were unaware of how to negotiate, or consider if they were selling their structured settlement payment rights for valid reasons,” Stone tells You and the Law.

Selling structured settlement payments should require sound reasons

A Structured Settlement annuity provides a guaranteed stream of payments from a life insurance company over a period of years — often for life — as tax-free compensation, usually for a personal injury or the death of a close family member

“So, why would anyone want to cash it out? Isn’t that the wrong thing to do?” we asked Stone.

“It can be. Still, you should be free to do what you want with your money if you have sound reasons, for example: paying off debt, bringing a home out of foreclosure, medical, bills, education, to starting a business and selling only what you need and keeping future payments coming.

“Selling allows access to cash for folks who need or want it, provided they are free from undue influence and have adequate mental capacity to understand the consequences of what they are about to do.

“But once those payments are sold, you can’t get them back. Independent professional advice from a lawyer, or an accountant is essential,” he underscores, adding a stern warning”

“If there is no other source of income and you depend on these payments, don’t give away the means of supporting yourself.”

Get the best offer by understanding the discount rate

Companies which buy these settlements cash you out and then wait to collect from the insurance company, payment by payment. Let say that you will begin to receive $1,000 a month for 20 years starting in February, 2015, for a total $240,000.

“But that’s not what you will get when selling the annuity,” Stone points out, adding, “because the buyer discounts these future payments by a certain percentage — the Discount Rate — which can range from single digits to well in excess of a whopping 20 percent.”

“As a seller, you want the lowest rate possible. With that $240,000 total payout, 8 percent would give a seller $122,077.73; at 10 percent, $106,764.66; $80,145.66 at 15 percent and only $63,615.26 at 20 percent.

“8 percent and 10 percent are reasonable and obtainable rates in today’s market, 15 percent is fairly common and 20 percent is high. So, it’s easy to see just how much of the total payout is lost by cashing in the annuity, and can amount to hundreds of thousands of dollars lost.

“You absolutely need to get different offers — bids — from several companies, as they will use different discount rates which by law must be revealed to you prior to selling. The more competitive the bidding, the better the deals usually becomes for the seller.

Remember, the higher the discount rate, the less the individual will receive. The lower the rate, the more the person gets.

Watch out for nasty tricks

“Buying structured settlement payments rights can be profitable for the buyer but the marketplace has become highly competitive. Some companies target sellers with aggressive solicitations — sometimes even in the form of a check that looks like found money.

“The small print states that if cashed, you are agreeing to sell your future payments at a discount, so do not be fooled by the temptation of free money,” Stone cautions. “These ‘checks’ are anything but free — they lock you in to additional sales of your future payments.

“Structured Settlements can be of tremendous value to an injured individual and his or her family members. Before selling, seek out independent professional advice from someone whose judgment and common sense you respect,” Stone concludes.

There are even more dirty tricks which we’ll look at next time, but also, substantial legal protection for people selling their structures. So, unless you’re in a big hurry to sell, why not come back next week, as chances are we can help put more money in your pocket.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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