Structured settlements: An update Thomas Patrick Beck
Len Blonder Recent legislation relating to the
impact of Medicare on liability settlement has created much concern for any person who is a current Medicare recipient, cur- rently Medicare eligible or soon to become eligible. Since Medicare is secondary to other sources of recovery including liability settlements [42 U.S.C. §1395(b)(2)(A)(ii)], concerns surfaced when former President Bush signed the Medicare, Medicaid and SCHIP Extension Act of 2007 into law. Section 111 of the Act places an obligation on the primary payer (e.g., the defendant) to determine if a claimant is entitled to Medicare and to report claims on a quar- terly basis. The goal of the law is to increase Medicare conditional payment reimbursements through more accurate reporting. (42 C.F.R. §411.21.) Medicare expects billions of addition-
al dollars in conditional payments and many are concerned about how this will impact claims settled for future medical expenses when a Medicare beneficiary is involved. A significant recent decision held that it was not bad faith to delay settle- ment until a final conditional payment amount was known. (Wilson v. State Farm Mutual Automobile Insurance Company (W.D. Ky., June 15, 2011) No. 3:10-CV-256-H, 2011 WL 2378190.) The implications of delaying settlements for weeks or months are both clear and far reaching.
The SNT Structured settlements provide cost-
effective funding for long-term medical care while preserving Medicaid (or in California, Medi-Cal) and SSI benefits through the use of a Special or Supplemental Needs Trust (“SNT”). Recent developments in this area include favorable case law on structured settlements [Rios v. Astrue, 2010 WL 4736485 (
N.D.ILL.)] as well as new regu- lations [POMS Section SI 01120.199, October 10, 2010]. Blending cash to seed the SNT in conjunction with a structured settlement combine the flexi- bility of cash with the tax-free future payments to capitalize on the best of both worlds. (See, In re Mark Anthony Fowler Special Needs Trust (Wash App. 2011) 2011 WL 441702.)
Role of the consultant The nuances of structured settlements
can be complicated and misunderstood. Providing the opportunity for the settle- ment consultant to meet with the family, answer questions and discuss their needs can assist in their understanding of this important financial decision. The tax-driv- en nature of a structured settlement requires a decision that must be entered into in a timely fashion once settlement is reached; the consultant’s involvement dur- ing the settlement process can help allevi- ate stress as the case resolves. Knowing your client’s current stand-
ing relating to public benefits and consid- ering their future needs set the foundation for designing benefits. Currently there are 12 major life insurance providers and one company offering a Treasury product. Each company has its own underwriting and pricing standards. Your consultant should be aware of interest-rate trends, understand how to capitalize on daily rates and when appropriate, combine multiple structured settlement providers to maxi- mize benefits and diversify risk with your client’s investment. Other factors that will impact a case are the size of the structured settlement and whether a “rated age” can be obtained. A “rated age” is basically a mortality factor the life companies use to price annuities. Certain medical condi- tions indicate a reduced life expectancy and can be used to obtain a rated age (higher than chronological age), which reduces the cost of the lifetime annuity, thus increasing benefits to the plaintiff.
Calculating future payments in med-mal In medical-malpractice litigation,
accurately calculating the future value of a periodic payment verdict is impossible without a structured-settlement profession- al. With general damages capped at $250,000 and future medical care or wage loss subject to a periodic payment judg- ment, knowing how such a judgment stacks up against an economist’s report is crucial. The first step is obtaining medical under- writing for a plaintiff with lifetime medical needs. With underwriting in place, the con- sultant can provide the cost to fund your
life care plan. This information is critical in understanding what the periodic payment verdict will look like. While your economist may provide testimony establishing dam- ages exceeding $10 million, the combina- tion of underwriting, annuity rates and the growth of the payments over the lifetime of the plaintiff will result in a different amount paid out by the defendant.
Factoring Factoring, or the selling of a struc-
tured settlement for a deep discount, is an industry that has grown tremendously since 2001. Section 5891 of the Internal Revenue Code requires court approval of a factoring transaction in order to avoid a 40 percent excise tax on the factoring company. Neither Section 5891 nor any of the 47 states with transfer acts validate fac- toring, but rather regulate the transaction. The structured settlement can include pro- tective language to limit factoring. Some life insurance companies even offer their own version of a commutation in order to offer a reasonable alternative to factoring.
Attorney-fee structures With the recent market upheavals,
more attorneys are turning to fee struc- tures as a way to guarantee their income on a tax-deferred basis. The payment stream must be chosen up front, but can be immediate or deferred, and is funded with the same annuities or Treasuries as structured settlements. The attorney will receive a 1099-MISC for payments received, but only in years in which there is a distribution. The seminal attorney fee structure case is Childs v. Commissioner (1994) 113 T.C. 634 affirmed without pub- lication op. 89 F.3d 856 (11th Cir. 1996). Thomas Patrick Beck is the founding part-
ner of Thon Beck Vanni Callahan & Powell, a Pasadena-based personal injury law firm. He is a fellow of the American College of Trial Lawyers. You can find more information on his Web site at
www.thonbeck.com. Len Blonder is a settlement consultant for
EPS Settlements Group. He is the founder and only two-time president of the industry’s trade association. He has been involved in the settle- ment of cases totaling well into ten figures over 34 years.
FEBRUARY 2012 The Advocate Magazine — 89
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