Loans to Attorneys with Structured Fees

More and more attorneys are taking advantage of a new product available through structured settlement brokers and settlement planners – the structured attorney’s fee. In a nutshell, attorneys are able to take large fees over time instead of in a lump sum. Done correctly, this structuring will provide excellent financial and tax planning. “Bust or Boom” cycles can be evened out, and income taxes are only due in years when the payments are received. Structured settlement commentators like Jack Meligan, Mark Wahlstrom, and John Darer have discussed the rising use of "non-qualified assignments" for structuring legal fees and other non-personal injury damages.

What about liquidity if and when needed? What about the unplanned crises where more money is needed?

Settlement Capital can provide loans to qualified attorneys with structured fees. These are not governed by state structured settlement transfer laws or IRC 5891, so no court order is required (ordinarily). For more information, please watch this video interview with Mark Wahlstrom.

** Please note: Neither the author nor Settlement Capital Corporation offer any tax, legal or financial advice through this blog. Please consult your financial and/or tax professional.

If you have questions about this product please contact me at mbracy@setcap.com, or by phone at 800-959-0006. Best regards for the new year, Matt Bracy

"It’s the Interest Rate, Stupid" – An Outside Counsel’s Perspective

We are pleased to have another article from guest author Mike Green, an attorney from Philadelphia.  Mike represents several structured settlement factoring companies in Pennsylvania and New Jersey.  The views expressed herein are solely those of the author.

It’s the Interest Rate, Stupid – An Outside Counsel’s Perspective

on Cutting Through the Morass of Financial Information

on the Disclosure Statement at a Structured Settlement Transfer Hearing

I blogged last year about my perspective on the court approval process for structured settlement transfers. With this article, I’d like to dig deeper into the financial/best interest analysis. This is an area which confuses many individuals and judges not familiar with the process.

Each state which has a structured settlement transfer statute requires that a Disclosure Statement be issued. While the required disclosures vary slightly from state to state, most Disclosure Statements must indicate some or all of the following:

Click to read more ...

Guest Speakers and Record Attendance Make the 4th Annual NASP Conference the Best Yet

The National Association of Settlement Purchasers (“NASP”) held its 2008 annual conference in late October in Las Vegas. By most estimates this was the best conference yet, and certainly the best attended with around 110 attorneys and business professionals at the 2 day conference.

Click to read more ...

Let's Be Careful Out There

One of my favorite TV shows from the 80s, or ever really, was “Hill Street Blues.” If you're old enough to remember it, you may recall Sgt. Esterhaus at the end of each day’s briefing sternly but grandfatherly telling all the cops "let's be careful out there." As we all try to figure out how the current “Wall Street Blues” will shake out, I think this is sound advice, particularly for people who have structured settlements or are contemplating entering into structured settlements.

Hysteria and panic are generally bad bases for making financial decisions. All indications are that the backbone of the American insurance industry remains strong and stable. Effective state insurance laws that closely regulate the type and diversity of assets that insurers can hold (that back-up the insurance obligations) are working. Consider for instance the largest and most prominent insurance company, AIG. Headlines scream that AIG is “in trouble” and so forth. Read further and you will see, almost mentioned in passing, that the insurance business units at AIG, particularly the life insurance companies, seem to be sound. The fact that potential buyers are clamoring for AIG’s insurance lines should tell us all something.

The insurance business is unique. In our otherwise generally laissez-faire economy, insurance is excruciatingly and minutely controlled by state regulators. Details concerning what can be sold and to whom, and how payment obligations and risks are planned for and capitalized are all subject to strict rules and review. By all accounts at this point, the system is working, even at AIG.

Some insurers have failed in the past to be sure. But to echo remarks made by Messrs. Darer and Cravenho, these are few and far between. The largest “failure” that I know of is Executive Life of New York (ELNY). In 1991 ELNY was taken over by the State of New York and has been in “rehabilitation” ever since. To date, all policies have been paying as planned. Recent news was made when regulators from New York determined that there might be a shortfall in 12-15 years unless corrective action is taken now. Let me summarize: This “failed” insurer has been able to pay 100% of its obligations for the past 17 years, and while ELNY is likely to need its own bailout/rescue from New York regulators, it appears that individual payees of ELNY structured settlement annuities should fair well in the ultimate resolution of this company. To be sure, the projected shortfall needs to be addressed, and I think it will be, but individual payees should take comfort from this example of a “failure.”

AIG is not only one of the largest insurers, but is one of the largest structured settlement annuity issuers. Structured settlements remain a very viable and useful means of settling personal injury lawsuits, providing long-term financial security for tort victims. Predictable and reliable monthly or yearly tax-free income is a great boon for these former plaintiffs and their families, and all indications are that nothing in this current economic turmoil will diminish those benefits. Structured settlement recipients and their advisors should think twice about trying to “dump” this asset in the face of generally bad economic news. The “best interest” standard given in the federal tax code and in most state transfer laws still applies, and a decision to liquidate all of one’s future structured settlement payments in a factoring transaction because of bad news in the press is probably a bad one. Moreover, liquidating solely because of fear and uncertainty relative to the financial circumstances of AIG or any other annuity issuer would likely not meet the best interest standard required for court approval of a transfer.

However, if a structured settlement recipient does have a real need to sell future payments, structured settlement factoring companies can help. But, in this and all things, “let’s be careful out there.”

If you would like to discuss this or any other matter, please contact me at mbracy@setcap.com. I welcome comments to this and all articles, either here on the blog, or privately to me via email or phone.

Part 3 of "A Critical View of Factoring"

In this third and final installment of my video interview with Jan Schlichtmann, Mr. Schlichtmann concludes his "cross-examination."  As always, I look forward to your comments.  You can reach me at mbracy@setcap.com.   

Matt Bracy with Jan Schlichtmann part 3 from Mark Wahlstrom on Vimeo.

Part 2 of "A Critical View of Factoring"

Click below for part 2 of Jan Schlichtmann's "cross-examination" of me on factoring issues.  As always, I look forward to your comments and questions.  You can reach me directly at mbracy@setcap.com

Matt Bracy with Jan Schlichtmann part 2 from Mark Wahlstrom on Vimeo.

Factoring 101: The Truth About Servicing

This is the first article in a new series on structured settlement factoring basics. These articles will attempt to educate about factoring, open a dialogue on some basic factoring issues, and dispel rumors and misunderstandings. If there is a topic you think should be addressed here, please let me know.

“Servicing” refers to a common practice in structured settlement factoring transactions, where only part of a monthly or lump sum payment is purchased by a factoring company, but the factoring company receives the entire payment. Once received, the factoring company sends the unpurchased portion to the seller/payee. As explained below this is actually a good and necessary practice (contrary to comments by John Darer and Andrew Cravenho, who seem to not fully understand it).

Servicing can best be understood in the context of a typical factoring transaction. Here’s an example: Assume a payee receives $1,000 per month from a structured settlement. The payee has a need for a lump sum for some reason, let’s say it’s to replace an old and not working car.

First Question: How Much?

The payee (now “seller”) contacts a structured settlement factoring company, who first asks the seller how much money they need and why. The new car costs $20,000, and without reliable transportation the seller can’t get to work.

Second Question: How Many?

There are many options available to the seller to reach the desired funding amount, and many factors will go into this analysis. One option would be for the seller to transfer 100% of the monthly payments for a period of time. Under this scenario, the seller would transfer about a couple years worth of payments to generate the desired $20,000.

An obvious problem with this scenario is that it leaves the seller with no monthly income from the structured settlement during those years. Depending on the individual circumstances of the seller, that might be acceptable. For others who rely on some of that monthly income for fixed costs, that would not be the best alternative.

Another option would be to sell just a portion of the monthly payments. For example, the seller could receive $20,000 by transferring $500 per month out of the total $1000. Under this scenario, the seller would need to sell more months of payments, but will be keeping $500 per month throughout. For the remainder of this hypothetical example I will assume that this is the most desirable course for the seller.

Third Question: How’s it done?

Most structured settlement factoring transfers involve only part of the structured settlement payment stream. Sometimes that part is 100% of the payments, but only for a period of time less than the total payment stream (as in the first example above). Sometimes, probably most often, the partial transfer is of a part of the monthly payments or lump sum (as in the latter example above).

There are two ways to accomplish this kind of transfer. First, which is the easiest and preferred method, is for the insurance company that issues the payments to “split” the payments in question, sending the purchased part to the factoring company and rest to the payee/seller. However, in some cases and for a variety of reasons, the issuer will not agree to split the payments. When the payments cannot be split, the only other option is for the entire payment to be sent to the factoring company, who in turn sends the unpurchased portion to the payee/seller. This is called “servicing.”

In circumstances where the annuity issuer will not agree to split payments, servicing is the best alternative for the annuitant. Absent the servicing option, sellers would either not be able to factor payments at all, or would be forced to sell more payments than necessary (or more than is in their best interest to sell). I am not aware of any factoring company that charges a fee for servicing payments in this way. Payees receive their serviced portions promptly and generally experience no significant delay.

Such servicing arrangements should be reflected in the transfer order. Payees/sellers who later elect to sell more payments should be free to do so, and the order approving the subsequent purchase should simply reflect that the prior order is amended as to the servicing and the serviced portion should now go to the new factoring company.

If you have any questions about servicing or factoring in general, please do not hesitate to contact me at mbracy@setcap.com.

***Update 4/23/2008:  Messrs. Darer and Cravenho have both responded to this article on their blogsites.  My response is attached as a comment to Mr. Darer's blog post here.