Structured settlements

To correct a typo from last week, the d4A, not the d4C, first party trust requires a clause that states that any funds remaining on the death of the disabled person must be paid to the state Medicaid recovery program prior to payment to relatives or certain expenses caused by the disabled person's death, such as funeral expenses.
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The d4C trust is administered by a tax-exempt, non-profit organization that is allowed to keep all or most of the funds after the disabled person's death.

Both of these trusts are quite different from the third party trust. The third party trust is set up by someone other than the disabled person, and funded with funds that do not belong to the disabled person, for the benefit of the disabled person, as well as any other beneficiaries. It may be a lifetime gifting trust set up solely for the disabled person, which can be named as the beneficiary of a gift from Aunt Mary's last will, as well as receive gifts from other relatives.

The third party special needs trust can also be created by language inserted in a parent's or sibling's dynasty trust. In both cases the trust will have certain language restricting distributions to the supplemental or special needs of the disabled person from their share of the trust, in the sole discretion of the trustee. Neither third party trust will require the d4A "pay-back" clause. The trust will say who the funds go to on the death of the disabled person, such as to their lineal descendants, if any, or to their siblings, to other persons, or to a specific charity. A parent can set up a fund for their disabled child, consisting of all of their estate or that child's portion of the estate, and ensure to whom any unspent funds will go, without the obligation of the pay-back clause to Medicaid.

If, mistakenly, the grandparents name that disabled grandchild in their will, or in certain trusts, the funds will vest, or become the property of the disabled person, and disqualify him or her from benefits until the funds are spent-down or are transferred to a d4A special needs trust with the pay-back clause. I cannot over-emphasize how important it is that the parents of a disabled child warn the grandparents and other relatives, that they need to consider this language in their trust, or name the disabled child's parent's trust as the beneficiary of the disabled person's share. No one should ever make a gift to the disabled person directly.

The third party trust may come under review of the Social Security Administration, or SSA, case worker who will evaluate the trust by the Program Operations Manual System, or POMS. If the disabled individual has the power to revoke the third party trust and claim the assets, the assets will be considered a countable resource. It is wrong to disinherit the disabled child, or to trust their care and money to the other siblings, when these documents are available.
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In Attorney David Lillesand's analysis of the January 2009 revisions of the POMS at the recent conference of the Academy of Special Needs Planners, he also mentioned that the revisions make it clear that the pay-back obligation of the d4A trust must not limit the payback to only Florida reimbursement, but must include the obligation to pay-back all states proportionately that provided medical care. The trust also cannot attempt to limit the pay-back to those medical expenses incurred after the trust was established, but must include those expenses incurred by any state prior to the trust.

To be approved as a first party d4A special needs trust by SSA, the caseworker must find that the trust was signed as trustmaker by a parent, grandparent, or a court, for the sole benefit of a disabled person, while under the age of 65, and contains a pay-back clause. The question had arisen of whether annuity payments from a personal injury settlement that will continue after age 65 would disqualify the applicant. The revisions make it clear that such are permitted if the annuity contains that restriction, not a standard clause and the trust contains an irrevocable assignment of the right to receive annuity payments made when the beneficiary was under age 65. If a person over age 65 has other funds, such as an inheritance, a d4A trust is not permitted. They must either use a d4C pooled trust, where the funds do not go to named beneficiaries, but are used to pay-back or remain in the trust for other disabled beneficiaries, or they must use some other strategy to shelter the funds.
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Although certain administrative expenses may be paid after the death of the disabled person prior to the pay-back to the state, the amendments to the POMS require language in the trust prohibiting payment of estate tax not due to the inclusion of trust assets in the estate, payment of debts to third parties, payments of funeral expenses and payments to residuary beneficiaries. Funeral expenses should be pre-paid by the trustee during the life of the disabled person.
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The revisions to the POMS do not answer the controversy raised in some states where a minor could redirect the annuity payments from a structured settlement after they reach the age of majority under the state's guardianship law. If they can redirect the payments to themselves, the trust fails the pay-back requirement and the assets will count as income or a resource. It is important that the trust contain an irrevocable assignment to the trust, not a standard clause, and does not allow the parents or child when becoming an adult to sell the remaining payments to avoid the pay-back.

Finally, Lillesand reminded the attorneys present of the importance of including a savings clause in every trust. The clause would state that if any provision of the trust would disqualify the beneficiary from public benefits, then that offending clause would be void, permitting the trust to meet the requirements for a special needs trust. Any provision of the trust which is inconsistent with the statute would be void. He calls this clause the "get out of jail free card."

If you’ve received this windfall, it might sound like you’re fixed for life. The reality is that your financial life has changed drastically, and you need to plan for it.

A structured settlement is a way of receiving partial payments for a major amount of money you’ve won or received in a lottery, a court or insurance case. You hear a lot of commercials on the air for getting cash from structured settlements, but it’s important to understand what they are and how they should be handled if you’re ever the recipient.

A good place to start is with a tax expert like a certified public accountant, a financial planning expert like a certified financial planner professional, or an attorney or structured settlement consultant who has significant experience dealing with these payment structures. When there is big money at stake, it might make sense to consult all three. Some ideas:

First, the definition: A structured settlement is structured like an annuity. It is a contract written by an insurance company that provides periodic payments to a winner in a lottery, a lawsuit or some other settlement arrangement over time. Amounts can be paid out weekly, monthly or yearly.

The benefits: Structured correctly – and with the right oversight going in – a structured settlement annuity provides a payment stream that may be tax-free over a period of time during the winner’s lifetime and remaining payments may be bequeathed to his or her survivors after their death.

The pitfalls: One should never accept a structured settlement agreement without vetting it against their own tax situation or estate needs. Also, it helps to have an expert who understands these agreements well enough to know whether certain fees or charges connected with that settlement are appropriate to the overall size of the award. Keep it in mind that the structured settlement must be purchased by the person or company that is at fault or is making the award. This is why it’s particularly important to have an expert watching over that selection process from the moment the award is announced.

The lump sum alternative: If a winner chooses a lump sum payment over a periodic payment based on the full amount of the award, that payment will likely be handled with an insurance contract that physically pays the lump sum but at a much heftier chunk of the full total – they get a big payoff for giving you a big one-time payoff. Keep in mind that the lump-sum payoff idea may not be worth pursuing unless it’s large enough to throw off substantial investment income in the future and that you have talented management making sure that lump sum makes money over time. This is why it’s always a good reason to confer with tax, financial and investment experts on the best way to go with either a lump sum or a periodic payment from the moment you’ve been informed you won the money.

Keep in mind that others get an advantage too: Many attorneys are also structuring their fees that are taken directly out of a court award. This allows them to postpone receiving their share of an award on a tax-deferred basis so they can build their own retirement funds. There’s nothing wrong with this, but it’s important to know who else in the process might benefit from any decisions that get made.

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A lawsuit against The Hartford accusing it of fraudulently keeping millions in settlement money that should have gone to accident victims will proceed as a nationwide class action under a ruling this week by a federal judge in Bridgeport.

The 2005 case was filed on behalf of three people in Ohio, Pennsylvania and Oklahoma who had been injured in motor vehicle accidents by people insured by companies that are part of The Hartford Financial Services Group.

The suit involves "structured settlements," which resolve personal injury and workers' compensation claims and often use annuities to provide the payments. The Hartford allegedly gave people written statements of the cost or value of their settlement or annuity without indicating the company would take at least 15 percent of the amount for various fees, taxes, and profit.

The Hartford figured it could benefit by having its Hartford Life division provide the annuities for such settlements. The company started a program in 1997 using selected brokers to ensure the annuities for settlements that would be procured from Hartford Life instead of competitors, the suit says.

The Hartford "has profited enormously from its uniform policy, pattern and practice to deceive claimants and their representatives," plaintiffs alleged.

U.S. District Judge Janet C. Hall this week ruled the case could proceed as a class action under alleged fraud and federal racketeering violations but not on unjust enrichment and breach of contract claims. Plaintiffs believe there are more than 9,400 people affected.

The class involves people who entered into structured settlements with The Hartford from 1997 and that included annuities from Hartford Life.

The Hartford declined to comment.


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Parents of two of the child victims of Jon White settled their claims against the Urbana school district on Friday morning.

Parents of the first child, identified only as Jane Doe-4, were awarded guardianship over a settlement of $398,500 present-day dollars, an amount that Judge Brian McPheters said "is the highest present value that I've heard of (in White-related cases)."

Jane Doe-4's father, called John Doe-4, said he first learned of the possible abuse of his daughter, now 10, in January 2007.

Parents of the second child, called Jane Doe-6, were awarded $190,000 present-day dollars, a smaller amount because the parents had moved from the Urbana school district before the 2006-07 school year, when the school district was first notified of parental concerns about White's actions with children. Jane Doe-6 is now 9 years old.

The money from both suits settles the parents' claims against the Urbana school district, but not claims against White or the Normal school district, where White taught before coming to Urbana.

White, a former Urbana elementary school teacher, has been convicted of 10 counts of aggravated criminal sexual abuse, including eight for actions against minors in Champaign County, and two for actions in McLean County. He is serving a sentence of 60 years in prison.

Urbana lawyers Tom Bruno and Denny Mickunas represented the parents of both Does. Both lawyers will receive one-third of each settlement.

Speaking at Jane Doe-4's case, Bruno said he and Mickunas spent nearly 700 hours on the case. He said some costs, like transcription fees, were split among lawyers representing all of the victims of Jon White to reduce cost on any one girl's family.

Bruno, speaking about his fees, said that when the parents of Jane Doe-4 initially received a settlement offer from the Urbana school's insurer, it was for $20,000. Through mediation, the amount rose to $60,000. After that, Bruno said, there was the "somewhat dramatic walking out of the mediation."

Then the civil suit was filed. "Ultimately, the offer went from $60,000 to $398,000," Bruno said. "We decided that was fair and reasonable."

Speaking at Jane Doe-6's case, Bruno said "the school district was claiming they were not responsible at all" because the actions occurred before they were notified about White.

In both cases, Bruno said lawyer fees were contingent upon winning money in the case either through settlement or court decision.

Urbana attorney Larry Silkwood was the girls' guardian ad litem, in court to represent the girls' interests. He earned $275 in fees from each case.

Dennis Weedman, the Collinsville attorney representing the Urbana school district, did not attend the settlement hearings. He did not return a message for comment on Friday afternoon.

Urbana school board President Mark Netter said he could not comment on the matter.

Both settlements will pay out in large part through structured payments which, with their accruals over time, will add up to far more than the settlement's present-day amounts.

For Jane Doe-4, she'll begin receiving payments of $30,000 a year for four years, starting when she turns 18 in 2017. For 15 years, she'll receive payments of $3,150 a month, starting in 2023. She'll also receive two lump sums, one in 2023 and one in 2028, each for $25,000.

An additional $15,667 will be paid immediately and divided among the parents, the lawyers and other fees.

For Jane Doe-6, she'll begin receiving payments of $25,000 a year for four years, also beginning when she turns 18. For 15 years starting in 2024, she'll receive payments of $750 a month. She'll also receive one lump sum in 2029 of $31,807.

As well, Bruno and Mickunas will receive an immediate amount of about $21,000 and the parents will receive about $13,000 to cover costs of mediation and other fees, with the remainder going to the couple to compensate for their emotional pain.

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A Cumberland County judge has approved a $525,000 insurance settlement that will benefit a 12-year-old West Shore boy whose mother died while undergoing medical treatment for allergies in August 2003.

The deal was sanctioned Wednesday by Judge Edward E. Guido nearly five years after Frances Angeloff of Summerdale filed a malpractice lawsuit over the death of her 25-year-old daughter, Selena Angeloff.

In the suit, Frances Angeloff claimed her daughter, who suffered from multiple allergies, died because of a lack of proper medical supervision by personnel of Medical Arts Allergy of Hampden Township, where she was being treated.

Frances Angeloff told Guido she agreed to the settlement "for the good of" her grandson, who lives with her. More than $300,000 will go into a structured settlement for Selena Angeloff's son. Most of that money won't be available to the boy until he becomes an adult.

The rest of the settlement proceeds will go to Villari, Brandes & Kline, the Conshohocken law firm that represented Frances Angeloff.

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