Structured Settlement Presentation by JIM EBEL, CPCU, ARM

Transcription

1 Structured Settlement Presentation by JIM EBEL, CPCU, ARM Selective Settlements International Home Office 1776 Legacy Circle, Suite 104, Naperville, IL Fax: Operations Office 8800 S.E. Sunnyside Road, Suite 101N, Clackamas, OR or Fax:

2 INSURANCE COMPANY RATINGS As of April 2009 COMPANY A.M. BEST MOODY S S&P FITCH AILIFE AXV A1 A+ AA- ALLSTATE A+XV A1 AA- ~ AMERICAN GENERAL AXV A1 A+ AA- HARTFORD AXV A3 A A JOHN HANCOCK A++XV Aa3 AA+ AA LIBERTY AIX A2 A- ~ METLIFE A+XV Aa2 AA- AA NEW YORK A++XV Aaa AAA AAA PACIFIC LIFE A+XV Aa3 AA- AA- PRUDENTIAL A+XV A2 AA- A+ SYMETRA AXIII A3 A A+ ~ Not Rated

3 WHY SHOULD DEFENDANT CONSIDER A STRUCTURED SETTLEMENT? Value added service to client Negotiation tool which facilitates resolution of claims Eliminates claim reserve Reduces settlement costs Reduces administrative costs Provides incentive to claimants and plaintiffs to settle without litigation WHY SHOULD CLAIMANT CONSIDER A STRUCTURED SETTLEMENT? Questionable trial outcome Periodic payments protect against premature dissipation of settlement proceeds and are guaranteed 90% of claimants dissipate funds within 5 years of a cash value lump sum payment* Not affected by investment risks, market fluctuations or economic turmoil Avoids future public assistance Tax free income to claimant * The Rutter Group, LTD from Flahavan, Rea, Kelly & Tener, California Practice Guide: Personal Injury (TRG1992) Ch4

4 WORKER S COMPENSATION, FELA AND USL&H CASES Types of Claims Best Suited for Structures: Permanent Partial or Permanent Total Death Any lifetime awards or benefits such as loss of earning capacity

5 OTHER SITUATIONS Reinsurance for Disability Long Term Disability Benefits Reinsurance for Taxable Damages Used for non-physical injuries, punitive damages, bad faith employment or property disputes Back pay awards not eligible to be structured Reinsurance for Single Lump Sums and Attorneys Fees Lump sums for periodic payments exceeding one year Attorney fee structures payable directly to attorney

6 Utilizing a structured settlement CONCLUSION Facilitates settlement dialogue Helps avoid future reliance on public assistance for medical and income needs Protects plaintiff from dissipating settlement funds Plaintiff receives tax free payments taking advantage of interest build up over time Offers opportunity for age rating savings Provides substantial guaranteed and lifetime income Is viewed favorably by the Court Is possible in many more situations than ever previously considered

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8 The Challenge With Selling a Business or Property for Cash Challenge: Individuals selling a business or personal property for a lump sum are oftentimes faced with having to recognize the entire gain as taxable in the year of the sale. Solution: By making the sale and having part of the proceeds payable over the following tax year(s), the seller can recognize the taxable gain in the tax year the installment payment is received or deemed received.

9 What is an Installment Sale? An Installment sale is defined in Sec. 453 of the Internal Revenue Code of 1986 as a disposition of property where at least 1 payment is to be received after the close of the taxable year in which the disposition occurs. In general, Installment Sales permit sellers to defer gains on certain property dispositions to the tax year in which the related sale proceeds are received.

10 How does an Installment Sale work? $100 Selling Price with a Basis of $10 (gross profit of $90, or 90% of selling price). Selling price paid in installments of $10/year for 10 years. Seller recognizes taxable gain of $9 (90% of $10) each year a distribution is received. For simplicity, example does not take into account interest in the Installment Obligation.

11 Benefits of a Structured Sale No direct relationship between the Buyer and Seller for the assigned periodic payment obligation. Security The Seller is not directly dependent on the solvency or financial performance of the Buyer.

12 Design Mechanics Sales agreement between the Buyer and the Seller includes language allowing for installment sale. Terms of an Installment Agreement govern payment schedule. Can be paid period certain or period certain and life. Only restriction on payment streams cannot be life/life contingent only; needs period certain.

13 Assignment Guidelines Minimum case size is $100K. No life-only contingent payment streams. Purchase agreement is strictly between Buyer and Seller: neither the Assignment Company nor Allstate should be mentioned in this document. Periodic payments may not be secured or pledged. Assignment Company must not be changed from the periodic payments owed by the Buyer prior to the assignment. The periodic payment streams are non-transferable and noncommutable. The Seller cannot assign the payment stream. The Seller s estate must be the beneficiary. A representation and acknowledgement statement must be signed by the Buyer and Seller.

14 Reporting Requirements The Seller is responsible for reporting any applicable Installment Sale income to the Internal Revenue Service and should consult with his or her own independent tax advisor for details.