Originally posted on The Milestone Blog on January 11, 2020
Like a house that’s worth less than the mortgage you owe on it, structured settlement annuities are currently under water.
But have structured settlement annuities become irrelevant? You may think this is an odd question coming from me, as our firm has been at the forefront of advocacy for plaintiffs since our inception in 1999, and we have demonstrated our loyalty and passion for plaintiffs’ rights every step of the way.
But it turns out that yes, structured annuities are irrelevant today. A 10-year immediate annuity pays exactly 1.6%. They no longer provide for the lifetime security they were originally intended for. They are an asset capture for a handful of insurers that use the claim process to create annuity sales and pay their defense experts.
Why should you listen to us? Well, we know about settlement – and everything it means to families – better than anyone. We are proud of our history, because it has been fueled by the needs of real families and their circumstances. Our professional resume and accomplishments include:
- Being the only brokerage firm to provide pro bono structured settlements in the wake of the September 11th attacks.
- Lobbying to get the legislation needed to work pro bono.
- Being the only non-law firm donor to the AAJ Endowment
- Lobbying to have the Structured Settlement Claimant Rights Act introduced in each of the last five Congresses.
- Establishing Bairs Foundation, the only non-profit public charity to support families in litigation.
- Representing Tanzanians killed in the US embassy bombing of 1996.
- Providing pro bono work to the families of the 241 Marines killed in Beirut
- Founding CrowFly, the first financial technology company, which aims to disrupt the industry that buys and sells structured settlements at often horrendous discounts.
- Boycotting the National Structured Settlement Association due to their ties to the insurance industry and failure to protect plaintiffs’ rights.
- We have created $2 billion+ worth of structured annuities and have represented more than 10,000 individuals and their families.
If you are in the process of resolving a major personal injury, and there is a broker representing one of the defendants or their insurers, beware. You must take steps with your trial lawyer in advance of the mediation or negotiation of your case to protect your financial interests. Suggested steps include:
- Refusing to mediate if they intend to bring a structured settlement broker.
- Establishing a qualified settlement fund in advance of negotiations.
- Retaining under a fiduciary contract an expert settlement planner that will provide you with unbiased advice that is solely in your interest.
- Educating yourself about non-qualified assignments which allow for tax deferral on the earnings of your settlement, and tax-exemption on the principle. (26 U.S.C. § 130c)
An example of a professionally managed periodic payment obligation that incorporates treasuries and fixed income securities can yield significantly more than traditional, fixed-income annuities over your lifetime. For comparison, $1 million structured into a fixed guaranteed annuity at current rates will yield between 1-3%, whereas a professionally managed equity-backed periodic payment obligation could yield upwards of 5-8%, depending on market activity. Just like settling for much less, agreeing to do a fixed annuity as a condition of settlement, without offering other options, such as equity-backed structures, should be malpractice for the lawyer.
If you are dead set on having a guarantee from a major insurance company for payments, then consider a secondary market annuity, or structured settlement that is being transferred or sold by another. These annuities offer yields of four to six percent and are guaranteed by the same insurance companies that offer brand new ones through their brokerage distribution channels. By being a buyer of someone else’s structured settlement, you are giving yourself an actual competitive yield, and helping another family who for whatever reason is being forced to sell.
Note that investment backed non-qualified structured settlements provide the same tax exemptions as annuities. They offer the added benefit of giving catastrophically injured families the ability to invest the monies traditionally to achieve a real return that will outpace inflation.
Industries change, and consultants and advisors should change along with them. If you are a trial lawyer and want to know how to properly protect your clients, give us a call. You will find that domestic asset protection trusts, non-qualified assignments, and an experienced settlement planner will achieve superior results for your clients.
In my humble opinion, the only thing that will make new issuance, or new structured settlement annuities, relevant again are interest rates in the four percent range. The fed has some work to do before we see that day. In the meantime, working with a professional advisor who is experienced in all of this is the best way to avoid getting sold a bill of goods.
This post is intended as a general advice and is not intended as absolute. There are circumstances where a structured annuity is appropriate; the intent of the author is to convey that they should be rare, given the upside of other investment vehicles readily available to plaintiffs and their families.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).