Non-Qualified structured settlements, what trial lawyers need to know

Non-Qualified Structured Settlements are an important tool in taxable damage settlements and litigation. These unique structured settlements allow for a taxable damage case to have the tax impact spread out over many years, often leading to substantial tax savings and enhance financial planning benefits for plaintiffs and their attorney. To learn more about non-qualified structured settlements, go to #metlife #independentlife #structuredsettlement

Posted on June 21, 2019 .

Guardianship IQ for Plaintiff's PI Attorney

If the plaintiff has a cognitive/intellectual disability, the plaintiff’s attorney must examine the interplay of the individual’s incapacity and the statute of limitations governing the suit. As the plaintiff’s attorney, you don’t want to be racing against a deadline in order to have someone appointed to act on behalf of the individual. 

GAL versus Guardian

 In some jurisdictions, a Guardian ad Litem can be appointed for the individual in order to represent the plaintiff’s best interests.  A Guardian ad Litem (“GAL”), literally is a guardian for the suit. The power of a GAL is very specific and it ends when the suit ends.  A GAL is not a guardian, a GAL does not have the authority to make decisions beyond the suit.

The appointment of a guardian is beneficial if the plaintiff will have an ongoing cognitive disability. This type of guardian can have responsibility for the individual’s personal needs and/or their property management. The court may authorize the guardian to invest assets, pay bills and make purchases for the individual. A guardian with personal needs power can make medical decisions and decide who will provide care for the person. Such a guardian would also be able to obtain or maintain government benefits for the individual. 

The Authority Granted

Individual states treat guardianships differently. In New York, for instance, we have two different types of guardianship, one based on an individual’s intellectual or developmental disability and another based on an individual’s functional limitations.  In New York, guardianships based on functional limitations are carefully tailored, and the guardian will only have the power set forth in the order appointing them.  If that authority doesn’t expressly include authorization to commence an action on behalf of the individual, the power of the guardian must be expanded.  It’s very important to begin this process early. Guardianship courts in many states have a very heavy case load, and the delay in obtaining the proper authority will impact the filing of the action, as well as discovery.

Think Outside the Box

Plaintiff’s counsel should also consider whether other family members are entitled to damages. If the injured party is married, their spouse may also have a compensable claim against the defendant. When a married couple is injured in the same accident, plaintiff’s counsel should consider factors influencing the allocation of damages between the injured parties, including the loss to one spouse caused by the more serious injuries to the other spouse. 

When and Why to Consult a Special Needs Attorney

In my opinion, a special needs attorney should be brought in once plaintiff’s counsel establishes that there is a viable cause of action. At that point, the special needs attorney can assess a number of factors that may be important to the plaintiff and their family, including steps to be taken to preserve government benefits. For example, if the individual is under 65 and is expected to need means- tested government benefits, consideration should be given to creating a first party special needs trust (SNT) to hold proceeds from the suit. The opportunity to create and fund the SNT disappears once the person turns 65. If the guardian does not have the authority to establish and fund an SNT, an application for such power must be made to the court. During the time the application to create and fund the SNT is pending, the plaintiff will likely lose their means-tested benefits because the settlement funds are deemed available to them. Failing to consult with a special needs planning attorney, and to advise the client in a timely manner of the need to expand the guardian’s authority to create an SNT, is a potential disaster. 

A special needs attorney can explain to the plaintiff and their family the way SNT assets are to be used.  Most families understand that the money is to be used for the person who has been incapacitated and that there will be oversight by the court and/or a government agency providing the benefits.  A special needs attorney can explain the trustee’s responsibilities for managing the SNT through the beneficiary’s life and the distribution of SNT funds on the death of the beneficiary of a first party SNT. 

Understanding the Options and Creating the Right Plan

While an SNT is a wonderful option, it is not the only option and sometimes it is not the best option. The special needs attorney can provide the plaintiff and their family with a plan of action to be implemented upon settlement of the action. If the plaintiff is on Medicaid and has a community spouse, some states allow the transfer of assets to the community spouse.  In many jurisdictions, it’s possible to transfer those assets to the community spouse without losing benefits.  If the plaintiff lacks capacity, it is important to have a guardians authorized to make those transfers.  Other options can include transfers to an adult child with disabilities or the purchase of exempt resources. Creating and implementing a proper plan takes time and careful consideration of all relevant information. Consulting with the right special needs attorney allows a plaintiff’s attorney to do what they does best instead of trying to address matters beyond the scope of their  experience.  

Why Is it Taking So Long? Must be the Lawyer’s Fault

Non-attorneys are used to watching legal dramas on television and in the movies where everything is tied up in a neat and tidy package in no more than two and half hours. Managing client expectations concerning how long it will take to address guardianship and to settle the lawsuit can avoid hours of time spent explaining “why things are taking so long.” Nothing happens as quickly as non-attorneys tend to expect. In some states it will take six months to conclude a guardianship with the authority to handle everything needed. In some cases, the court will appoint a guardian with temporary powers, but this also takes time. The special needs attorney can help the client understand that addressing the guardianship issues will avoid unnecessary delays and can help to move the suit forward.

Helping You Do What You Do Best

It is hard enough to stay current on your own practice area. A special needs attorney will be able to provide your client with current information and assist with their planning needs. Consulting with a special needs attorney once a viable cause of action is identified benefits the client and frees up the plaintiff’s attorney to do what they do best.

Posted on April 3, 2019 .

Using Structured Installment Sales to Reduce Capital Gains on the Sale of a Professional Practice

Today I'm going to be talking about the topic of whether a professional practice can be sold and take advantage of a structured sale so as to spread out a tax hit and lock in cash flow as lawyers, accountants, doctors and others start to retire and transfer their professional practices. Most people think of structured sales for just real estate, but you can use them for the sale of a professional practice and reap many of the same benefits provided you are properly organized and prepared at time of sale. 

Now when I talk about a structured sale, let's keep in mind that it's essentially a very common tax strategy called an installment sale. Installment sales have been enshrined in the US Tax code since just about forever, the process is well understood by just about every CPA and tax professional, as well as business brokers who work with you to sell professional practices. Just because someone decided to brand these as "structured sales" doesn't mean they take on some mysterious tax strategy, in fact it's just the opposite. It's pretty vanilla at it's core.

Where it does differ from an installment sale is that instead of the seller relying upon the credit worthiness and business acumen of the buyer to make the future payments, a structured installment sale TRANSFERS that obligation for the payments to a secure third party institution such as a life insurance company or trust company. This assignment of liabilty is a pretty simple process and essentially transfers the obligation to the third party with no strings attached to the buyer. That's a simple explanation but for now if you want to know more on the mechanics of that, go to my web page at Wahlstrom & Associates and you can see in greater detail how the assignment works. 

However, this video is about selling your professional practice so lets hit the three key points quickly that you need to know. They are Qualify, Notify and Planning. 

1. What is your business entity organized as? Sole proprietor, single member LLC, multiple member LLC, S Corp, etc. All of this matters big time as to how the IRS will classify the sale of your practice, so the first step before you even consider a structured sale is get top level tax advice as to the best entity organization for your company ahead of your exit strategy or asset sale. This has to be done first so you know what, if any, parts of your business qualify as capital assets. 

2. Is the buyer on board with you selling in an installment sale basis and agreeing to the assignment of the obligation to make payments to a third party. So many people wait until the very end to raise this with a buyer, who in many cases gets spooked by their unfamiliarity with the concept and refuses to execute the assignment or installment sale. I can't stress enough the importance of NOTIFYING the buyer early you intend to use this concept. 

3. Have a clear plan for your distribution of the installment payments. By this I mean look at the rates offered by the life insurance company on the funds held, decide how long you want payments to be spread out over time, but most importantly how you plan to reinvest or use those assets once they arrive each year. Map out your post retirement expenses, investment plans or estate planning and maximize the value of each year's payments to insure you leverage this tax planning tactic to it's maximum value. 

Ok that's it. You can, with careful planning and consultation with your tax professional and business broker, create a safe, secure tax advantaged cash flow on the sale of a professional practice if that's what you want. If you have questions, go to my web page at Wahlstrom & or call my office at 480-478-0183. I'm happy to help you and your team of advisors understand how to make structured installment sales work for you. 

Posted on March 6, 2019 .