The return of "The Big Lie" in structured settlements

Any trial lawyer or structured settlement professional who did any amount of work in the 1980's and early 1990's remembers the "Big Lie" that was cycled endlessly in thousands of claims negotiations during that era. That particular Big Lie was that if the casualty company adjuster, defense attorney or structured settlement broker told the plaintiff attorney the cost of the structured settlement, that it "might" be considered constructive receipt and they would possibly jeopardize the tax treatment of this amazing settlement annuity being offered, by their inadvertently disclosing the cost.  

Of course anyone and everyone in the structured settlement profession at that time knew it was a complete and total fabrication, dreamed up by some creative defense brokers and claims professionals so as to plant the seed of reasonable doubt, or due caution, in the mind of the trial lawyer, so as to not have him press the fact that the annuity typically was costing far, far less than the trial lawyer imagined. This created a situation where the lawyer thought he was getting a present value of X, when in fact he was getting a present value of Y, a gap in cost that the casualty company was only too happy to take advantage of and felt under no duty or obligation to disclose. 

The reality is that there was never an IRS ruling, IRS regulation, Tax Court Case or even a legal opinion from anyone that validated this fraudulent assertion. It simply gained validity by the constant retelling of this lie to trial lawyers in case after case, month after month and year after year, until it took on the aura of truth, when in fact it was devised solely to gain a negotiation or business advantage at the expense of the plaintiff. 

The only way this lie was eventually exposed and eradicated from our profession was that some smart and tough trial lawyers began insisting on seeing a tax opinion, ruling or regulation proving such an assertion, combined with plaintiff structured settlement experts such as myself making the rounds on the speaking circuit and exposing to trial lawyers what a fraud this really was.  

Well, unfortunately old habits die hard and we now have another "Big Lie" circulating in our profession, one that I and other settlement planners are having to continually confront and this "Big Lie" is equally as bogus as the last one. The current narrative goes along these lines: 

"Casualty companies are "not allowed" to make payments into a Qualified Settlement Fund, (Section 468B Trust) when there are related claimants, as it is "their opinion and policy" that related claimants MIGHT BE treated by the IRS as "one claimant" . We further feel Single Claimant QSF's are at tax risk and as such we fear down stream liability if we pay into a trust that MIGHT eventually be disqualified by the IRS."  

Remember, three adult family members with separate claims COULD count as one in the eyes of the IRS...

Remember, three adult family members with separate claims COULD count as one in the eyes of the IRS...

Now, never mind the fact that the IRS and Treasury have never opined that a single claimant case is a tax risk. NEVER. Also let us disregard the fact that the QSF 468B Trust is used in virtually every single mass tort case and is long standing tax policy that is in no way suspect or under scrutiny from Treasury. Also let us over look for a moment that a QSF provides a full and complete release of down stream liability to the defendant.

None of these facts seem to prevent my brothers and sisters on the defense side from stating with great mock concern that despite the code saying in plain language that a QSF may include "One or more claimants" that some how they are able to divine from this plain language of the code, that it somehow " Doesn't comply with the original intent of the law and code, which of course was to use it for multiple claimants."

Let's skip over the somewhat absurd contention that the word ONE doesn't mean ONE for the moment, once again recognizing that this argument has been fabricated solely to prevent the control of structured settlements from being written by practitioners outside the inner circle of defense structured settlement professionals. That's a horse I no longer care to flog as that concept has already gained sufficient traction over the last six years so that life insurance company structured settlement departments now live in terror of the dreaded single claimant QSF and it's theoretical tax risk. Let us just over look that fact that it is the back lash from defense brokers, who happen to send them the bulk of their premium, that actually cause the real terror in life insurance company back offices, not some nebulous fear of the IRS disallowing a single claimant QSF.

However, that reality is what it is, and it is true that as of the date of this commentary, life insurance companies in the structured settlement market won't write a single claimant case. I will certainly give them credit for the truthfulness of that statement. However, that particular campaign of intellectual deception and behind the scenes bullying wasn't enough for the casualty and defense structured settlement profession. No, they as usual had to go a bridge too far and decide to promote the argument that 1+1+1+1=....1.

This mathematical leap of faith now takes us to the heart of the recent "Big Lie". That being that not only are single claimant cases some sort of tax risk, but now they want to create even more doubt and push the "Bigger Lie" that a family of adult claimants on a single cause of action, let's say a bad auto accident in which they were all passengers, are some how at risk of being deemed by the IRS as a "Single Claimant" simply because they are all related or have the last name. I have had a case recently where four adults, each with their own asserted claim for damages, are being told by a casualty company, on the advice and counsel of their structured settlement broker, to "not pay into a court ordered QSF 468B Trust, as they CONSIDER that at some point, the family MIGHT be treated as one claimant by the IRS and we all know single claimant QSF's are a tax risk."     

That they can actually say this with a straight face, knowing that there is no tax ruling, no code section, no administrative clarification, no court ruling, in short absolutely nothing that supports this ridiculous concept, is simply amazing. When asked to produce the tax law back up to support their assertion, they state it is their "company policy" and then the stonewall begins. Then, to top it all off, they tell the trial lawyer that since it is a fact that "no life insurance company will write a single claimant structured settlement annuity" that if they want a structured settlement for their client they have no choice but to use the defendant broker to plan their program. All of this with a severely injured client that has huge medical liens, MSA obligations and planning issues that can not possibly determined at the time of settlement and who requires the safe haven and planning options a court supervised QSF clearly allows, so as to properly allocate funds, resolve liens and plan their future needs. 

It is quite a convenient conflict of interest, bogus claims practice, ethical lapse or any other adjective you can think of to describe this process and it needs to be exposed for what it is:

"A continued attempt to keep the writing of structured settlement premium in a tight circle of "approved markets" and brokers with an economic interest that is often contrary to the needs, goals and objectives of the claimant and their attorney."

I realize that this is a lot to digest in one sitting, so l will be doing a full series on this lie, of which this article will be part one. I also am more than willing to be proven wrong by the defense community on this and I am making an open, standing invitation for settlement brokers, casualty claims executives and industry experts to come on our shows here at The Legal Broadcast Network and provide the clear and compelling evidence that the IRS has ever once considered a group of adult claimants, each with their own cause of action and claim in a case, to be considered for tax purposes as a single claimant. 

I also am making an open invitation to any trial lawyer or structured settlement professional who has recently run into this objection to join us on our weekly shows and discuss the particulars of your case if you are at liberty to do so. Only by exposing in the most public of fashion's the intellectual dishonesty of this argument can we hope to eliminate a questionable claims practice and retain the use of a powerful settlement planning tool with full rights of access to settlement products. 

Posted on October 16, 2013 .