In part two of a podcast that Jan and Rob did while at the WTLA conference in Scottsdale, AZ we are part of an in depth discussion on the topic of 468b trusts. I know a lot of people ask me why I am such an advocate of these and my answer is that virtually no area of settlements is more wide open for growth then cases in which these are used. Now that I have LBN properly funded and staffed, your going to see a major expansion of the content and business focus of Wahlstrom & Associates, and that is going to be about our wide ranging work on cases involving 468b settlement funds. If you are a trial lawyer, a structured settlement professional or a plaintiff, these series of video and audio podcasts on structured settlements, settlement planning and 468b trusts are going to be of interest to you.

Famed trial lawyer Joe Jamail, the attorney that brought in a $12 billion verdict against Texaco in the landmark Pennzoil vs Texaco case was recently interviewed by the Legal Broadcast Network while at a NSSTA regional in Austin, TX.

Mr. Jamail had spoken at length to the members of the National Structured Settlement Trade Association earlier in the day and then agreed to an interview to discuss the vital importance of structured settlements as a tool for injury victims and others who receive large court awards. Very often it is the trial lawyer who over looks the key role they play in providing settlement options to their clients, matching them up with a qualified settlement professional and explaining how the structured settlement annuity is used to guarantee tax free income and future funds to protect them and their family.

You can view this entire video, that was sponsored by NSSTA and produced by The Legal Broadcast Network, by either clicking on the TV screen in this blog or clicking on this link. If you are considering the option of using a structured settlement or if you are a trial lawyer wondering what your responsibility is to obtain professional advice for your client, this is a very valuable video for you to watch.

Wahlstrom and Associates is one of the leading experts nationally in the use of structured settlements and underwriting settlement annuity contracts. If you want to know more about structured settlements or how to work with our firm, contact us at the email form on this page.  

In what is shaping up to be a significant transfer of assets from Merck to the legal community, both defense and plaintiff attorneys I might add, the recent Vioxx settlement is touching off a mad scramble among banks, investment firms, legal lenders and others interested in invested those funds.

I've already seen press releases from legal finance firms offering bridge loans and financing at preferred rates to trial lawyers with large Vioxx case inventories, a flood of articles and solicitations by structured settlement firms for attorneys to structure their fees as well as traditional banks and brokers angling for the tax planning and investment windfall.

However, as Lee Corso of ESPN College football often says, " Not so fast my friend!".

If you take a look at the actual numbers and what the dynamics have been of this case it is pretty obvious the big money in the investment community is going to be made by legal finance companies who will advance fund the attorneys who stand to make big pay days on their inventory of cases, but might have to wait anywhere from 6 months to a year or longer for those funds to actually get paid. I don't think most people realize just how far into this case a lot of firms are financially and many are hanging on by their finger nails.

While it would make incredible sense for most trial lawyers in Vioxx to structure their legal fees and spread the tax hit out over several years, the reality is that most need the money now, tax consequences be damned. Other then a relatively small group of attorneys at the top levels of this litigation who stand to make considerable money the majority of firms around the country will be happy to collect their funds, in advance from a legal finance firm, and be rid of this litigation disaster that threatened the viability of many of their firms.

However, if you are one of the attorneys who is interested in structuring your legal fee, you absolutely must get with a qualified structured settlement brokers soon to begin mapping out a plan of action for your fee structure. There are sure to be a lot of dynamics at work here, among them attempts by banks and brokers to retain control of the assets as well as efforts by various structured settlement firms to control who writes the annuities. There is a long way to go in this case and as such you need to start gathering information now and making plans.

If you are a financial professional awaiting an investment windfall you better be working with some of the select guys at the top or I'm afraid you will be staring at a rather small net amount once this all gets paid out and disbursed.  

As someone who actually works in the area of designing, pricing and and closing structured sales annuities I have to confess that some of my most serious concerns regarding the marketing of this concept have begun to come true. With the demise of the private annuity trust market, and the vast array of online scam artists promoting that concept, I have for the past year consistently received about a phone call per week from "marketing experts" in the real estate exit business, or former PAT salesmen, asking to affiliate with my firm to promote the sale of structured sale annuity plans on a regional or national basis. While most of these are sincere and well meaning professionals, a great many fall into the familiar category of fast buck, exploitative sales practices that typically have ruined many a good financial vehicle through corrupt or careless marketing practices.

A quick review of the google and yahoo search of the term structured sale, structured sales or installment sale, pop's up the click through search engine marketers who are now selling "class room training", certification programs, marketing opportunities and big commissions for real estate and other professionals looking to cash in on this new and exciting program. These firms tout the coming wealth transfer of the WWII generation, the collapse of the private annuity business and the shear size of the real estate markets as a reason for people to rush into this area and affiliate with, or direct business through, their offices and general agencies. While many of the reasons why people should investigate this concept are valid, the theory that you can just listen to a few hours of audio tapes and start handing out sales material is in my opinion dangerous and potentially harmful to the long term success of this concept in the planning community.

Therefore, if you are professional that is looking into the facts behind structured sales and how they can be used in real estate installment sales I would urge you to consider the following before you start talking to your clients about them:

1. The structured sales market is currently controlled by the 30 appointed general agents who have access to the Allstate structured sale annuity and the Prudential structured sale annuity. These general agents are almost all universally grounded in casualty claims or life insurance, have strong backgrounds in court settlement annuities, but typically have little or no experience in real estate sales, estate planning or retirement planning that is typically at the heart of a clients desire to structure a real estate sale over time.

2. If you are going to partner with a GA or marketing organization to learn the ropes, you really do need to look at what it is they have done in the past, who they have coordinating their efforts and if those people have a prior track record in the previously discredited PAT and tax avoidance promotion industry. What exactly do they bring to the table as far as technical, sales and administrative support to help you with the complexities of actually closing a case.

3. A lot of these cases get opened. quoted, discussed and ultimately never close due to a lack of ability to understand the many facets of the transaction. If the general agent or marketing organization is providing you with most of the commission, you had better be prepared to do most of the work.

4. There is still no PLR or revenue ruling from either Allstate or Prudential, which to me is a glaring act of negligence in helping to build this market. While I personally feel, and have felt, that neither a PLR or revenue ruling is really all that necessary as the foundational tax aspects of this process are really pretty clear cut, but the facts are that most CPA's, tax lawyers and others doing the due diligence on your clients transactions are going to ask for it. Therefore, you had better be totally prepared in the foundational tax law and rulings if you have any hope of actually seeing the sale close.

5. This is not a simple transactional business that lends itself to a quick and easy sale. You have a buyer to educate, a buyers broker, a buyers tax and financial advisor, the seller, the sellers broker and agent, the sellers tax and financial counsel, the title company, escrow agents, etc, etc, etc. Again, if you are getting most of the commission you better be sure you are ready to do most of the work. There is no quick and easy class that gets you out selling and closing cases for big money all for the low, low price of $99 and a set of steak knives.

So what to do if you want to know more about this transaction, want to consider integrating it into your practice and wish to partner with one of the GA's or marketing firms? A few simple suggestions:

1. Do your research and homework. Now granted, most of the online resources are generated by sales organizations but there are some very good third party pieces from tax counsel, the life markets and others that can bring you up to speed on the basics of how these transactions work.

2. Don't expect a lot of big ticket sales. These are typically transactions of between $300,000 and $700,000, which while substantial are not the big million dollar programs that everyone talks about. You need to be prepared to work on modest size cases with long lead times and learning curves.

3. Understand it's not a quick transaction and is going to take a lot of education, salesmanship and sweat to get all involved parties to feel comfortable moving forward. It's a new concept, it's poorly supported by the life markets and the burden is going to fall on the agent to make it happen.

4. Recognize that deferral is only part of the process. You had better have a plan or the capacity to help the people involved to invest the proceeds in a rational and well thought out process or all you've done is set up a financial dissipation plan, not an exit strategy. Most GA's and marketing firms are utterly unprepared to handle that aspect so you better have the skills or acquire them if you don't.

5. Avoid firms that "made their bones" in the tax avoidance or private annuity trust business. They are popping up all over the internet purporting to sell and offer structured sales, when all they are really doing is taking the trade name and slapping it on to their most recent high commission creation. Not all PAT firms were bad, but enough of them were to make it a big red flag in who you are dealing with going forward. Carefully research the back ground, principal owners and others involved in the organization you are considering working through.

Bottom line is that this is a one sale at a time, time intensive market and you need to partner with a company that recognizes that and supports your efforts. Just as your clients were careful in selecting you to work with, be equally diligent in who you partner with to offer these uniquely powerful planning strategies with.  

As anyone who reads my blogs here and at The Settlement Channel know i've been warning about the inevitable collapse of the real estate market for over two years now. My most recent post on The Settlement Channel discusses my thoughts on real estate, sub prime mortgage and where we go from here.

As part of those warnings I mention the loose and careless lending practices being promoted by mortgage brokers nationwide, although living in Phoenix I got an up close view over the last 7 years of just how wild and crazy it got. Virtually anyone could get a loan if you really wanted one. College students buying houses on the prospect of sharing the mortgage payment with their roommates, retirees on fixed incomes getting no money down loans to buy condo's, single mom's just out of a divorce and bankruptcy getting a 2% down loan with an ARM at 3% to buy a home in Scottsdale. Those are just some of the one's I know of personally.

So, the inevitable happened. The market slowed down, payments got late, foreclosures rose, home prices dropped, mortgage rates reset at higher levels, and all of a sudden we have a mortgage crisis as all these packaged loans start to go bad and the institutional investors panic about losing their money. We are now in the midst of a classic credit induced sellers panic and it should last at least a full year as the lending community figures out how to start making responsible loans again.

The issue is, what if you have a sale you were trying to make happen and were scheduled to do a 1031 roll over or transfer, and now the new property you wanted to go into can't be financed for what you thought you could get? I have no doubt that there are a lot of transactions right this minute that are blowing up because the property to be rolled into can't appraise for what the buyer needs, the financing has collapsed or other issues have put your purchase at risk.

What do you do if your 1031 roll over is going bad, but you still must sell your property?

You absolutely need to look into using a structured sale annuity to spread out your tax hit and defer the taxation of your gains as the real estate markets go through this correction. If you are lucky enough to have a buyer that can still afford your property, and you want to spread your gains out, to my mind the best option now is to use a structured sale annuity to fund an installment sale over time. Spread out your tax hit, consolidate your assets and debt, wait for a better buying opportunity and then take advantage of it when you see it.

Rolling over into a property that is over valued and sure to decline is never a smart decision no matter what you think you might save in taxes! Take your sale, defer the gains safely and at good rates of interest and then wait for your next buying opportunity.

Contact my office if you'd like to know more.  

Mark Wahlstrom, President of Wahlstrom and Associates of Scottsdale, AZ was recently featured on KFNN, 1510 in Phoenix, Arizona for a full hour on Talk Real Estate. This syndicated daily real estate show is hosted by Drew Grunwald of The Red Door Group and Doug Blackwell of 1031 Exchange Partners, and the four part hour long discussion centered on the use of structured sale annuities in deferring capital gains on appreciated real estate.

Wahlstrom, who has been mentioned in Forbes, the Wall Street Journal, Vacation Homes, The Robb Report and The National Law Journal as an expert on structured settlements and structured sales, has an intriguing hour long conversation with two leading real estate and 1031 exchanges experts and talks about where structured sales, or installment sales of real estate secured with annuities fits into the the real estate investors plans.

You can listen to each of the podcasts by clicking the following links, or you can go to our podcast directory and play them from there.

Part One of the interview with Talk Real Estate.

Part Two of the interview with Talk Real Estate.

Part Three of the interview with Talk Real Estate.

Part Four of the interview with Talk Real Estate.

Structured sales, or installment sales of real estate funding with secured annuities is a method of deferring capital gains in a secure fashion that is gaining increasing popularity. This interview and our other resources here on this blog can assist you in getting up to speed on how it works, where it is appropriately used and whether or not it might make sense in your situation. You can contact Mark Wahlstrom via the contact page here if you'd like to know more.  

Mark Wahlstrom, President of Wahlstrom & Associates and host of The Settlement Channel will be presenting to the NSSTA ( National Structured Settlement Trade Association) in Toronto on April 24, 2007 on the topic of 468b Trusts in Mass Tort and Multi-Claimant cases, a new approach to an old problem.

One of the leading innovators in the creative uses of structured settlements, non-qualified annuity contracts and settlement trusts, Mark will be sharing his latest innovation that has been designed for multi-litigant and mass tort cases such as the anemia drugs Procrit and Aranesp, as well as on going litigation such as Vioxx and Accutane.

While 468b trusts have been part of the tax and legal community for over 20 years, their use has been hindered by confusion, lack of education, turf battles between settlement professionals and interference from financial institutions hostile to the settlement planning industry.

You may read the outline of this talk, as well as access all of the embedded video and media clips from a wide range of attorneys and experts commenting on this unique approach to mass tort case management and settlement.

Click here to access the outline and media resources.  

Every now and then a business publication really sets out to do a real job of reporting on a topic or concept.

Todays Wall Street Journal article written by reported Rachel Emma Silverman on Structured Sales is really one of the better written and researched pieces of journalism on the structured settlement process, and in particular the structured sale.

You can link to the article by clicking here although you need to subscribe to the WSJ online to read the entire piece.

Failing that get a copy of the March 21, 2007 copy of the WSJ and go to section D1. I'll eventually get a pdf and put it here in the resource section.

Her summary was essentially as follows:

1.  The strategy can be useful for older people wanting a guaranteed income stream.

2. The IRS hasn't opined on the approach, so there's a risk it could be disallowed at a future time.

3. Low capital gains rates might make it better to pay the tax upfront.

I agree with each of these conclusions, and it should be a real spur to Allstate, Prudential and others to GET A PRIVATE LETTER RULING AND GET OF YOUR REAR ENDS AND GET IT SOON!

Everyone out here selling and marketing these knows that a PLR would dramatically accelerate the sale of this product, but it should not be incumbent on my firm or my clients to go get it. The stakeholders with the most to gain are Allstate and Prudential and they need to get on the ball and get this done. 

All in all a very good article.  

While i'm not thrilled with the article, as it generally lumped structured sales in with an article ripping up private annuties, 1031 exchanges and other questionable real estate gain schemes, they at least spelled my name properly and got me located in Scottsdale, AZ.

You can read the full article here, although you will have to register with Forbes, which is free to do.  

As you'll read in the article, which is generally hostile to the concept of tax deferral of real estate property gain, they tend to take the approach that all products designed to defer gains are some how anti-consumer and not worth the effort. While I would agree that private annuities were totally abused by the planning community, and that 1031 exchanges are probably the next big area of IRS scrutiny, they gloss over the strong tax status and history of installment sales. Just because it has a fixed annuity and assignment attached to it doesn't make it suspect, as they would imply, it actually makes it stronger as you end up with Prudential or Allstate as the payor of the installments and guarantor of payments.

Hopefully the article stimulates more discussion of the concept and more in depth analysis of it's benefits and drawbacks, but again, they got the name right and I still encourage you to read it and see what you think.  

In the current edition of Robb Report Vacation homes, December 2006/ January 2007 Mark Wahlstrom was featured in an article entitled "The annuity Way" discussing the use of structured sale annuities to fund installment real estate sales.

The article was written by John Morell and reviews the recent increased awareness of the product, how it is applied in real estate sales and it's application in the vacation and second home markets.

In a frustrating note, they don't have an online link to the story available on the Robb Report web site, but I'm working on getting a clean pdf file copy to post here on the site. In the mean time, go pick up a copy at the news stand or contact my office and i'll fax you a copy of it for you to read and review.

The general awareness of the financial and real estate community about the relatively new use of this product is starting to increase, and there are more and more real estate professionals looking to offer this to their clients. If you are a financial, tax or real estate professional who is looking to learn more about how you can offer structured sales to your clients, contact my office and lets talk about working together on this. Lets use your local knowledge and contacts, and my expertise in structured sales to assist your clients with their tax and cash flow planning.  

Pacific Life and Annuity company announced today significant changes in their structured legal fee program, or if you prefer, structured attorney fees.

Essentially the changes offered by Pacific Life are:

1. The claimant now does not need to structured any of their benefits in order for the trial lawyer or attorney to structure their legal fee on a case. This applies whether or not the claimant/plaintiff structures with Pacific Life or any other company. What this means is that they will now allow for true stand alone legal fees, thus allowing the trial lawyer to defer taxation on their fee award to future tax years, even if the client isn't structuring a dime of their award. It is a decision entirely up to the attorney and is not impacted by the clients desires to structure.

2. Pacific Life has joined other life markets in offering joint and survivor annuity benefits on structured legal fees. This means that an attorney can now select a life time annuity payment on their legal fee structure, but name their spouse as the joint annuitant. On the death of the attorney all payments will continue for the life of the spouse/joint annuitant, a crucial benefit when designing retirement plans for the trial lawyer. Any trial lawyer that has maxed out their pension plan contributions needs to be looking into the use of structured legal fees to supplement their retirement income in this fashion.

3. Pacific Life will require the use of a Uniform Qualified Assignment and Release form on all stand alone legal fee structures. This is a departure from the more commonly used Uniform Qualified Assignment form, in that it adds release language that provides for stronger security and compliance with tax standards. The point is, don't enter into a structured legal fee with out the advice and assistance of a specialist in structure legal fee's to insure the proper matching of markets and language in your settlement to the particular needs and facts of your case.

This news further proves that the trend of trial lawyers structuring their fees is accelerating and that tax planners, CPA's and trial lawyers need to be working with a settlement professional to allow their clients to take advantage of this important opportunity to defer income to future tax years. 

If you are an attorney who has claims for legal fee's in the Owens Corning asbestos settlement you need to be aware that you have an excellent opportunity to structure your legal fee so that your financial future, or firms cash flow is both secured and tax deferred.

As most people know Owens Corning recently agreed to a $5.2 billion settlement of all past and future asbestos claims as a result of their use of asbestos in their products over the past decades. While it is common knowledge that injured victims can structure their payments out of the settlement using section 104 tax law and section 130 qualified assignments, it is not as widely known or understood that trial lawyers who represent these people may elect to structure their legal fee's in the same fashion. 

With out getting into all the details it's important to note the following:

1. A section 468B trust was established back in 2003 to accept funds and make payments to beneficiaries of the trust. This is important as the code and body of law built up around section 468B is quite clear that it is permissible for claimants of the trust to establish periodic payment plans, or structured settlements, and for the trustee to sign off on those plans and make the assignment of ownership and liability for future payments to the assignment companies of the funding life insurance markets.

2. The same 468B qualified settlement trust also allows for trial lawyers to take their legal fees in one of three ways. All of the payment in cash, all of it in a structured annuity or periodic payments, or a combination of cash or structured settlement annuity.

3. This means any trial lawyer with a claim for payment in this case is faced with a major decision. That decision is do you want to take all your money at settlement in 2006, and pay top marginal rates of up to 40% depending on what state or city you reside in. Or, do you want to look at your options to defer payments into future tax years, thus reducing dramatically the initial tax bite and effectively keeping your money in your pocket, earning interest, for use in a future tax years.

4. Please note, and this is very important, this is a method of tax deferral and not tax avoidance! You will pay taxes on the earnings, plus interest, in which ever tax year you elect to take your payments in.

5. You have almost unlimited choices on how to structure your legal fee payments. Lump sums, retirement income, life payments, deferred income streams, joint annuities with your spouse, etc. Its up to you.

6. You MUST elect this prior to filing your fee petition for payments with the Owens Corning trustee. If you wait until after you have received the funds, you are in constructive receipt, you will have to report it in 2006, and there is no possible method for you to change your decision.

7. Contact a competent settlement professional to discuss your options. If you don't work with someone already, you can contact Mark Wahlstrom at 800-444-5924 to review your choices. With over 25 years of experience and a full range of annuity markets, Wahlstrom & Associates is the expert in structuring your legal fees.

 

As someone with over 25 years experience in the structured settlement business, and as one of the leading experts in structuring attorney fee's, I am continously amazed at the number of attorney's who still, at this late date in 2006, are utterly unaware of the fact that they can legally defer taxable income into future years using a structured attorney fee.

When I speak to groups or individuals on this topic I always make a point of asking them if 1.) Have they ever structured a legal fee using a structured settlement annuity, and 2.) If they haven't, what is stopping them from doing so. I think the answers are instructive in getting to some of the misconceptions many lawyers have about their options to defer taxes, with interest and fully secured by highly rated life insurance companies, into future years using annuity funding in their settlement agreements.

Lets discuss the most common reasons I'm told why they don't structure:

 1. I wasn't aware that I could, and I thought the tax courts had struck down the practice back in the mid 1990's.  While it is true that back in the early 1990's there was a very prominent tax court case, Childs vs The commissioner, in which it was litigated for some time whether or not attorneys had the right to use annuities to fund deferred payments into future years, that litigation was decided in Childs favor at the highest level of tax court over 6 years ago now. We have also had the subsequent Banks and Banatis decisions in the Supreme Court back in 2005, coupled with clear legislative action to carve out the right of attorneys to defer fees, when most if not all professionals don't have that option. Go check out the podcasts from Attorney Rob Wood here on our site for a really good 45 minute tutorial on the tax status and history and I think you'll agree the foundation for structuring fees couldn't be stronger.

 2. My client isn't structuring and I don't want to raise the issue of my fee at the end of the case. Besides doesn't my client have to structure in order for me, the attorney, to structure my fee?  No, you don't have to have your client structure their award in order for you to structure your fee. While it is true some life insurance companies continue to take a very cautious approach and won't underwrite cases where the plaintiff isn't also structuring, the number of companies that do "stand alone" fee structures is expanding by the month, and include firms such as John Hancock, Hartford Life, MetLife, Prudential, Allstate and other top ranked firms. You may, at your election in a personal injury case, choose to defer your fee via a structure as part of the settlement agreement, using a standard qualified assignment, and therefore obtain the benefit of tax deferral.

3. I'd like to structure but I never seem to have much money left over after a case, so I just use it to pay my expenses and go on to the next case.   Yes we have all been there, but at what point are you going to get off the treadmill and start to bank cash flow for your future? We typically structure legal fees so that an attorney can do one of two things. First being to set up a secure cash flow to fund their practice for the next 5, 6 or 7 years by putting a guaranteed stream of income in place to cover over head each year. The second thing we do is use the cash flow to fund either extra retirement benefits outside their pension plan, or in most cases, target cash flow to make sure their pension plan gets funded every year. The point is that even if you are structuring $50,000 per case into future years, that's money you Aren't paying taxes on now, and can use for a better purpose in the future.

 I'll be back next week with some additional ideas for trial lawyers and their experts in how to structure legal fees in personal injury cases. Remember you can always call me at 800-444-5924 and ask me questions on your specific case.

I was recently talking to a client attorney of mine who had recently structured his legal fee on a case, and he was remarking how the ability of trial lawyers to defer income through the use of structured legal fees is still widely unknown.

I mentioned to him that I have probably structured more legal fees in the last 5 months then I structured in all of the preceding 5 years, and that while a lot of attorneys are slow to adopt and recognize an advantage, that more and more financial and tax planning experts are becoming aware of the option, and seeking out ways to make it available to their clients.

As one of the few firms that actively partners with financial planners, insurance professionals, CPA's and other experts to assist them in working with their legal clients to structure their fees, the growth in interest and number of cases we are currently in the process of closing is truly astonishing compared to where we were as an industry just 18 months ago.

The certainty provided both by amendment to the tax code and the Banks and Banatis Supreme Court decisions have taken the guess work and risk out of structuring, or deferring legal fees, into future years. As each week passes more and more people are looking for experts to assist them, and Wahlstrom & Associates is one of the nations leaders in the placement of structured attorney fee annuity contracts. If you are an attorney, tax planner, investment advisor or financial planner who works with trial lawyers, give us a call or drop me an email to discuss how we can work with you.