February 27th, 2011 by Fairlane Raymundo. No Comments »
Recently, former child movie stars have been talking about finally being able to manage the money they earned when they were kids. Most of them claim that they weren’t even aware of the total amount they were bound to receive when they become of legal age until it was turned over to them.
As you know, the law protects a minor child’s money, regardless if the money was obtained from work, inheritance or court settlement. Minors are prohibited from entering a binding contract. The child must then be represented by the parents or guardian. The procedure is variously referred to as guardianship, a friendly suit, minor child’s court approval, court confirmation, or minor child’s compromise proceeding.
When it comes to settlement of a minor child, there are different kinds that the court may choose to go.
A court-ordered savings account. The Settlement awards can be held in the registry of the court and paid in full when the minor child reaches age of majority. It works like a trust fund but the clerk acts only in a custodial capacity and not a trustee. The interest that the money will earn shall be distributed into two ways:
- A designated percentage shall be paid into the general fund of the county to reimburse the county for the expenses of maintaining the registry fund; and
- The remaining percentage of the interest shall be credited to the minor child’s registry fund. The interest earned is taxable.
A court-approved trust. This is applicable only on some states. There should be a trustee. The trustee is the one who will determine the Fee Schedules and taxable interest. Interest earned is taxable.
A structured settlement plan. Just like any structured settlement plan, it is tax-free and guaranteed. In most cases, the child will be able to receive payment once she or he reaches the age of majority unless the child is disabled and must permanently rely on government public assistance or requires immediate medical supervision. The structured settlement will then be converted to a special needs trust.
The structured settlement will be designed to take into consideration different factors that contribute to a comfortable life for the child such as:
- Education expenses that could even include graduate years
- Car especially in states where car is a necessity
- Down payment or full payment for a home
- Cost of daily living
January 28th, 2011 by Fairlane Raymundo. No Comments »
After all the facts have been forwarded to the court, the judge started reviewing all information to determine if the sale promotes the best interest of the payee and her dependents. You can read part 1 here.
Can the Business Support Their Needs?
The business they claim to be investing their money on started March of 2006. She is estimating that they will generate an annual income of at least $30,000.00 but she admitted that they have, so far, only shown a profit of a few hundred dollars. There seems to be no concrete plans on how they will achieve their annual income target since Lemanski has no personal experience in the landscaping business. Dombrowski worked for Lemanski’s sister’s landscaping business part-time for a couple of years, but is only 19 years of age.
The court looked into the competencies of Lemanski and Dombrowski to determine if she can possibly get a job in the future. Below is their brief employment record:
- Lemanski worked for Toys R’ Us on a full-time basis earning approximately $16,000.00 per year
- Dombrowski worked full-time for a local bakery doing freezer work and earned, together with his part-time employment in the sister’s landscaping business, approximately $24,000.00 per year
If the two operate the business on a full time basis and forego any employment opportunities, they would lose $10,000 per year which is an unreasonable move especially when they have two kids depending on them.
Emotional and Psychological Condition of Lemanski
The Court determined that Lemanski seems to have no foresight or plans for the future to the point of making no consideration to the fact that the structured settlement money she is getting now may be of great use for her children in the future.
Even in her claims to be putting up a business, she didn’t make any business study and is unable to account for the possible worst case scenarios.
With all these concerns unaddressed, the court denied the request of the structured settlement transfer because it does not promote the best interest of the payee and her dependents nor is it fair and reasonable to risk the security of the future.
January 27th, 2011 by Fairlane Raymundo. 2 Comments »
The Lemanski case seeks court approval of a proposed transfer of structured settlement payments from the payee, Jenny Lemanski (“Lemanski”), to the transferee, 321 Henderson Receivables, L.P. (“321 Henderson”).
Payee Background and History of her Structured Settlement
Lemanski got injured when she was two years old. On Lemanski’s behalf, her mother instituted a lawsuit against the responsible party which was settled in May of 1989. The payments required under that structured settlement are as follows:
a. $15,000.00 on January 2, 2003;
b. $15,000.00 on January 2, 2004;
c. $15,000.00 on January 2, 2005;
d. $15,000.00 on January 2, 2006;
e. $135,000.00 due on January 2, 2010;
f. $200,000.00 due on January 2, 2015;
g. $250,000.00 due on January 2, 2025;
h. $350,000.00 due on January 2, 2035.
History of Requests for Transfers
The court requires that all past attempts to sell structured settlement rights, successful of otherwise, be documented and submitted to the courts. Lemanski received approval from the court in December of 2005 to sell a portion of the payment due on January 10, 2010. At that time, the Court granted approval for the sale of the payment of $85,000.00 due on that date so she can pay for a house.
Motive For Selling
Lemanski claimed that she will use the money so she and her fiancee, Jamie Dombrowski, can purchase more equipment for their recently-inaugurated landscaping and snow plowing business. She said she already purchased several pieces of equipment in December of 2005 so that she could take over some contracts from her sister’s landscaping/snow plowing business. They claimed to have 37 contracts for lawn service. However, they said that the truck they bought was a mistake because it had too many miles and needs too many repairs. Thus, she needs money to buy a better truck and operate the business more efficiently.
Dependents and Present Condition
Lemanski is 21 years old and is the single mother of two (2) minors under the age of three (3). Jamie Dombrowski is her fiancee and father of her children.
Structured Settlement Present Value
Lemanski wants to sell $125,000.00 in future payments due on January 2, 2010 ($50,000.00) and January 2, 2015 ($75,000.00). In exchange for the sale of those two payments, Lemanski would receive the net amount of $51,500.00.
The present value of the payments to be sold (5.60% discount rate at the time of the application) is $87,467.19. Lemanski would receive 58.94% of this present value, that is an equivalent of an annual discount rate for the transaction of 15.16%. A Prudential Insurance Company America quote showed that purchasing a comparable annuity for the aggregate amount of payments to be transferred would be $94,395.00. Lemanski would receive only 54.55% of this amount with her current quote.
How to Ensure the Court that the Future of Minors will not be Compromised in the Sale of a Structured Settlement
January 19th, 2011 by Fairlane Raymundo. No Comments »
If you want to sell rights to future payments of your structured settlement to a secondary market (you can review the definition of secondary market here), you must ensure that you will be able to present to the court enough substantiation that the sale will not jeopardize or even risk the future of your dependents especially when your dependents are minor.
Washington SSPA states in NEW SECTION. Sec. 6. (2) (d): Not less than twenty days prior to the scheduled hearing on any application for approval of a transfer of structured settlement payment rights under section 4 of this act, the transferee shall file with the… listing of each of the payee’s dependents, together with each dependent’s age.
Illinois SSPA states in Sec. 15 (1): No direct or indirect transfer of structured settlement payment rights shall be effective and no structured settlement obligor or annuity issuer shall be required to make any payment directly or indirectly to any transferee of structured settlement payment rights unless the transfer has been approved in advance in a final court order or order of a responsible administrative authority based on express findings by such court or responsible administrative authority that the transfer is in the best interest of the payee, taking into account the welfare and support of the payee’s dependents…
When there are minor dependents involved, you first have to make sure that their future will not be compromised even when you sell the future payments of your structured settlement. If you are not absolutely sure about this, don’t do the sale.
The guarantee that their future will be taken care of may be in the form of a liquidated or liquidatable asset. For example, if you have a house which may be considered easy to sell, the court will consider this a guarantee that the minors may resort to something to have some financial security in the future.
Current employment may also be considered a guarantee but the number of years of your employment and how much you earn as appose to your cost of living will be checked. If you are in deep debt and have no money left for savings, this will give the court the impression that you will have nothing left for any emergency needs the minors may have.
There are many other documentations you need to provide but it all boil down to you being able to prove that even in the absence of guaranteed future income, there is no way the needs of your minor dependents will not be met.
January 14th, 2011 by Fairlane Raymundo. No Comments »
The Illinois Structured Settlement Protection Act or SSPA, just like other states, requires that any activity in someone’s Structured Settlement outside of the pre-agreed terms must be approved by the court. Before we discuss important points in Illinois’ SSPA, let us define and explain some terms that you will often come across in the course of our discussion.
Annuity issuer is the person or entity who pays the structured settlement. Legally, it is defined as “means an insurer that has issued a contract to fund periodic payments under a structured settlement.”
Dependents include anyone that legally relies on the annuity owner for financial support. The law states that the court will only consider someone a depended if that someone has the legal right. If someone is being supported by the annuity user but is not legally obligated to do so like a neighbour, the law does not recognize that.
Discounted present value means what the law recognizes as the value of the money now with discounts using the most recently published Applicable Federal Rate.
Gross advance amount means the total amount that the funder of the structured settlement must pay.
Independent professional advice is the consultation with anyone who are trained by education, experience or legal right to provide advice. That includes an attorney, certified public accountant, actuary, or other licensed professional adviser.
Interested parties includes the payee and any beneficiary that are designated to inherit the payments in case the annuity user dies.
Net advance amount means the gross advance amount less the aggregate amount of the actual and estimated transfer expenses.
Payee is the person who is receiving the payments from the insurance company through the structured settlement.
Periodic payments is the scheduled release of money from the insurance company to the payee. This may be monthly, quarterly, or even yearly.
Responsible administrative authority is any government authority vested by law with exclusive jurisdiction over the settled claim resolved by such structured settlement.
Settled claim is what the payee claims from the funder. This claim is what is converted into a structured settlement instead of paying the claim lump sum.
Structured settlement is the periodic payment made by the insurance company to the payee.
Structured settlement agreement means the agreement, judgment, stipulation, or release embodying the terms of a structured settlement which includes how, what and when the payments are going to be made.
January 12th, 2011 by Fairlane Raymundo. No Comments »
Although the structured settlement money is your personal property, you cannot withdraw your money like you would in your ATM account. A structured settlement is a contract between you and an insurance company to allow the company to earn the both of you interests by investing your money and paying you set amounts regularly. Using a pre-agreed formula, the way by which your money is going to be invested and released to you is assumed to promote your best interest.
When you enter into a structured settlement agreement, your money remains yours but it is regulated by the government through a legal and binding contract which you signed with an insurance company. There are many who remain that keeping the structured settlement is still the best decision because nothing beats the assurance of having a continuous supply of money for your later years.
However, it is acknowledged that things can happen to you that will force you to sell your structured settlement so you can use it for immediate needs. In that case, the government has institutionalized laws that will protect you even during the time of the sale. One such provision is the need to consult a lawyer or financial advisor.
The financial advisor and you should be able to determine the schedule and amount that will be forwarded to you and the schedule of the transfer. This should figure in your long term and short term needs. Essentially, you should be able to get money from your structured settlement almost immediately if you have to.
However, many financial advisor will help you make the most out of your money by providing for an investment period or the time that your money is guaranteed to be invested so that it can earn interests. In effect, there is actually no set time as to when your money must remain in the insurance company.
If you want to sell your structured settlement, a court approval will have to be obtained. Again, there really isn’t any set rule as to how long your account must remain active in order for the court to approve your sale. Everything largely depends on what the court determines to be in your best interest.
January 7th, 2011 by Fairlane Raymundo. No Comments »
Peter J. Vodola reviewed the Settlement Funding, L.L.C. v. Prudential Assigned Settlement Services Corp. (Conn. Superior Court, April 16, 2009). The owner of the structured settlement requested the transfer of rights but the Superior Court judge denied the request because the transfer would go against the best interest of the owner of the structured settlement and dependents. The case was reviewed in Connecticut, a state which is one of the first ones to adapt a strict standard on how to determine the “best interest” of everyone concerned.
Judge Nicola Rubinow, just like in any other case, looked into every detail of the request. The factoring company, Peachtree Settlement Funding, is to transfer future payments of some $52,000 worth of future payments in exchange for an immediate sum of $18,000.
According to the records presented:
- The owner of the structured settlement had a seven-year-old daughter
- By his own admission, he was “addicted to pain killers and opiates”
- He had relatively recent felony convictions
Information on Previous Transfers
The court requires that they be informed of any request to transfer structured settlement rights, in partial or in full, successful or not. The court learned that in 2008, the payee transferred some payments to Peachtree in exchange for $32,680. Judge Rubinow, however, noted that the court finds no sufficient evidence to prove that the first lump sum money was used to better the interest of the payee or the daughter. The payee was also in prison at the time of the hearing.
Reasons for the Request
We also discussed here that the court only allows the transfer of structured settlement rights when the reason is more important than the original purpose for which the structured settlement money is intended for. The payee said that it is requesting to transfer payment to:
- prepay rent
- pay medical bills and expenses, and
- buy health and car insurance
Judge Nicola Rubinow denied the request citing that selling the structured settlement rights does not promote the best interest of the payee and the 7-year-old- dependent. The general well-being of the payee leads the court to the determination that it is better, as of now at least, for the payee to get a guaranteed income rather than risk losing the money into any kind of venture.
More than that, the payee has a constitutional and moral obligation to ensure that the daughter will be supported by the payee and without a strong and regular source of income, the structured settlement shall serve that purpose.
January 6th, 2011 by Fairlane Raymundo. 9 Comments »
The January 2010 changes of the California Structured Settlement Protection Act (SSPA) set many differences between California SSPA with other SSPA. Most of the differences come in the form of a detailed list of factual considerations on two key points:
- the question of whether a transfer of structured settlement payment rights is in the best interest of the structured settlement payee
- the often related question of whether such a transfer is fair and reasonable
These differences are the primary considerations that judges are using when deciding whether to approve or reject any request to transfer structured settlement payment rights.
The most important clause is the “Best Interest” clause. While all States take into consideration the Best Interest of the owner of the structured settlement and dependents, California provided a more extensive criteria. Taken from California Insurance Code § 10139.5(b):
- The payee’s age, mental capacity, legal knowledge, and apparent maturity level;
- The stated purpose for the transaction;
- The “payee’s financial and economic situation”;
- The terms of the transaction, including the discount rate and the transaction fees;
- Whether, when the structured settlement was first created, the payments were intended to pay for future medical care for the payee’s original injuries;
- Whether, when the structured settlement was first created, the payments were intended to pay for the payee’s necessary living expenses;
- Whether the payee is likely to require future medical care for the payee’s original injuries, and whether the payee has other resources, including insurance, to cover those expenses;
- Whether the payee has other income to meet the payee’s obligations to support dependents, and whether the payee has any court-ordered child support obligations;
- Whether the payee has attempted or completed any prior transfers of structured settlement payment rights;
- Whether the payee and the payee’s family is facing a hardship; and
- Whether the payee received independent professional advice about the transfer and, if not, whether the payee should receive such advice.
It even includes a sweeping statement to include virtually any factor that the court might think is important in making the decision. That gives the California court the right consider documentations, statements, and other relevant information from any “interested party”.
Although this is the first time such an extensive list has been put together, this mirrors many of the decisions made by trial courts of different States.
January 3rd, 2011 by Fairlane Raymundo. No Comments »
When someone dies, with or without a will, their goods and properties are distributed to their heirs and creditors. This process is called probate, and the legal steps can vary from jurisdiction to jurisdiction. If the deceased has a will, a person designated to see that the terms of the will are carried out throughout the probate process.
If the beneficiary of the will is a child, the law extends protection to the minor by insuring that the money the child will get will be used to sustain the child. Nowadays, any money that goes over $5,000 and is intended for a child is automatically put under the care of the court. In fact, it doesn’t matter where the money came from. It could be a talent fee from a movie or commercial project or other work, it may be a court settlement where the victim is the minor, or even an inheritance. As long as it goes over $5,000, the court automatically bars anyone from accessing the funds.
We have below an example of a probate code. This is from the state of California. Although you may be living in another state, laws concerning funds of children don’t differ much. You can use this as a guide to get an idea on the extent of how the court protects the interest of minors.
Probate Code section 3611(a): The court reserves the right to appoint a guardian of the minor’s estate and order the money paid to the guardian. If there is an appointed guardian and the court determines that the guardian is not fit to take care of the child and his inheritance, the court has the right to terminate the guardian and find another one.
Probate Code section 3611(c): If the court determines that it is necessary for the child to have a special needs trust, one will be created and the balance paid to the trust. This is usually tapped by the court when the child is determined to have a lifelong disease that needs lifelong treatment.
Probate Code section 3611(d): If the balance is less than or equal to $20,000.00, the court can order that it be held on any conditions that would be in the minor’s best interests. This often means an opening of a structured settlement fund to allow the money to earn interest. This will not be released to the child until he or she reaches legal age of 18. As you know by now, any interest earned through the structured settlement is tax free.
There are more provisions that put the power to control the child’s money on the hands of the court rather than the parents or guardian. This is because the law recognizes that guardians or parents may not always have the best interest of child as their priority while the court remains objective all the time.
December 31st, 2010 by Fairlane Raymundo. No Comments »
It is entirely legal to sell your structured settlement in part or in full. You can check the structured settlement protection act here. Most states have institutionalized this to fully protect owners of structured settlements.
There may be instances when you will not be allowed to sell your structured settlement plan. One of this instances is when there is an anti-sale clause in your settlement. This means that none of your periodic payments may be deferred, increased or decreased and may not be anticipated, sold, assigned or encumbered. Some structured settlement funders insist on this clause when the recipient is known to have medical conditions that will require guaranteed future money or beneficiaries that will rely on the structured settlement money for their future.
However, the court has the power to allow a sale even if there is an anti-sale clause if the court determines the need for a lump sum money is greater than the security of getting future payments. For example, paying for a dire medical need now may be deemed enough of a reason by the court to risk a minor’s educational needs in the future. In the same way, the court may disapprove the sale of the structured settlement if it deems the reason is of less importance than what the money will serve in the future.
What the clause will do is make the court take a closer look at the reason for selling the sale.
When you sell your structured settlement, you have to pay the same taxes applied to your structured settlement annuity. If it is tax-free then the money you will get from selling your structured settlement will also be tax free. You should still check section 130 of the Internal Revenue Code. Please do not treat this as a legal advise, you need to check with a lawyer to ensure that you are fully complying with the law.
Structured Settlement of Minors
No legal entity is permitted to enter into a legal contract with a minor. Thus, structured settlement of minors cannot be sold without the intervention of parents, legal guardians, and in ideal cases, lawyers.
Even then, the court is known to impose stricter standards. Only obvious immediate medical needs are allowed as a reason for the sale of the structured settlement and even then, it is not guaranteed that it will be approved. This is part of the law’s efforts to protect minors.