The Executive Life of New York Liquidation, a tree falls in the forest that no one hears.

In case you aren't aware, Executive Life of New York, the crazy aunt in the attic of the structured settlement industry, is in the process of seeking approval to liquidate what remains of the company, after a 21 year "rehab" that by all reasonable standards was strange, to say the least. 

Unless you are an active member of the structured settlement trade association, NSSTA, one of the impacted ELNY annuity owners or an insurance industry geek, there is an excellent chance you have no clue that there is about to be the first significant shortfall in promised payments to structured settlement beneficiaries since our industry was established in the late 1970's. Our profession will be quick to point out that it only impacts 15% of the total policyholders of ELNY, but it is significant none the less and even one policyholder being impacted is one too many.

The total lack of coverage of this by the main stream financial press is amazing to say the least, as the insurance and financial industry has closed ranks with some very nervous politicians from New York State to do their best Leslie Neilsen "Naked Gun" imitation by claiming there is "nothing to see here" as the fireworks factory explodes behind him. Nothing to see here...the ELNY rehab is fait accompli..

A couple of the industry insiders who have reported on this and done a good job laying out the mess of the last 21 years and the "plan" to liquidate the remaining assets, are listed below:

Patrick Hindert and his coverage of the hearings on the S2KM Blog

Insurance Advocate Magazine and their details analysis of the cause, impact and results of the ELNY failure authored by NY Attorney Peter Bickford.

Court House News coverage and hearing summary of March 22, 2012.

Additionally NSSTA has provided an information page for those who are facing a shortfall in payments to apply for assistance from the $100 million hardship fund established by the insurance industry.

However, beyond that it is slim pickings to find any meaningful in depth reporting on this issue and it is hard not to draw the conclusion that is exactly the way the structured settlement profession wants it. Lets face it, the fact that even a small number of annuity beneficiaries are going to be facing a substantial cut in benefits is not exactly a big flag we want to wave in front of past or future clients. One of our profession's proudest claims has been that no structured settlement beneficiary has ever not gotten 100% of their promised payments. This no longer is true and that is going to be an albatross around our necks for some time going forward. 

Yet what I find amazing in all of this is if you go to an industry meeting, either the SSP or NSSTA and ask brokers if THEY ever sold an ELNY contract, it's sort of like getting people to admit they voted for Nixon in 1974 after he resigned due to Watergate. No one claims they supported him, yet Nixon won 49 states and was elected in a landslide. Similarly BILLIONS of ELNY premium was written in the late 1980's and early 1990's, and thousands of annuitants are at risk of losing benefits, yet brokers are strangely silent on their role in this fiasco, as if it was someone else, way over there, who pour billions in premium into a highly risky company to fund long term life time payments and huge balloon payments at future dates, which are now coming due and can't be honored. 

As I thankfully never sold an Executive Life of NY annuity, or Executive Life of California, I have been spared the trauma of having to deal with any of my personal clients experiencing a payment shortfall. ( In fact I have old letters begging clients to not use these firms as it was clear the junk bonds supporting these annuities were built on sand.) Still, I wonder what other brokers who clearly sold a LOT of these contracts are doing to work with or service those clients who are dealing with this mess. Are they contacting them to discuss and explain options, or are they hiding in their storm bunkers hoping this all blows over and that the "industry" solves the issue and it simply goes away? I suspect the names of those facing shortfall's, who are primarily those who executed qualified assignments, are public record now and are the big settlement firms going back and cross checking to see if they can get their clients to be first in line for the hardship dollars? I would certainly hope so, but I doubt that is the case.

I wonder about a lot when it comes to ELNY, but the biggest question I have, which is only going to be answered going forward, is what kind of stain is this going to put on our profession and our foundational product, the structured settlement annuity? Obviously a huge number of safe guards and regulatory changes have been put in place since 1992, all for the protection of consumers and policy holders, and it has made the structured settlement annuity probably the single most secure insurance product available. That's all great and I share that data with clients every day.

However, to cover up or to try and minimize the impact to the ELNY beneficiaries, or to pretend this is just a tiny sliver of all annuity holders is irresponsible on the part of our profession in my opinion, and I hope that a brighter light is shown on the entire 21 year ELNY rehab process. What ever plan is approved by the Judge in NY State on the liquidation, and there are clearly no good choices at this point, that we as a profession get a full and transparent post mortem on the obvious mismanagement of the fund, so that we as advisors and stakeholders never have to repeat this process or subject any other annuitant to the fear and confusion many are facing today as this "rehab" crawls to it's painful conclusion. 

Learn more about the author of this page, Mark Wahlstrom by visiting Wahlstrom & Associates web page.

Could selling a structured settlement annuity to a senior expose an agent to criminal prosecution?

A recent court case in California should give pause to virtually every structured settlement planner, agent or broker in the country as it seems to indicate that the sale of annuity products to seniors or claimants with impaired decision process could lead to criminal prosecution.

In this weeks “ Speaking of Settlements “ video broadcast, Mark Wahlstrom looks at the recent case of annuity agent Glen Neasham, a 52 year old annuity agent in California, who was recently convicted of felony theft charge and sentenced to 90 days in jail for selling a $175,000 annuity to an 83 year old woman who prosecutors alleged exhibited signs of dementia at the time of the sale. He was prosecuted under what are broadly referred to as “Elder Abuse” statutes that cover not only physical or nursing home abuse, but increasingly exploitation of seniors in the decision process of handling investments, savings and financial planning. 

The article, written by WSJ staff reporter Leslie Scism, does an excellent job of covering the facts of the case and looking at the issues involved. You can read the full article by clicking here.

However, in this weeks broadcast Mark Wahlstrom elaborates on how this might impact structured settlement planners, annuity agents and others who deal with anyone over the age of 65. A great number of laws have been passed that REQUIRE banks and other’s to report suspected elder abuse or inappropriate influence in the planning or sales prospect, as happened in this case, making the likelihood of other such cases being pressed in other states quite high.

Some of the issues at stake here for structured settlement planners going forward are:

• If state laws now indicate that any person doing planning over the age of 65 is considered elderly and is thus covered under these statutes, do planners and agents need to take particular care in dealing with anyone 65 or older if recommending a structured settlement annuity?
• If the compensation for annuity sales in the form of a commission is going to be used to establish “criminal intent” as was the case in the Neasham prosecution, are there additional disclosures necessary on how an agent is compensated when dealing with any impaired claimant or senior?
• How might this decision impact the structured settlement factoring business? If the high cost of “getting out of the product” is used as evidence of harming the clients, as it was in this case, what does this say about factoring company advertising and inducements to “ get your cash now” when it causes demonstrated financial loss to claimants in many cases to proceed down that path?

We anticipate there will be a great deal of follow up on this case and others like it around the country and we will continue to follow it and comment on how it might impact structured settlement sales and consulting moving forward.

Oil and Gas lease bonus payments, how to structure them for tax savings

In this weeks edition of Speaking of Settlements we look at one of the more innovative programs in the non-qualified market and that is the structuring of oil and gas lease bonus payments through the use of a structured settlement annuity device.

As many people in the structured settlement profession know, Allstate Financial has been a consistent innovator in the area of structured taxable damage awards, as well as structuring the sales of appreciated real estate through their structured sales program. They continue their progressive ways with the announced ability to now structure oil and gas lease bonus payments, allowing people who are leasing their land for oil and gas drilling to defer bonus payments into future years tax returns.

Oil and Gas lease bonus payments, how to structure them for tax savings

The reason this is so important and valuable is that the bonus payment is on top of the annual or quarterly lease payments and is typically a one time bonus up front. By being able to move those dollars into future years, you are able to spread the tax hit over time, earn interest on the funds while deferring, guarantee payments on a fixed schedule and ideally receive them when you are in a lower tax bracket or have other off setting deductions. Of course, on top of the tax benefits, many people just find the idea of being able to secure future payments with the bonus funds to simply be prudent financial planning and want to take advantage of that option now.

To learn more about the Allstate Financial Oil and Gas leasing bonus program, you can go to my firms website at www.wahlstromandassociates.com.

Structured sales and farm property, the boom in farm land revives a great planning tool for farmers

In this weeks edition of Speaking of Settlements, I look at the renewed interest by my farmers in using structured sales to spread out the tax hit and guarantee cash flow on the sale of their farm land. I also look at the recent surge of farmers who are leasing land to oil companies due to the discovery of shale under their property and the ability to collect oil and gas leasing bonus payments that can be structured as well.

The use of the structured sale has been on the back burner for several years now, largely as a result of the collapse of the real estate market and financing options for both buyers and sellers. It was a product originally conceived and used successfully for several years when people who own highly appreciated, low cost basis real estate, want to cash out and sell, but don’t want to write huge tax checks to the state and federal government on the capital gain. While we can all agree it makes a lot more sense to use 100% of your net sale proceeds and spread the money out over years, many people are still wondering what a structured sale is, and why it makes sense for those selling farm property.

In almost every case that has been referred to my office over the last year in which farm land is being sold or is under consideration for sale, it is a family owned farm that has almost no cost basis and close to 100% of the sale is going to be subject to capital gains tax. While the tax is a big issue, what is a larger problem is that with the sale of the farm, most farmers or their families are also losing their source of annual income, something they need to sustain through the investment income on the sale proceeds.

The structured sale allows them to design guaranteed payments, on a schedule that makes sense for their situation, paid monthly, annually and for years if not decades into the future. Combined with spreading out the tax hit, putting 100% of the net proceeds to work and creating a guaranteed cash flow and payment stream that provides income to the family, you can see why this is becoming increasingly popular during these uncertain market conditions.

If you want to learn more about structured sales and it’s use when selling farm property, contact my office through our web site at www.wahlstromandassociates.com and we will be happy to assist you.

S&P down grades five major life insurance companies to AA+ from AAA status

In what we can assume will be the first of several down grades for major life insurance companies in the structured settlement markets, S&P quickly down graded five premier life insurance companies yesterday from AAA to AA+.  The companies who were impacted by this are:

New York Life was dropped to a AA+

Northwestern Mutual Life Insurance was dropped to a AA+

USAA was dropped to a AA+.

Knights of Columbus was dropped to a AA+.

Teachers Insurance and Annuity. TIAA, was dropped to a AA+.

So what exactly does this mean and what are the implications for the life insurance industry and structured settlements in general? I address some of the concerns in this weeks video broadcast of Speaking of Settlements but in short the impact should be minimal other than to the pride of the companies listed above.

It is a sickening process in that each of those five firms went to great lengths over the last three years to do the things needed to retain a coveted AAA rating and in some cases make it a key element of their marketing campaigns, only to suffer this immediate down grade as a result of the fact that they hold a large portion of US government obligations precisely because they are so conservative and careful.

As I have been saying for years, our industry uses these ratings at our peril as the rating firms really could care less about the impact of their down grades on companies marketing and reputations and the idea of using S&P as a rating agency for life markets has been a bad idea for decades. I have always preferred AM Best as the best source of information on insurance company standards and solvency and they are not as reactive as the other firms.

Enjoy today’s video on the S&P down grade and it’s impact on the insurance and structured settlement profession, but it would be wise to stop using rating agency rankings as some sort of validation of safety and instead do your own research on markets and firm to match the right company to the right risk.

Allstate rolls out a structured sales product on oil & Gas Lease bonus payments

In yet another innovative move by Allstate Financial and their structured settlement division, it was announced this week that Allstate would be rolling out yet another “non-qualified” annuity funding vehicle that would allow for the structuring of oil and gas lease bonus payments.

While seemingly obscure to those who do not have land upon which they lease oil or gas rights to drilling or production companies, this market has substantial potential given the wide number of privately held or closely held businesses, as well as individuals, who might be interested in spreading the bonus payments they get in some years over a several year period. The fact is in an era of rising oil and gas prices, these lease bonus payments can be substantial and many owners of the leases would prefer to spread those big bonus years where oil and gas prices spike, over several years if possible, or even defer it far into the future when the oil or gas lease might be played out or sold. This is going to be a really solid planning tool in this niche market.

This particular product has one key feature in that there is a revenue ruling, RR 68-606, which specifically addresses the tax treatment of this technique, something that has inhibited the use of structured sales and income deferral strategies in the areas such as celebrity endorsements and divorce settlements.

Learn more about this announcement by viewing this weeks edition of Speaking of Settlements, where Mark Wahlstrom discusses some of the basic issues and for whom this product or strategy might be suitable. 

Mark Wahlstrom on Allstate Oil and Gas lease Bonus, structured settlement program

You can learn more about how the new Allstate Structured Settlement product for Oil and Gas Lease Bonus payments works by contacting Mark Wahlstrom at Wahlstrom & Associates in Scottsdale, AZ