As part of our goal to partner with you to maximize settlement dollars for your client (with or without a structured settlement annuity), DAVIS SETTLEMENT PARTNERS collaborates with independent professionals to find the best plan for the injured party(s), without referral fees....
The Centers for Medicare & Medicaid Services (CMS) will soon issue a Notice of Proposed Rulemaking on addressing future medical costs in liability cases. The upcoming guidelines are expected to pinpoint the circumstances in which a special account needs to be established - or dollars set aside - for Medicare's funding of future medical treatment stemming from an injury for which a Medicare beneficiary received a settlement or damage award. These accounts are known as Medicare Set Asides (MSAs).
Because of the length of time involved in dealing with Medicare, there has been talk of 'throwing Personal Injury settlements' with a potential need of a Medicare Set Aside Trust (MSA) into a Qualified Settlement Fund (QSF).
Attorneys need to be aware that if that occurs, there is NO structured settlement annuity market that will write structures on the majority of these cases (involving a single claimant, sometimes defined as a single family unit). The client will lose the competitive structured settlement annuity markets.
In addition, the costs of the QSF can be considerable ($15,000 or more):
- Initial fee for Trustee
- Additional legal fees for petitions to establish the fund, orders to approve the fund, follow up orders to approve any distributions (such as funding structured settlement annuities, Special Needs Trusts, MSA's, attorney fees, liens, etc), and a petition and order to close the fund must be approved by Court
- Additional CPA fees for Tax Returns each year and at conclusion of the QSF
When a structured settlement annuity does not make sense:
In regard to MSA's, attorneys should shop around and analyze the overall costs and savings of funding with a lump sum vs. structured settlement annuity payments.
Often overlooked in using a structured settlement annuity is the fact that administrative costs of the MSA create a need for an additional 'structure'. Administrative costs cannot be taken from the proceeds of the MSA. Therefore, an additional structured settlement annuity must be purchased to fund the annual Administrative costs.
Savings that would have been accomplished by using structured settlement annuities can be consumed by the additional Administrative costs.
Let's look at an example: MSA trust amount of $120,000 which can be paid in a single lump sum or with a structured settlement annuity (recommended payout over 25 years).
Funding with cash:
Administrative costs can be paid in a lump sum, whether using a professional administrator or self-administering the MSA. When the 'pot of money' is gone, no further administration costs.
Funding with structured settlement annuities:
- Potential Up-front cost savings (as much as 40-50% when the individual has diminished life expectancy, known as 'Rated Ages'). The advantages of using structured settlement annuities can lose their appeal if there are not competitive RATED AGES involved.
- Annual Administrative costs for length of structure (25 years to lifetime). Because the funding occurs annually, there must be a 'book-keeping' of each year's 'pot of money' that must be exhausted each year or carried over to the next year before Medicare will kick in. Each new year begins a new 'pot of money'.
- The annual administration is funded with an additional structured settlement annuity out of settlement funds or paid out of the claimant's personal funds (cannot be paid with MSA proceeds).
- Recent quotes for Administration of this MSA: (1) $2,000 set up plus $1000 annually; (2) $1950 set up plus $750 annually, increasing at 3% a year; resulting in a minimum of $30,000 for 25 years.
In some cases, the MSA can be set up at minimum costs and self-administered at a minimum out of pocket cost. However, if the trust is Self Administered, annual payments from a structure create a book-keeping nightmare.
Structured settlement annuities can be beneficial in settlement situations, but their use must be the most cost effective solution for your client. We can help you analyze all alternatives that might benefit your client.