Why do so many trial lawyers retire broke?

Why do the majority of trial lawyers, despite making millions over decades of practice, struggle to retire or in many cases find it impossible to retire due to a lack of any kind of planning during their peak earning years? 

Wahlstrom & Associates is introducing a new series for trial lawyers, this time talking about one of the great unspoken issues in trial law practice, that being the often horrific, disjointed and mismanaged retirement and financial management by trial lawyers during their peak earning years.

During this series  I'm not just going to talk about the problem, I'm going to show you how to FIX the problem, so that no matter what stage of practice you're in, early, middle years or nearing retirement, you can have the opportunity to keep more of your money by using tools that ONLY trial lawyers have in the tax code. I'm looking to reduce your stress level now, reduce your tax and financing costs each year and to show you a few very simple steps to leverage your legal fees in a way that insures a quality retirement when you decide to hang it up. 

After 35 years of working with trial lawyers and helping their clients plan for their futures through the use of structured settlements, settlement trusts and annuities I discovered that while the clients were set up and taken care of, often the trial lawyers financial situation was precarious during most of the years they ran their practice. I've made a strategic decision to help trial lawyers with these issues as it in turn allows them to more effectively practice law and live happier lives. 

The three major issues that I'll address in this series are as follows: 

One, The failure to properly arrange case financing or being caught in an endless debt cycle so that by the time they pay their case finance and taxes, there is often zero money left for investment in retirement plans. There are now an incredible number of finance firms and options that favor responsible trial lawyers in financing a case or their practice and in part one I'll go over those new options for you. 

Two, failure to use of 468B settlement trusts or settlement funds in administering your cases, thus eliminating many planning options for yourself and your clients. This is a huge mistake I see happening over and over again, simply because lawyers are use to resolving cases in cash, causing huge tax bills and litigation loan repayment triggers that can wipe out an entire legal fee. 

Thee, and this is a big one, the failure to use structured legal fees to spread out a tax hit or defer income into future years. Virtually no other profession has the ability to legally defer income into future years, earn interest on that money and pay it on a schedule that funds your retirement, lowers taxes and provides stability. I know all the reasons you DON"T do this, I've heard ever reason there is. In part three of this series I'm going to show you how TO DO this in a routine way that doesn't harm your practice or cash flow now, but insures financial freedom in the future.   

Now as I said, this is a three part series so I want you to watch for, or go check out, each of the segments as I publish them during the month of August. I'm looking forward to showing you how Wahlstrom & Associates can use 30 years of experience, coupled with unique modern techniques, to get you off the treadmill and start enjoying the practice of law and your eventual retirement. 

Do Maryland revisions on structured settlement cash flow sales raise issues of suitability?

"Structured settlements" have recently gotten back in the news through a series of articles by Terrence McCoy in the Washington Post. The stories covered the lead paint cases arising in Baltimore, Maryland. The tragic death of Freddie Gray has also brought the lead paint litigation issue and the widespread use of structured settlements to resolve personal injury litigation to the forefront, as it turned out that Gray was a lead paint victim. The stories discussed problems which arose long after his settlement and structured settlement were put in place and involved the purchase of his future structured settlement payments at a discount of their present value for cash. 

The issue that brought structured settlements into the news was the purchase of structured settlements by companies that engage in the business of factoring, or purchasing future cash flows at a discount in return for a lump sum. Many of these purchases discussed in the Post story were made of victims of the Baltimore lead paint cases. Children who ingested the paint had filed claims against landlords and building owners who had failed to re-mediate the properties that had lead paint in them. Many of the lead paint victims had severe cognitive problems as a result, something that is common in almost all lead paint injuries, leading to the wide spread use of structured settlements at the time of settlement to pay out their damages over a period of years. This fact and the contention that “A lot of them can barely read.” is the topic of interest I cover in this video commentary for The Legal Broadcast Network. 

The articles in the Washington Post prompted the Maryland Court of Appeals to adopt some new rules regarding the purchase and sale of structured settlements. Which, like 47 other states, has in place a structured settlement protection law which requires the involvement of an independent professional advisor and court approval in the sale of the settlement benefits for cash. However, what came to light in the investigation appeared to be the rubber stamping of proposed structured settlement sales through essentially the same professional advisor on almost all of the cases, with what the courts in retrospect feel was less than rigorous analysis whether the sale would be in the best interests of the structured settlement payee. However, it is still to be determined if the parties involved in those sales were doing anything less than what the law required in order to obtain court approval. 

While this apparently lax approval of process in selling benefits in the courts, as well as aggressive sales tactics used by representatives of factoring companies, has been the primary focus of the articles and the primary structured settlement industry. Yet for me the troubling issue not being discussed in these cases is that many, if not all, of these child or young adult plaintiffs apparently had mental or cognitive disabilities at the time of settlement. These plaintiffs clearly had the same mental problems when the structured settlements were put in place at settlement. 

Look, the job of trial lawyers is to get the largest possible settlement for their clients based upon the facts of the case and the economic recovery possible given insurance overages and the assets of the defendants. From all reports that was clearly done by the attorneys in these cases. However, once the settlement distribution process was locked into the use of structured settlements due to the impaired mental and cognitive capacity of these clients a decision had to be made as to whether an irrevocable fixed payment program was going to adequately address the future needs of the victim. If, as is contended, these plaintiffs were not so impaired as to require a Guardianship or incompetency hearing, should not at least a suitability assessment as to the use of a structured settlement annuity program have been done to determine if they might not be better served by a managed settlement preservation trust account? If you sell an annuity to a senior citizen in most states in the US you are required to do a full suitability assessment, as the presumption of potential Elder Abuse by recommending long term, low liquidity investments is high on regulators radars. There are civil and criminal penalties if those annuities turn out to be unsuitable for seniors, but in the settlement profession we are under no similar guidelines when it comes to the use of structured settlement annuities.

Under the new standards adopted by the Maryland Courts just the other week, Independent advisors on the sale of the cash flows now must appear before the court, explain their business relationship with the purchaser and also be willing to address the cognitive, educational and comprehensive ability of the person selling their payments. This is clearly a higher standard, one that makes sense, however my concern is if this standard is now going to be used on the liquidation of cash flows, plus we have state laws on annuity sales suitability, how much longer is it going to be before structured settlements experts on the front end of the process are swept under these exact same standards. I believe that most independent advisors are incapable of making decisions and assessments on competency and cognitive ability of a client and would be foolish professionally to even attempt that analysis. So who is going to make that decision going forward and what is that process going to look like? Only time will tell. 

In conclusion,  if structured settlement payees were being taken advantage of in these court-approved sales of their future cash flows, the solution to the correct solution to that problem is better oversight by the courts involved, which appears to be how this is going to resolve. However, before the primary structured settlement tears a rotator cuff patting itself on the back we might want to prepare ourselves for what I feel is going to be  heightened oversight and analysis of the cognitive abilities of these and many other structured settlement clients on the front end. I have no doubt that once the dust settles that factoring companies will start pushing to apply the same oversight at the beginning of the process, when structured settlements are being considered and put into place. Structured settlement companies are not presently required to do a suitability assessment for the sale of the annuities that make up structured settlements, I fear that won't be the case for too much longer and experts are going to need to prepare and upgrade their standards.

Why do trial lawyers use defense structured settlement brokers?

COURT CASE MAKES CLEAR, DEFENSE STRUCTURED SETTLEMENT BROKERS HAVE NO FIDUCIARY RESPONSIBILITY TO PLAINTIFFS. SO WHY WOULD ANY TRIAL LAWYER USE A DEFENSE BROKER NOW?
 

In this weeks video commentary Mark takes a deeper look at the issues being revealed in last weeks decision in USDC of Oregon. A decision in which defense brokers argued, and the court agreed, that no fiduciary relationship exists between a defense structured settlement broker and the injured plaintiff who relies upon their advice regarding the selection of the life company that funds their injury settlement. Knowing this is the position of the brokers and courts, why then would any trial lawyer settle a case using a structured settlement where they did not engage a plaintiff broker who would have a clear fiduciary responsibility to the injured party? Have trial lawyers been so seduced by years of financial contributions to trial lawyer associations from defense structured settlement firms, or has it just become routine to deal with one broker and for them to not bother with engaging their own expert? 

Structured settlement guru Mark Wahlstrom discusses the failure and liquidation of Executive Life Insurance Company of New York (ELNY) and the class action suit that arose out of it, Westrope v. Ringler Associates Inc.. The Westrope case underlines the reality that the brokers for the defense interests in a structured settlement negotiation do not represent the interests of plaintiffs. The structured settlement industry should take the lead in providing useful factual information to people involved in these transactions. You can learn more about http://thesettlementchannel.com and http://wahlstromandassociates.com by clicking on the links and subscribing to Mark Wahlstrom's weekly video and written commentary on structured settlements, mass torts, settlement administration and litigation.

I also discuss the increasing outside scrutiny of the process by which political figures in New York decided to liquidate ELNY and why that process is still shrouded in secrecy two years after it occurred. I believe it is time for trial lawyers to stop passively taking at face value the defense industry narrative on how structured settlements are used, sold and funded when it comes to assisting your injured clients. Trial lawyer have for years now the right to engage their own structured settlement experts, to create Qualified Settlement Funds and control the process by which the financial settlement decisions are made for you and your clients. The question we will look into early in 2015 is why aren't they doing it?

This commentary originally was posted on The Settlement Channel and is authored by Mark Wahlstrom