Questions on the BP Oil spill settlement, what does it mean for settlements?

The announced settlement in Federal Court on the BP oil spill case has as usual created more questions for the claimants and gulf coast residents than it has answered.

Legal Broadcast Network will have an exclusive question and answer session with two of the most knowledgable attorneys involved in this case. Attorney Frederick "Rick" Kuykendall of Kuykendall & Associates of Fairhope, AL, and Attorney Wesley J. Farrell of the Miami, FL firm of Farrell and Patel. Legal Broadcast Network will be releasing the interview on it's affiliated channels and here at The Settlement Channel at 2 pm EST, March 5th and will cover questions such as:

• What if you are a resident in the Gulf Coast who was impacted by the spill but you have yet to file a claim? How does the announced BP settlement impact your rights?
• What if you have already recieved some partial payments from the Gulf Coast Claims Facility? What are your rights or options going forward.
• What options in the BP Settlement take into consideration the potential for long term health issues or future claims for illness, injury or medical care needs due to pollution of the Gulf?
• What will happen to claims that are being processed in the Gulf Coast Claims Facility but have yet to be finalized or settled? Do you need to start the process over or do you have other options?
• What is the tax status of my oil spill claim? Is it taxable and do I have the opportunity to structure my payments over time and save on taxes?

In short, this interview with two leading lawyers who have been involved in the BP Gulf Coast litigation from it's outset will be of crucial value and interest to residents, businesses and others impacted by the Gulf oil spill and the possible rights to settle your claims.

If you are a claimant or interested party in the BP Oil spill settlement you need to be sure to view and listen to this exclusive broadcast early next week! Our firm, Wahlstrom & Associates is prepared to work with claimants and their advisors who are wondering what the financial impact of this settlement might be, what settlement options are available and strategies using 468B settlement trusts to defer the tax hit for many claimants.

Check back at Legal Broadcast Network after 2 pm EST on Monday the 5th and we will have the comprehensive interview ready for you to view and share with your friends at that time. We will also be releasing the same interview on The Settlement Channel just after broadcast Monday.

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.

Selling structured settlements at effectively zero rates of return? Not for too much longer.

I take a break from my five day commentary on the structured settlement industry to instead cover the issue of interest rates and trying to sell structured settlements at what are effectively zero rates, a calculation arrived at by the average yield on structures being 3% to 4% and the effective rate of inflation running at the same 3% to 4% as well. I felt compelled to write this due to the bashing that Bill Gross, the brilliant bond manager of PIMCO is taking in the press for his Cassandra like warnings earlier this year for people to get out of US Treasury Bonds and long term fixed bonds in general due to the inevitable impact of the end of the administrations policy of pouring debt in to the bond market.

A lot of financial writers and bond managers keep talking as if the trillions in debt being issued, and brought, by the US Government and the resultant low interest rates, are here to stay for awhile, when the facts are that we are likely in for a swift and rude awakening regarding interest rates, the value of the dollar and the rate of inflation once this Ponzi Scheme, (Gross’ term, not mine) comes to it’s inevitable conclusion.

For those of us who are somewhat mathematically challenged, you arrive at the effective rate of return on an investment by taking the actual yield on a bond or structure, lets use 4%, and then measuring the actual or projected rate of inflation during the duration of the payments. By both established and colloquial measurements of inflation, we are seeing the cost of living in areas such as gas, insurance, food, commodities, utilities, etc, running well north of 4% right now. When matched against the yield on most structures of 3% to 4%, thanks to the continued plunge in interest rates toward zero, it is clear that most clients obtaining a structured settlement right now is essentially realizing a zero return on their allocation of funds.

Painful to admit, but intellectual and financial honesty require it.

That said, this situation will likely end soon, and change course quickly and dramatically, once the Federal Reserve and the US Treasury end the Quantitative Easing, i.e. QE II, and the Fed no longer buys 70% of the US Treasury Debt being issued like a flood into financial markets.

For a look at the scale and scope of this Ponzi Scheme of cycling debt click to the PIMCO site and commentary here.

The point being is that while I don’t pretend to be a market genius, I am pretty good at listening to the people in our midst who are the true geniuses, such as Bill Gross and Jim Druckenmiller, both of whom see this as the looming disaster it is about to become. Therefore, for those of us in the settlement profession who are advising people on allocating their one time settlement proceeds into structured settlement we need to be exceptionally careful about long term commitments at these rates and use designs that allow for reinvestment of funds in the near future when rates are higher.

We also need to be exceptionally careful to warn clients to NOT utilize outside managers for their funds who are buying bonds, bond funds, or any investment vehicle that would be impacted by a rise in rates. The carnage in bond funds that is about to occur, as well as asset value loss in a long bond’s market value, is going to be brutal.

The solution that we are recommending to clients who are receiving settlements and have to do SOMETHING with the money they are awarded, is to carefully structure payments monthly payments over the short and medium term to cover living costs, but then provide for lump sums to be reinvested in non-qualified accounts over 3 to 7 years at what are certain to be higher interest rates. While they will theoretically give up some of the tax advantage of a structure on the reinvestment, it is my experience that most of our clients are in a no tax or low tax rate scenario due to a very low real income and what they need more than tax free money is maximum cash flow and return from a highly secure investment. ( Ideally a non-qualified immediate annuity if suitable.)

The net result should be insuring the bills are paid today, no long term interest rate risk or exposure and large sums to reinvest when rates are higher. Not a perfect solution but one that works for the vast majority of our clients.

In summary, don’t be fooled by todays rates and the media reports of a resurgent economy. Interest rates have been cynically kept so low that people were forced to move funds into bonds and stocks, but the result over the next few years is that unless those stocks are in companies that benefit from inflation and the bonds are VERY short term in duration, those portfolios are going to be hammered. My advice is get liquid, cut debt and prepare to reinvest when the rates jump up dramatically in the next six to 12 months.

We won’t be selling zero yield structures for too much longer but in the mean time we need to prepare todays clients to reinvest when rates or risk further alienating our current and future clients through poor planning.