Treasury Funded Structured Settlement TM (TFSS)

Transcription

1 Treasury Funded Structured Settlement TM (TFSS) Underwriting Guidelines provided by Marketed By Advanced Markets Group 1

2 Table of Contents Defining TFSS... 4 Annuities in Trust... 4 Application Form... 4 Application Information... 4 Application Signature... 6 Attorney Fees... 7 Assignment Fee... 7 Bankruptcy... 7 Benefit Changes... 7 Benefit Restrictions... 7 Bonds (U.S. Government Obligations) Security Interest of Plaintiff... 8 Bonds for Benefit of Plaintiff... 8 Broker s Referral Fee... 8 Case Settlement Needs... 9 Cases other than Physical Injury or Sickness... 9 Check/Wire... 9 Court Approval... 9 Creditors... 9 Cutoff Dates... 9 Estate Commutation Rider... 9 Factoring Foreign Nationals Insurance Licenses Judge Demands Final Documents Legal/Tax Justification Liability Coverage Lock ins Maximum Case Size Minimum Case Size FINRA License (formerly NASD) Obligations of TFSS Payments Plaintiff Needs Money Policy Policy Issue Requirements QAR&P QSF funded? Quoting Quote Benefits one month after Funding Quote Contacts Secured Creditor Special Forms Surety Bond/Corporate Guarantee Tax ID Treasury Bills Claimant Secured Trustee Where to Send Documents Where to Send Money

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4 Defining TFSS What is the Treasury Funded Structured Settlement TM (TFSS)? The TFSS is an independent trust formed for the sole purpose of accepting qualified assignments under I.R.C. 130 and funded exclusively with U.S. Government obligations. The Trust was designed to maximize security, flexibility and return for this type of structured settlement arrangement. Annuities in Trust Can the Trust be used with annuities? Blended settlements, where a portion is placed with annuities and a portion with Treasuries, can be done, such as placing the guaranteed portion with the Trust and the lifetime payments with an annuity. The documents unique to the Trust must still be used. Separate Qualified Assignment forms and checks will be needed, as well as separate applications for the Trust and for the annuities. Application Form What application form should be used? The TFSS has its own application, which reflects the information necessary for Midwest Trust and for the purchase of the U.S. Government obligations. The TFSS will not purchase the U.S. Government obligations without a completed application. Application Information What information is required on the application? The application requires all the information necessary to identify payments and payees: the claimant, payee designations, addresses, social security numbers, benefits and dates (indications such as age 18 should be avoided), and beneficiary designations. A separate application is required for each claimant receiving payments, although they will be combined into one Qualified Assignment. To avoid confusion, please do not describe benefits on a separate form and indicate see attached on the application, especially when the attachment is not yet available or multiple claimants are involved. Midwest Trust, as a corporate fiduciary must comply with various banking regulations. These regulations also apply to the TFSS. One relates to The Office of Foreign Asset Control (OFAC). OFAC is a department of the U.S. Treasury responsible for issuing and enforcing economic and trade sanctions against foreign terrorists, individuals and entities defined as terrorist or international narcotics traffickers, or involved in activities related to weapons of mass destruction. All US persons and entities, regardless of where they are located, must comply with OFAC regulations. OFAC regulations prohibit opening a Trust Account, handling a transaction, 4

5 completing a wire transfer or doing business with certain governments, individuals and businesses. The names of these entities are published by OFAC as the Specifically designated Nationals and Blocked Persons (OFAC list). Each trust beneficiary, including TFSS beneficiaries must be verified against the OFAC list. Midwest Trust will perform this task. In the unlikely event a beneficiary s name is determined to be a true match, the transaction must be rejected or the account must be blocked in accordance with the specific direction from OFAC. A written record of the directions received from OFAC will be maintained by Midwest Trust. Another regulation that applies to the TFSS is the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, also known as the USA PATRIOT Act. In order to comply with the USA PATRIOT Act, Midwest Trust is required to maintain a Customer Identification Program (CIP). The following CIP information is required by Midwest Trust for all new accounts: 1. Name 2. Date of Birth 3. Address For individuals, street address of residence and mailing address (if different). A post office box or mail drop service will NOT be the only address on record. If the individual is in the military, an Army Post Office (APO) or Fleet Post Office (FPO) box number is acceptable, or the street address of a contact person (next of kin) may be used. 4. Identification Number For U.S. Persons, a U.S. Taxpayer Identification Number (SSN, TIN, or EIN). An IRS Form W 9 must be completed and signed by each beneficiary or by their guardian or personal representative. For Non U.S. Persons, a U.S. Taxpayer Identification Number, a passport number and country of issuance, an alien identification card number and country of issuance, or number and country of issuance of any other government issued document evidencing nationality or residence and bearing a photograph or similar safeguard (biometric identifier). Individuals who are Nonresident Aliens and are not engaged in a trade or business in the United States are exempt from providing a TIN. However, an IRS Form W 8 must support this status. A Form W 8 must be obtained from each owner on the account in order to be documented as a Nonresident Alien account. DOCUMENTARY METHODS Certain documentary evidence of identity verification is required for each beneficiary prior to account opening. Unexpired, government issued identification evidencing nationality or residence and bearing a photograph or similar safeguard is required. A legible copy of the document is 5

6 acceptable. The following documents are generally accepted for this purpose, if they contain the required information: Current driver s license Armed Forces Card Government issued identification card (ex: non driver s ID card) License to Carry Firearms Passport Other generally accepted photo ID that meets the criteria above Minors or Other Individuals Lacking Legal Capacity The Bank s customer is the individual who opens the account on behalf of the minor or individual lacking legal capacity. If a parent or guardian opens an account for a minor, documentary evidence must be obtained to confirm the identity of the parent or guardian. If, however, a minor opens the account on their own, documentary evidence must be obtained for the minor. Please see the list below for acceptable means of identifying a minor who does not possess government issued photo identification. Exceptions for Individuals Not Possessing Government Issued Photo Identification Certain minors, elderly, disabled patrons, or religious groups (such as the Amish) may not have a driver s license. In this situation, two forms of secondary identification are acceptable. At least one of them must contain the person s name and address. Preferably, at least one of them will also contain a signature. The following documents are examples of generally acceptable documents for this purpose: Utility Bill, Tax Bill, or other bill bearing name and street address Pay stub Employer Identification Card Student ID Card Social Security Card Medicare/Medicaid Card Insurance Card Major Credit Card Alien Registration Card Church Directory Application Signature Who needs to sign the application? The application must be signed by the Agent and the Trust as the Assignee. 6

7 Attorney Fees Can attorney fees be written? Yes, provided the underlying claim is a personal physical injury or workers compensation claim. The attorney fee structure can be with the claimant s or as a stand alone attorney fee. The attorney can name a specific beneficiary and may also request a beneficiary change. The attorney will still need to complete a hold harmless and a W 9. Assignment Fee Assignment fee is $500. For multiple claimants that are part of the same family, only one $500 assignment fee is required. Bankruptcy If the bank or the trustee declared bankruptcy who would the creditors be? Would the Collateral of the Claimant Secured Party become assets of the TFSS subject to the claims of creditors? TFSS s exclusive purpose is to promote structured settlements and act as an assignee under 130 of the Internal Revenue Code. Thus, there is only one type of transaction the Trust can engage in whereby a debtor/creditor relationship might be created, which is the acceptance of Qualified Assignments. There would be no other creditors other than the payees under the Qualified Assignments. Since the Claimant Secured Parties will have perfected security interests in the U.S. government obligations, such collateral would first be available to satisfy the rights of such parties, and only afterwards to satisfy any claims of the trust s general creditors, if any. Benefit Changes Correcting errors is a problem, but why is it any greater with the Trust? We deal with those issues all the time in the traditional structured settlement world. The biggest difference between the Trust and annuities is that the Trust will be purchasing specific assets earmarked for specific payments. Changing benefits after assets have been purchased will not be possible. Consequently, the Trust must have complete confidence in the accuracy of the benefit amounts and dates. Benefit Restrictions What restrictions are there on benefits which can be written? Guaranteed benefits up to 30 years after issue may be written. This would include monthly, quarterly, semi annual, and annual payments, beginning immediately or deferred as well as lump sums. No lifetime or life contingent payments can be written. 7

8 Bonds (U.S. Government Obligations) Security Interest of Plaintiff What is the description of the security interest the plaintiff has in specific bonds? Sometimes TFSS is referred to as Bond product based upon misunderstandings about the actual full faith and credit Government Securities that are used to fund the periodic payments. Actually in today s modern U.S. Government Securities marketplace, we have the ability of using all types of U.S. Government Obligations (as per IRC 130) and this ability permits us to match the exact payment and frequency requested by the consultants for the settling parties. The plaintiff is a secured creditor of the TFSS, with the U.S. Government obligations as collateral. There is a specific, dollar for dollar matching between each benefit and a particular U.S. government obligation, identified by CUSIP number. The security interest is fully described in the Qualified Assignment, Release and Pledge Agreement, which states that the Claimant Secured Party shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code as in effect in Kansas. Further, the Trust pledges and grants a continuing and perfect security interest to secure the obligation of the Trust to make the Periodic Payments to the Claimant Secured Party. Unlike traditional secured creditor offerings, which obtain possession of the annuity contract, in a security filing of the Treasury Funded Structured Settlement, the plaintiff would obtain the actual Treasuries themselves. A United States Treasury security is directly issued by the government of the United States and is backed by the full faith and credit of the United States government. Although bond prices fluctuate over time, when held to maturity, a United States Treasury security has never resulted in a loss of principal to the investor. Bonds for Benefit of Plaintiff How are the bonds set aside for the benefit of the plaintiff? When bonds are purchased, the Trust places the bonds in a custody account at Northern Trust through the trustee s relationship with TSS. These bonds are owned by the Trust. They are not in a bank account at Northern. The Addendum, which is attached to the Qualified Assignment Release & Pledge, lists the exact securities purchased, identified by CUSIP number, and the benefit to which it is matched. Broker s Referral Fee 4% All broker referral fees are paid by Midwest Trust Company to the broker s agency affiliation. Funding and all required documents listed on the Checklist found at must be received by Midwest Trust before broker s referral fee will be released. Broker s referral fee will be paid within 30 days after funding and required documents are received. Broker s referral fee is paid less assignment fee. 8

9 Case Settlement Needs Since quoting is different, and no purchase date is used, what do I need when the case settles? Once the claimant agrees to a benefit design, a check will need to be requested from the client, and the Application information will need to be requested from the claimant. Both funding check, and page ONE of the application will need to be submitted simultaneously in order to purchase the assets. Cases other than Physical Injury or Sickness Can the Trust accept any cases other than physical injury or sickness qualifying under 104(a)(2) or 104(a)(1), including attorney fee structures derived from those cases, and assigned under 130? No, non qualified structures are not available from the TFSS. Check/Wire How should the check/wire be made payable? The payment should be made out to the Treasury Funded Structured Settlement. Court Approval On cases requiring court approval (minors, incompetents, workers compensation, etc.) will the order be required before assets will be purchased? Yes. The problems associated with any attempt to redo the asset purchases are difficult enough that the Trust must wait for court approval to be completed. Creditors Can Midwest Trust s creditors attach the assets of the Trust? No. The Trust is an entity which is legally protected from outside creditors, taking into account the fiduciary duty imposed on all trustees. Trust assets are not assets of Midwest Trust. Even in the unlikely event of a bankruptcy, by law, trust assets are separate and distinct from other assets of the bank and cannot be touched by the bank s creditors. Cutoff Dates What are the cutoff dates by which the Trust must receive completed applications? Completed applications must be received prior to the funding of the trust and purchase of the bonds. Estate Commutation Rider Is the Estate Commutation Rider Available? 9

10 Yes; see the sample language for estate commutations; language must be included in both the Settlement Agreement and the Qualified Assignment & Pledge. Factoring Can I protect the plaintiff from factoring? Yes; should the parties wish, Midwest Trust can include a provision in their agreement that would require Midwest Trust to resist any attempt to factor the payments, much like a spend thrift trust. The trustee would, if necessary, use the proceeds of the Trust to resist a factoring attempt. Foreign Nationals Insert the following language into both the Settlement Agreement and the Assignment Agreement Payee must provide adequate proof of living status once a year to Midwest Trust/TFSS. Adequate proof of living status consists of a notarized statement or affidavit, signature guaranteed by a bank or notary. Should adequate proof of living status not be received by Midwest/TFSS, then payments will be held until such time as adequate proof of living status is received. No interest will be earned on funds held for payment pending proof of living status. Further, all payments will be made in U.S. dollars to a U.S. Bank within the U.S. borders. Insurance Licenses Will special insurance licenses or appointments be required? No. The Trust does not sell an insurance product nor deal in a regulated security, so no state insurance licensing is required. We have checked with the agencies E&O carriers and your E&O coverage will extend to your sales of the TFSS. Judge Demands Final Documents What if the judge demands to see final documents and assets before approving the case? Even with cases involving annuities, no final documents are provided. What is provided is the actual payments being settled on. All that can be supplied are sample documents and an explanation that only obligations of the U.S. Government will be purchased. Which obligations these will be cannot be determined until later, when assets are purchased for the current block of assignments. The sample completed case we ve distributed contains an example of addendum No. 1 which can be used to illustrate how the schedule of U.S. Government obligations will appear in the completed Qualified Assignment, Release and Pledge Agreement. Legal/Tax Justification What is the legal/tax justification for the TFSS? 10

11 Treasury obligations have been used for funding structured settlement obligations and are specified in the Internal Revenue Code. Section 130(d) states that a qualified funding asset is any annuity contract issued by a company licensed to do business as an insurance company under the laws of any State or any obligation of the United States. Such obligations must be direct obligations, such as Treasuries. Further, Private Letter Ruling provides that a Trust may act as a Qualified Assignee under 130 of the Code. For additional support, we have obtained a legal opinion regarding the tax treatment of the Trust from Drinker, Biddle & Reath and is available upon request. Liability Coverage What liability coverage has the Trust obtained? The Trustees have both Errors and Omissions insurance and Fidelity insurance written by Chubb Insurance Company. The coverage amount is $10,000,000 per year for E&O and $14,000,000 for Fidelity. Lock-ins Are lock ins available? Lock ins are not available. The bonds cannot be purchased until the funds are received. For this reason, the final periodic payment is not set until the bonds are actually purchased. Maximum Case Size What is the maximum case size? Do I need approval? There is no maximum case size and pre approval of the amount is not necessary. Minimum Case Size What is the minimum case size the TFSS will accept? On adults, $100,000 is the minimum. On minor s cases, $50,000 is the minimum. FINRA License (formerly NASD) Is there any special FINRA license required? No FINRA (securities) license is required to sell the TFSS. The TFSS Trust program is not a sale of a security or investment that would be subject to direct S.E.C. regulation. However, if a structured settlement broker were to discuss with the settling parties individual investments such as mutual funds, variable annuities, variable life, stocks, bonds (and other regulated investments) and make recommendations as to performance, then those activities would require a securities license under FINRA. 11

12 Trust companies are regulated by a number of entities and are permitted to pay referral fees for business in accordance with those banking regulations. As long as the structured settlement broker uses the materials provided by the trust company and adheres to their business practices in providing approved proposals/illustrations, then no securities license would be required. Obligations of TFSS What obligations does the TFSS assume? The TFSS assumes the obligations to make future periodic payments agreed upon as part of the settlement or as specified in a judgment. The assignment of these obligations must comply with 130 of the Internal Revenue Code. In particular, the future periodic payments must qualify as damages on account of physical injury or sickness under 104(a)(2) or a settled workers compensation claim filed on or after August 5, Payments When can payments under the Trust begin? Can payments be deferred twenty years or more? Payments can begin at any time, as early as one month from funding, or deferred for twenty years or more, as long as no payment from the Trust is more than thirty years from issue. This provides greater deferral possibilities than may exist under some annuity options. Plaintiff Needs Money What if the plaintiff needs money? Midwest Trust also offers a commutation option, should the plaintiff need funds in advance of their periodic payments. This is not available if the plaintiff has chosen the anti factoring spend thrift option. Policy What will the policy look like? There is no policy as such, since assignments to the TFSS do not involve an insurance product. The QAR&PA is the sole document. Addendum No. 1 will list the collateral qualified funding assets, specified by CUSIP number. A fully completed and executed Application will also be returned as part of the completed package Policy Issue Requirements What is required before the policy can be issued? There are two steps the TFSS must go through in order to issue completed documents. The first step is the purchase of assets. Due to the critical nature of accurate asset purchases, the Trust will not purchase assets until a completed application is received. Once the completed Application and the Funding Check is received by the Trust, the asset purchase will take place within 3 business days. Thereafter, Page Two of the application will be completed, listing the payments purchased. A copy will be returned, so that the office purchasing the asset will have the exact payments and can then complete their final documents (SA & QAR&P) 12

13 Issuing the completed package will require the executed QAR&PA, Application, the settlement agreement, and an Order approving, if applicable. Once these are received, packages will be sent out shortly thereafter. The completed package will be the fully executed QAR&PA, and the completed Application, both signed by the Assignee. QAR&P Can the state on the QAR&P be changed to another state? No. The Trust and its assets are located in Kansas and the security interest is perfected in Kansas. The issues regarding perfection of non certificated book entry securities such as U.S. Treasury obligations are different from the much simpler issue of perfecting a security interest by pledge and delivery as is done with structured settlements funded with annuity contracts. Furthermore, because of the uncertainties and potential confusion which would stem from having assets pledged partly under Kansas law and partly under the laws of other states, the Trust must insist that the Pledge Agreement be governed only by the laws of the State of Kansas. QSF funded? TFSS will accept funds from a legitimate, multi claimant QSF. TFSS will not, under any circumstances, accept a single claimant QSF Quoting How is quoting different? With this product, there is no purchase date and no rate guarantee period. Therefore, each quote received is only an illustration of what benefit could be provided if it had been purchased that date. The benefit design (i.e., monthly payments, beginning one month from purchase, for a period of 15 years) is the only constant. The benefit amount will change when purchased. Every request for a quote should then provide the terms of the design: The first payment date, the mode (monthly, quarterly, semi annually or annually) and the duration. Then, either a benefit amount (i.e., $1,000 monthly) or the cost (spend $200,000). How is the Trust product quoted? The Broker can run the quotes themselves utilizing the web based software, or can call one of the several people to provide quotes listed in the Quote Contacts below. Quote Benefits one month after Funding If benefits are quoted to begin one month after funding, will the benefits change? 13

14 Yes; the Trust purchases the assets not on a specified funding date, but on the actual date the funds arrive. Funds arriving one day later than indicated could mean that a completely different set of assets might be purchased. Quote Contacts For all quotes, please go to to download the TFSS Quote Calculator. For assistance with quoting, please contact: or support@mtcquotes.com. Secured Creditor Is Secured Creditor Available? Yes, claimants receive secured creditor status using a Qualified Assignment Release & Pledge as a standard option. Special Forms Will any special forms be required? We have modified the standard NSSTA settlement agreement and release for use with the Trust. The form is drafted for use with litigated cases you can easily modify it for non litigation cases (e.g., claimant vs. plaintiff language). The NSSTA Uniform QAR&P should NOT be used, since it was designed for use in cases funded with annuities. Surety Bond/Corporate Guarantee Is there a surety bond or corporate guarantee available? In addition to the protections afforded under trust law, Treasuries, and secured creditor, Midwest Trust will issue a Keep Well on the Trust to provide maximum security and safety. Tax ID What is the TFSS Tax ID number? Treasury Bills Claimant Secured What is the priority of the security interest of the Claimant Secured Party in the Treasury Bills? Each Claimant has a first priority security interest in the Collateral backing his or her obligation. When a given U.S. Government obligation is used by the Trust to secure benefits to more than one Claimant Secured Party, the Trust does not loosely pool assets to cover its obligations, but guarantees that sufficient Collateral will be purchased so that each and every benefit will completely matched on a dollar for dollar basis to U.S. Government obligations 14

15 specifically identified by CUSIP number, with no overlapping of one Claimant s Collateral with another. In this way, any obligations to other Claimants will not impair nor in any way defeat other Claimants rights to the Collateral or the benefits due them. Trustee Who is the trustee? Midwest Trust is the trustee and is headquartered in Overland Park, Kansas, has more than $9 billion in trust administration and is committed to providing fiduciary services designed to meet your needs, from living trusts to estate settlement. Midwest Trust offers a varied portfolio of trust services to fit a wide array of customer needs, helping clients consolidate investments, obtain protection from estate taxes and probate costs, and keeping financial matters private. Midwest Trust can provide a full range of services, including managing assets, distributing funds, providing complete accounting statements, preparing tax documents and more. With 26 full time trust officers averaging 10 years of experience in trust services, Midwest Trust offers powerful, economical, and reliable trust services. For more information about Midwest Trust, please visit Midwest Trust also offers professional, personalized investment services through its partner company, Financial Counselors, Inc. With over 40 years experience in investment management and $3.1 billion of assets under management, Financial Counselors is committed to providing service that will exceed your expectations. For more information about our investment management services, please visit Northern Trust acts as the custodian of all of Midwest Trust s trust assets under management. 15

16 Where to Send Documents (electronic is the preferred method) Advanced Markets Group 815 Brazos St., Suite 700 Austin, TX Where to Send Funding Funding Submission Send the following 3 items to Midwest Trust Company: 1. Funding 2. Completed page 1 of application 3. Final quote By mail or overnight/express mail: Midwest Trust Company Treasury Funded Structured Settlement Account # 42A College Boulevard, Suite 100 Overland Park, KS Phone Fax By wire: Bank Name: First Citizens Bank and Trust Address: 100 East Tryon Road/DAC 28 Raleigh NC ABA: Account Name: Trust Sourcing Solutions, LLC Account Number: Further Credit to: Account Name and Account Number 16