What can the Sumner Redstone competency hearings teach structured settlement experts about planning?

In part two of The Settlement Channel's look at the issues of competency and guardianships, we today turn our eyes on the amazing drama unfolding in the case of Sumner Redstone, the legendary chairman and driving force behind Viacom. In the last few months we have witnessed 5000+ word profiles in Vanity Fair, NY Times and other publications looking into the maneuvering by family, business associates, shareholders, foundations, girl friends and companions, all with an eye on getting control of the $40 billion Viacom empire, or the Redstone estate, when Mr. Redstone eventually expires. 

What makes this particular case so intriguing is that it centers largely around how competent the one time media power figure is at this point in his life to make financial, business and estate planning decisions. Just two weeks ago in Los Angeles a judge abruptly ended what was expected to be a long hearing on competency and control of assets by Redstone's daughter, and his two former female companions, who stood to gain a substantial financial sum if a prior directive was upheld which gave them millions in assets. The court ruled, after listening to a video tape deposition of Redstone uttering profanities directed at his two former companions, that Redstone was still competent to provide orders and direction as to his care, his estate and his business. 

No sooner had that hearing been resolved when it was announced last week by Redstone's daughter, that her father was also removing his long time associates from control of his trust and foundation, each of which has substantial shares of Viacom, and as such, controlled to a large degree the operation and decisions for much of the company. The basis for this decision? The directive from the court that Redstone is competent and that he now wants to make these changes. The response from the spurned business associates? Why of course a response that Mr. Redstone is NOT competent, despite their testimony several months prior that he WAS fully competent in the prior matter of the two companions attempting to retain control of the assets. They didn't anticipate that assessment coming back to be used against them, so the war for control rages on with no end in sight. 

Obviously I can't do this all justice in a short blob post, so I recommend you read the NY Times article, the Wall Street Journal article and the Vanity Fair articles covering all the players and what the current status is. Trust me, it's fascinating and changes daily. 

So let's go back to my original question, " Is Summer Redstone competent enough to sell his structured settlement payments"? Or, I could frame it another way, " Is Sumner Redstone competent enough to plan his estate and purchase a structured settlement?" Ridiculous questions you say, Sumner doesn't own a structured settlement so why even ask it, right?

Not really, as my hypothetical goes to the heart of an issue that has gotten constant coverage over the last 8 months, which is the Baltimore lead paint cases and the contention that the people who sold their structured settlement payments were not competent to do so. In those cases, or in last weeks commentary on Britney Spears, as well as the Redstone case, a central question that needs to be asked for which there is no easy answer is, "Who determines competency in an adult and at what point are they unable to make fully informed decisions about their financial future?"

In the Sumner Redstone case, I would content that ANY annuity sales person who approached him about buying an annuity program at this point in his life, and who successfully got him to sign an application and put money in an annuity, would probably be up on charges for financial elder abuse or the sale of an unsuitable product. There are laws in most states that protect elderly people who are not deemed incompetent, but yet are afforded legal protection against predatory sales practices. However, does a court ruling on Redstone's competency mean you get a free pass on selling a questionable annuity package that might be unsuitable for a person, but which a court or the person waves through?

So, when is an impaired, but not incompetent person, no longer able to determine whether to buy an annuity or to sell future payments? Look at Redstone and ask that question, then look at Ms. Spears or the lead paint cases, and ask the same question as well. There is no easy answer even when you are talking about people with millions of dollars and access to the best legal, financial and estate planning assistance in the world. 

Yet, in the Baltimore lead paint cases the attorney's, planners and structured settlement brokers faced the same general question on how much impairment was provable and how would it impact future decisions and care. It is usually quite clear in lead paint cases that a doctor or vocational expert outlines the ability of the person in question to manage their affairs, this is the basis by which they get their settlement. They are impaired, likely impaired for life and generally considered not competent to manage their affairs. Yet in most cases a structured settlement was put in place under the assumption that the impaired individual needs the certainty of payments over a life time or period certain, so as to keep them from making poor financial choices by restricting access to their money. So far so good, we can all agree this should make sense in theory. 

However, we all know there is a robust market of companies and investors looking to PURCHASE payments like those in the Baltimore cases. Everyone who is even remotely involved in court settlements and structured settlements knows this. However, no protections were put in place beyond the purchase of the structured payments which would have provided for a guardianship, a settlement preservation trust or an asset protection trust, all of which are an excellent line of defense against unwise decisions. There are companies who specialize in these trusts, such as First Capital Surety & Trust Company, which can arrange long term protection for structured settlement payments. 

So why weren't these protections in place and why is the AG of Maryland now suing factoring companies on the basis that they exploited a vulnerable class of consumers? They weren't in place because determinations of competency and guardianships take time, they cost money and it requires more work and service on the part of the structured settlement broker or settlement planner. In other words, it's too much trouble, it's too much cost and it's too much liability for those promoting the structured settlement to take the next step an arrange those protections for vulnerable claimants. So what we have in effect is a situation similar to Redstone's. The victims are deemed competent enough to get their settlements arranged and put into structured settlements, however, they are apparently considered too incompetent to know the impact of selling those payments, despite the process being over seen by Maryland courts, judges, clerks and others in that process. Too impaired for one decision, yet competent enough to make another, how can that be? 

My conclusion. That while the cost of setting up a guardianship or a settlement preservation trust for a potentially vulnerable plaintiff at settlement might seem steep, how does that cost compare with the sharp discounts they paid to legally transfer the ownership of their payments to a settlement purchasing company? There is a cost for EVERYTHING in life, but in this case we know that determining competency is hard, particularly if contested, but the cost of a financial misstep can be in the hundreds of thousands, or in the case of Redstone, in the millions or billions. I encourage settlement professionals to start looking at trusts, guardianship and asset protection options for a wide class of plaintiffs. My next commentary will look at the types of solutions that can be used which are relatively low cost, effective and protect vulnerable claimants from future mistakes. 

What can Britney Spears teach structured settlement experts about the need for guardianships

In the last week, both the NY Times and the Wall Street Journal have published extensive articles on the conservatorship of pop star Britney Spears and the competency hearings of legendary media tycoon Sumner Redstone. The Settlement Channel offered up an extensive commentary as part of a three day series on how the settlement planning profession can better serve injury victims long term, which we provide below in it's entirety. 

Here is the link to the Britney Spears story 

So exactly what lessons do these contrasting stories offer the structured settlement profession, and by extension the trial lawyer world, about the value of conservatorships, guardianships and competency hearings? The first is that in the wake of the string of stories about the Baltimore lead paint factoring cases, each alleging that the victims were not competent and were exploited during the process of selling their future payments, that there was in hindsight a clear need for guardianships. However, it is also clear from the articles and stories that guardianships may have been considered, but were not put in place due to the perceived cost and limits they impose on the people they are designed to protect, along with the often substantial legal hurdles of proving incompetency of the claimants. Finally, I also contend that the structured settlement compensation model directly discourages on-going service and relationships with vulnerable classes of victims who are most in need of advice and guidance post settlement, and thus deprived these vulnerable people direct access to top experts who could assist them if they were compensated to do so.  I will cover each of these three points in this series, with today's segment looking at the issue of guardianships and conservatorships. 

How can we preserve settlements when people, such as Britney Spears, are clearly not capable to manage their funds?

The Maryland lead paint stories on the purchase of structured settlements, while very good at highlighting concerns, had what I feel is a glaring hole in the narrative. That hole which was not addressed was this question:  "If the people who sold their lead paint structured settlement programs to factoring companies were truly incompetent to make that decision, as the stories clearly imply, then why in the world weren't these lead paint victims provided with a guardianship or conservatorship?"  If they weren't competent to sell their payments post settlement, then in what world were they ever competent enough in the first place to agree to a long term, fixed rate, non-liquid payment stream, absent a review by a guardian and subject to ongoing court supervision? 

As the Spears case shows in great detail, this was and is a woman who was incapable of making safe and reasonable decisions about her career, personal life, finances and relationships due to an undisclosed but documented mental illness she is being treated for. Sad, but everyone witnessed the impact of that illness being left untreated and the relative success and happiness she now enjoys as a result of being supervised and living under the guardianship which was established and that is monitored by the court. Ms. Spears was lucky in several obvious areas when compared to the lead paint claimants. She had substantial financial resources, engaged and capable family members who stepped in to handle her out of control impulses, as well as access to top level legal talent capable of conserving her assets, career and family. 

The lead paint claimants by comparison, sadly, did not have the same good fortune and access to protections afforded Ms. Spears. While the lead paint claimants certainly obtained top flight legal talent to litigate and settle their initial claims, they did not have the same level of ON-GOING supervision by lawyers, trustees, courts and financial experts to insure the settlements were not squandered. Instead they were put into structured settlement programs, with fixed payments, future lump sums and irrevocable payment streams. The irrevocable and fixed nature of structured settlements often give the appearance of protection against squandering, but in reality the inflexible and non-liquid nature of a structured settlement in fact only sets the perfect conditions to require selling them in the future,  if the initial design ultimately doesn't meet their immediate and evolving needs. If someone only has that one asset and they need funds, there exists in 48 states a regulatory and judicial process that let's them sell parts or all of those payments to obtain the cash they feel they need. This is where things get dicey as the vast majority of the lead paint clients lacked the sophistication to weigh the impact of the decision, while also having no ongoing access to a settlement planning expert who could assist them with the process. 

To my knowledge few if any of these structured settlements were being paid into trusts or had on going financial and settlement planning advice to insure their long term success. There is little doubt if a determination at settlement had been made that these people needed either a guardianship or a trust company handling the proceeds, far fewer of these cases would have been sold via the secondary markets or if sold a better deal could have been struck. While Britney Spears had top legal, financial and professional advice brought together to help her crisis and then manage her personal and professional life for the subsequent eight years, the victims of lead paint settlements were for the most part left on their own post settlement with the theory that by "locking up" their funds in a structured settlement they would be set for life. It is a reality that the element which makes a structured settlement so appealing, it's irrevocable nature and fixed payments, often conspires to force claimants to sell their payments if the plan in subsequent years no longer fits their needs and they face a financial crisis with out any other assets to turn to. 

This dilemma of a clear need for on going supervision and determination of the injured parties competence to make decisions highlights yet another problem in this process, one that the Sumner Redstone situation competency hearing is driving home in court. That problem is that while just about everyone would agree that many of the lead paint victims could benefit from a guardianship, these arrangements are typically expensive, cumbersome and subject to abuse if not properly administered and monitored by the court. (A process the NY Times article on Spears illustrates clearly and in great detail.) Also, as pointed out in the NY Times profile, to make a guardianship work the legal and settlement team needs to assess and then prove incompetency in court hearings, a process requiring access to experts as well as multiple court hearings on competency and mental capacity. As the Redstone case shows, this process can be brutally tough if the parties involved are fighting it or have competing motives or interests in the outcome.

In short, while it's easy to argue a guardianship was needed for the lead paint claimants, the reality is that taking that step in those cases would have added to the time, expense and pain of the process, as well as adding on going costs long term. In just about every case I would imagine that every dollar was needed for current and future needs, making the cost of on going administration a burden on an already financially challenged victim. However, the question we need to ask as professionals is whether the cost and benefits of on going assistance and supervision on the settlement funds is not in fact far cheaper then the price these people paid to legally obtain access to the present value of their settlement funds in the secondary markets? There is clearly a cost either way and it is up to us as a profession to address those costs and benefit models and provide trial lawyers with real options that protect that hard fought funds they obtained in litigation. 

The question I intend to address in parts two and three of this series, is what sort of on going protections are reasonable and affordable in these cases and what can the settlement planning profession do to prevent these types of mass cash out's from happening again. We will also examine the Sumner Redstone competency hearings to illustrate what can happen when you go to court and try to determine if someone should go under a guardianship and if their assets need to be protected. 

Met Life fined $25 million over variable annuity sales practices. Implications for structured settlement experts

Earlier this week we posted this video and story summary on The Settlement Channel, explaining the news regarding this exceptionally large FINRA fine levied against Met Life. Excerpts of the Settlement Channel story follow:

 "Met Life has agreed to pay a penalty of $25 million to the Financial Industry Regulatory Authority (FINRA) to settle FINRA’s investigation into MetLife’s sales of variable annuities to tens of thousands of investors. The sum includes a fine of $20 million plus $5 million to customers “for making negligent material misrepresentations and omissions” in the sale of replacement variable annuities to MetLife customers. This is the second largest fine ever assessed by FINRA."

" FINRA charged that MeLife’s salespeople failed to help its customers properly compare old and new versions of the annuities, leading some people to change to a newer version of the annuity that was more expensive and less customer generous than the older version. Each sale of a new product typically includes a commission of 5% to 7%, something that encourages sales of newer annuities. MetLife sold at least $3 billion worth of variable annuities through replacements between 2009 and 2014. Insurers began to change their variable annuity contracts after the stock market decline in 2008 revealed the financial risks they faced in offering extremely generous benefits to investors. "

The implications in all this for structured settlement experts is not so much the black eye given to yet another one of the premier life insurance brands that also happen to write structured settlements. Instead it is the continued focus by regulators, the press, industry groups and others on the sales practices, communication, commission structure and business model of annuity sales in general. Those of us in the structured settlement profession can expect to see continued scrutiny of the settlement process and sales practices of our profession, as regulators, industry groups and others examine the suitability of structured settlements as part of the over all settlement plan for injury victims through out the US.