Mede and Potatoes

In the Matter of Yolette Mede decided in 1998 in Kings County Surrogate, a petition to place a minor's share into a Halpern Group 130X post settlement trust, mislabeled a structured settlement (essentially for marketing purposes of the vendor) ,was denied and unfortunately created bad law relied upon by the Kings County Surrogate http://caselaw.findlaw.com/ny-surrogates-court/1251293.html. The Mede Court appeared to recognize what a real structure was but still issued the decision with the inaccurately labeled trust. Other Surrogates have relied on Mede in denying structured settlements that extended beyond the age of 18, often to the detriment of the minors. But to paraphrase the lyrics of Pink Floyd, " You Cant Have any Pudding if You Don't Read Your Mede".(177 Misc.2d 974, 980 [1998])”. http://www.leagle.com/decision/20036342Misc3d632_1551

Highlighted excerpts from Mede case decision

The decedent, Yolette Mede, died on September 5, 1991 at age 29 as a result of alleged medical malpractice.  The decedent left surviving the petitioner, her spouse, and three infant children, the youngest having been born just prior to decedent's death.   The action was settled before a Justice of the New York Supreme Court, County of Kings, during jury selection for $2,100,000.00.   The petitioner and the attorneys are to receive immediate lump-sum payments while the father seeks to invest the children's shares in a new type of structured settlement plan.   It is this investment vehicle or “plaintiff-controlled structured settlement trust” which concerns the Court and requires further discussion. (emphasis added)

If you read through the Mede case, you will see that the Mede court expressly recognized how structured settlements are supposed to work. To wit..."·The commonly used structured settlement is a written obligation by a defendant (usually through its insurance company) to make deferred payment of monies over a prescribed period of time.   The defendant's obligations are fixed as to the amount and the time of future payments upon entering into the structured settlement agreement. Most structured settlements are financed by the defendant through their purchase of an annuity insurance policy.   As an indicia of reliability, a rating report published by A.M. Best Co. evaluates life insurance companies.   Their ratings are often utilized by the courts as a guide to evaluating whether a particular life insurance company is an appropriate choice to finance a selected structured settlement annuity

The Court has been advised that the father, by choosing this investment product , had several financial goals in mind.   Firstly, he sought to prevent the dissipation of his children's funds by placing the monies into irrevocable trusts until each child reaches the age of 35.   Secondly, he wanted to invest the funds in a fashion which would take advantage of changing and possibly rising interest rates during the term of the investment period.   Finally, he sought to avoid the temptation presented by the recent emergence of after-market annuity purchasing companies, which offer discounted, but immediate cash payments in exchange for the termination of an annuity-based structured settlement . 

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IMPORTANT NOTE: Mede was made before the enactment of the Victims of Terrorism Tax Relief Act of 2001, effective January 2002 and the enactment of the New York Structured Settlement Protection Act NY GOL 5-1706

§ 5-1706. Approval of transfers of structured settlement payment rights. No direct or indirect transfer of structured settlement payment rights shall be effective and no structured settlement obligor or annuity issuer shall be required to make any payment directly or indirectly to any transferee of structured settlement payment rights unless the transfer has been authorized in advance in a final order of a court of competent jurisdiction based upon express findings by such court that:

(a) the transfer complies with the requirements of this title;

(b) the transfer is in the best interest of the payee, taking into account the welfare and support of the payee’s dependents; and whether the transaction, including the discount rate used to determine the gross advance amount and the fees and expenses used to determine the net advance amount, are fair and reasonable. Provided the court makes the findings as outlined in this subdivision, there is no requirement for the court to find that an applicant is suffering from a hardship to approve the transfer of structured settlement payments under this subdivision;

(c) the payee has been advised in writing by the transferee to seek independent professional advice regarding the transfer and has either received such advice or knowingly waived such advice in writing;

(d) the transfer does not contravene any applicable statute or the order of any court or other government authority; and

(e) is written in plain language and in compliance with section 5-1702 of this article]

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Back to Mede

“A proposal whereby the petitioner shall create a structured payout of the shares allocated to the decedent's infant children is specifically not approved in the form currently presented to the Court (emphasis added). Pending submission of an alternative plan, the children's settlement funds shall be held in a guardianship account under joint control with the Clerk of the Court and the settlement of the petitioner's accounting shall be held in abeyance” (Look familiar?)

“ Undeniably, the ordinary structured settlement approved by the court always delays a child's receipt of funds beyond his or her majority .   However, such settlements are approved as the means for settling a civil litigation with an understanding that such are the terms upon which a defendant is conditioning the settlement .   Here, the defendants are paying the entire settlement sum up front to the father who then invests the funds in a structured settlement instrument {again mislabeled].   Therefore, this case presents an issue concerning the propriety of the investment strategy chosen by the father, rather than a settlement proposal and accordingly, it must be judged by a different standard .

Then came Estate of Carucci Nassau County Surrogate 2003 which cited Matter of Mede “Moreover, the court "cannot permit a restriction of access to . . . proceeds after an infant has reached the age of 18" (Matter of Mede, 177 Misc.2d 974, 980 [1998])”. http://www.leagle.com/decision/20036342Misc3d632_1551

AND THEN CAME THE GOOD NEWS! Estate of Castro [ Kings Surrogate 332/A/2008]

The Surrogate cited to Estate of Carucci in denying the infant distributes annuities on October 9, 2012. On appeal to modify March 7, 2013, it reversed itself stating:

“Based on the record presented by counsel in open court on March 7, 2013 that annuities are a condition of settlement , and were pre-funded at the time of settlement , and having thoroughly reviewed counsel’s motion to modify the court’s decision dated October 9, 2012, the motion is granted. Accordingly the petitioner’s request for approval to purchase the annuities for the four infant distributees is approved”. The result was preservation of six figures in payment advantage from the pre-funding.

Here are some key excerpts from my sworn affidavit of February 4, 2013, which accompanied the appeal to modify:

(1) At all relevant times the Defendant’s insurance company retained its own structured settlement consultant through which it dictated terms that were a condition of settlement . For example, one of the terms was that the structure had be locked-in by its broker. Furthermore the executed commission sharing agreement between the Defendant’s and Plaintiff’s agents underscores that a structured settlement was part of the negotiation. [“A structured settlement will arise out of the settlement of this suit on the matter”]. The Court will also note the fax footprint of the annuity issuer which appears on the document.

(2) Agreeing to the Defendant’s insurer’s conditions was necessary and critical to the plaintiffs’ settlement planning, taking into account (i) a declining interest rate environment; (ii) the underwriting criteria of structured annuity issuers with respect to rate lock-ins; and (iii) the inability to predict the length of time that the Surrogate would take to review approve the settlement, to protect the minor payees as well as (names redacted) and get them to agree to pre-fund the structured settlements in advance of Court approval.

(3)As stated in my March 31, 2009 affidavit, the structured settlements were pre-funded by the insurer for the Defendants to preserve a favorable rate.

(4)Pre-funding a structured settlement is not a legal obligation of any Defendant or Insurer .

(5)Pre-funding the structured settlements means that upon Surrogate approval the payees’ rate of return is “vested” at the rate that existed on the date the annuities were locked in and subsequently pre-funded

(6) Should any of the children have liquidity needs at, and after, the age of majority they may, pursuant to the conditions of the New York Structured Settlement Protection Act [New York General Obligations Law §5-1706], seek Court approval to sell or transfer their rights to receive all or a portion of the structured settlement payments

Two Prong Test

Clearly the Kings County Surrogate has set a precedent for two prong test for approval of a structure paying beyond age 18 : (1) structure a condition of settlement (2) pre-funding of the structured settlement.

Medical Malpractice Insurer to The Rescue

In 2014, the Nassau Country Surrogate County judge indicated that that he would deny a request to structure proceeds of a minor in a wrongful death medical malpractice case, citing Mede and Carucci and expressing reservations about factoring. Our co-broker, who represented the plaintiff, asked us to obtain a refund of the structure money. Give my prior experience on this subject, an offer was made to help our industry colleague get the case through. They refused despite (1) their client's desire for a structure (2) the co-broker had recommended a structured settlement (3) the lawyer's interest in a structured settlement. So instead a goodwill effort was made to convey the information about the two prong test to plaintiff's counsel. Not long thereafter, the Nassau County Surrogate issued a decision approving the structured settlement for the minor.Had our team not made this extra effort, the child would not have a structure, would not get much interest in the bank, would have had more spendthrift risk than if she had a structure at 18+ and would have had more difficulty getting financial aid under FAFSA or CSS Profile standards with so much in her bank account at age 18. Resources of the child are counted at 20% or 25% toward Expected Family Contribution, depending on the financial aid form.

Collaboration Effort Required

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