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.