Selling Structured Settlement
What is a Structured Settlement?
Structured settlement annuities are a financial instrument that is normally used to provide regular, tax-free payments to personal injury victims over a long period of time. Instead of facing unexpected stress and management issues that come with receiving a lump sum of money, the recipient is protected from a bad judgment that could result in spending a large portion of the money that he or she needs to manage a lifetime of injury related expenses.
How do I sell my Structured Payments?
You may need to buy or repair a home, start or invest in a business, fund a college education, pay off a debt, divorce or invest. These some valid reasons why you’d like to have a lump sum in your hands rather than your periodical payments. The process of selling an annuity or structured settlement is not difficult, but it involves you taking the step to sell, deciding how much to sell and going before a judge to approve your request prior to accessing your cash.
All this process includes five steps:
- Make the decision to sell | you can start the sale of your settlement process if you have valid reasons for it and the sale of your payments will not have any effects on your future financial needs.
- Shop around to find the discount rate and service on your sale | it is important that you work with a funding company that is reputable and has your best interests in mind, uses its own money to fund (is not merely a broker), is experienced in completing the court ordered transfer process, and has A+ rating with the Better Business Bureau and very few complaints, if any.
- Choose the company you like best and start the sales process | you must begin the paperwork process. After you submit the proper paperwork (your annuity policy, settlement agreement or Benefit’s letter so the transfer company can verify your payments, application, ID), all materials are reviewed to ensure they are complete and accurate.
- Have your sale approved by a judge | once the relevant documents are returned and they are fully signed, a local attorney files them with the court and after that, the court will schedule a hearing. This is the beginning of the waiting period. In the court, you will be required to justify why the money is needed and you should be in a position to show that you are not putting your and your family’s financial future in jeopardy. Unless there are any problems with your request of transfer, the judges mostly approve the transfer at this stage.
- Get your money | Once approved, the judge will sign the order approving your transaction and the order is sent over to the insurance company to wire funds.
How long does it take to sell my Structured Payments?
After you’ve signed the contract, on average it takes about 45 days to receive your money. However, keep in mind that every structured settlement purchase transaction is different due to each state’s laws regulating such purchase transactions. In addition, you may qualify for an immediate cash advance to help you through a, particularly tough time.
What discount rate is normal when selling Structured Settlements?
If you are considering selling your annuity, you need to be sure that the offers you are getting are reasonable and fair as you’ll have to get the lump sum reduced by a factor of the projected interest earnings, known as the discount rate. The exact discount rate that you will need to give in order to sell your structured settlement will depend upon the total amount of your settlement payments, the number of payments you have remaining, the date those payments are due to arrive, the number of payments you wish to sell etc. The longer people have to wait to receive their payments, the greater the discount rate will need to be. Discount rates from factoring companies to consumers can range anywhere between 8% up to over 18% but usually average somewhere in the middle. An average discount rate of 12% should be reasonable but there are some companies that will want to take as much as 30% discount.
Will I be forced to pay tax if I Sell my Annuity or Structured settlement?
The money you receive from selling your structured settlement payments will have the same tax treatment as the payments you receive from your structured settlement annuity.
The Periodic Payment Settlement Act of 1982 (Public Law 97-473) formally recognized and encouraged the use of structured settlements in physical injury cases by designating payments from a structured settlement as tax-free.
Section 104(a)(2) of the Internal Revenue Code clarifies that the full amount of the structured settlement payments, including the acceleration when, for example, RSL Funding purchases your annuity, is tax-free to the victim.
The Internal Revenue Service has ruled that where a claimant assigns periodic payments due to be received under a settlement agreement in exchange for a lump sum, the lump sum remains tax-free.
As part of the Tax Relief Act of 2001 (H.R. 2884) signed by President George W. Bush on January 22, 2002, individuals who must sell their structured settlement payments to meet unplanned financial needs are protected. This legislation made it mandatory for individuals to seek court approval when they sell their structured settlement payments and works in conjunction with state laws directing how these types of transactions will be completed. In addition to benefiting and protecting the individuals, it also makes clear that annuity providers will suffer no tax consequences as a result of these transactions. The legislation states that annuity owners and providers do not now owe, nor have they ever owed, taxes as a result of these transactions.
Though, most likely you will have to pay taxes on any money that you have won, such as lottery winnings or casino earnings. These things are taxed as any other income. If you paid your taxes on the entire lump sum up front then you will not pay taxes again when you sell your payments. However, if taxes are deducted regularly when payments are made, then you may be responsible for paying a lump sum of taxes if you sell these periodic payments.
Do you offer tips for selecting a Structure Settlement company to work with?
The best-structured settlement companies are those that treat you the best, do not pressure you, and offer you the best deal with the lowest discount rate. Shop around before accepting an offer. Although you wouldn’t research settlement brokers if you didn’t need the money, a discount rate of 20% + is a lot of money to give up. Perhaps it’s worth it for you but you should give this a lot of consideration.
Should I sell my Settlement Payments to pay off debt?
This is a complicated question. If your debt is serious enough that you may end up in bankruptcy proceedings, you should speak with a bankruptcy attorney and determine whether your settlement would be protected. If it would be protected, do not sell to pay off your debt.
What is an anti-assignment provision?
The goal of an “anti-assignment” provision is to ensure that the two contracting parties will not be able to transfer their obligations under the agreement to someone else without first getting permission from the other party. One of the boilerplate clauses found in most commercial contracts looks something like “Neither this Agreement nor any of the rights, interests or obligations under the Agreement shall be assigned, in whole or in part, by operation of law or otherwise by either party without the prior written consent of the other party.”
There are three variations of anti-assignment clauses that can be used in a contract: a standard anti-assignment clause barring any assignment or delegation, the second one is used when the parties want to prohibit assignments except if they transfer the agreement to new owners or affiliated companies (and don’t want to ask for permission), and the third type is similar to the second one except it requires permission for such an assignment. But it should be noted that only prevent “voluntary” assignments can be prevented; you cannot prevent assignments that are ordered by a court or that are mandatory under law—for example in a bankruptcy proceeding.
What is a deferred annuity?
Usually, an annuity contract is created when an insured party pays an annuity company a single premium that will later be distributed back to him over time. However, sometimes an investor may choose to defer annuity payments income, installments or a lump sum until he/she elects to receive them (e.g until he/she retires). This type of annuity is called a deferred annuity and has two main phases: a savings phase when money is invested in the account and an income phase when the plan is converted into an annuity and payments are received.
A deferred annuity is not taxed until the income phase begins and it also provides a death benefit to the survivor(s) of the annuitant. As this type of annuities is designed primarily as retirement savings accounts, the annuitant may owe a 10% penalty tax in addition to ordinary income taxes if the principal, earnings or both are withdrawn prior to age 59½.
Depending on the way the investment is made the deferred annuity earnings can be either fixed (your money earns interest at a fixed rate that will never drop below a minimum rate guaranteed by the issuing company and is tax-deferred until withdrawals are made) or variable (you choose investments from a pre-selected list of funds called sub-accounts inside of a variable annuity and the returns will vary depending on the underlying performance of the chosen investments).
- Have a structured settlement and need a loan? We’ve put together a list of structured settlement loan companies.
- Trying to find structured settlement companies that seem legitimate? Check out the list we’ve researched.
- Learn more about the secondary structured settlement market.
Credited: Pay Master