How to sell a structured settlement payment

How to sell a structured settlement payment

Individuals who choose to sell their structured settlement either in part or wholly are in need of some ready money. Most often, people sell a part of their structured settlement to meet near-term requirements. There are various institutions that buy structured settlements. The transactions can vary in amount from ten thousand dollars to 1.5 million dollars. More than two-thirds of the states in the United States allow individuals to sell structured settlements. According to the federal law HR 2884, annuity owners do not come under any tax obligations as a result of selling their structured settlements.

One should research about various settlement purchasers, check their past payment records and their working relationships with the insurance companies so that the transactions can be approved quickly. Also, the purchasers should be licensed, insured, and bonded. This way if a purchaser goes out of business, the seller can still get his cash. In some states it is mandatory to obtain financial and tax advice, in other states an annuity seller needs to sign a waiver if he does not want to take recourse to financial advice. However, it is compulsory to take advance approval from court according to federal and state laws. Companies that purchase a settlement payout without the advance court approval face a heavy tax.

A judge studies the circumstance of the potential transactions to assess whether the seller actually stands to benefit from the transaction and weighs the effect of the transaction upon the seller's dependents. Often, owners of structured settlement payments cannot raise credit by other means and have to sell off parts of their settlements. The judges are aware of this and do not object to the transactions so long as the owner is able to show a genuine need for the sale. The seller's presence in court makes it easier for the judge to arrive at a decision. In an instance where a transaction is denied by a judge, purchasing companies take the necessary steps to create the conditions suitable for the transaction, a seller does not have to bear the costs of this process.

To obtain a free quote from a purchaser, one needs to provide information such as the state of residence, the insurance company, and the payments. If an individual is satisfied with the quote offered, he will need to submit copies of the settlement agreement and annuity policy.

The process of finalizing the contract starts with the purchasing firm sending a disclosure document to the seller; the document explains the terms and conditions that will govern the transaction. The contact is dispatched in a day or two, upon the contract being signed; the court order process begins and can take up to 90 days depending upon the state of residence and the insurance firm. Funds are made available to the individual within five to ten working days of the order being approved.

Structured settlement

Structured settlement

A structured settlement is a financial or insurance arrangement, including periodic payments, that a claimant accepts to resolve a personal injury tort claim or to compromise a statutory periodic payment obligation. Structured settlements were first utilized in Canada and the United States during the 1970s as an alternative to lump sum settlements. Structured settlements are now part of the statutory tort law of several common law countries including Australia, Canada, England and the United States. Although some uniformity exists, each of these countries has its own definitions, rules and standards for structured settlements. Structured settlements may include income tax and spendthrift requirements as well as benefits. Structured settlement payments are sometimes called “periodic payments.” A structured settlement incorporated into a trial judgment is called a “periodic payment judgment."

Structured Settlements in the United States

The United States has enacted structured settlement laws and regulations at both the federal and state levels. Federal structured settlement laws include sections of the (federal) Internal Revenue Code^[1]. State structured settlement laws include structured settlement protection statutes and periodic payment of judgment statutes. Medicaid and Medicare laws and regulations affect structured settlements. To preserve a claimant’s Medicare and Medicaid benefits, structured settlement payments may be incorporated into “Medicare Set Aside Arrangements” “Special Needs Trusts."

Structured settlements have been endorsed by many of the nation's largest disability rights organizations, including the American Association of People with Disabilities ^[2] and the National Organization on Disability ^[3].

In April 2009, financial writer Suze Orman wrote in a column [1] that structured settlements "provide ongoing income and reduce the risk of blowing a lump sum through poor financial choices." In response to a reader's question, she added that financial security can be improved "if you use the structured payouts wisely."

[edit]Definitions

A definition of “structured settlement” can be found in Internal Revenue Code Section 5891(c)(1) (26 U.S.C. § 5891(c)(1)), which states that a structured settlement is an "arrangement" that meets the following requirements:

• A structured settlement must be established by:
  • A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue Code Section 104(a)(2) (26 U.S.C. § 104(a)(2)); or
  • An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Internal Revenue Code Section 104(a)(1) (26 U.S.C. § 104(a)(1)); and
• The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal Revenue Code Section 130(c)(2) (26 U.S.C. § 130(c)(2))) and must be payable by a person who:
  • Is a party to the suit or agreement or to a workers' compensation claim; or
  • By a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with Internal Revenue Code Section 130 (26 U.S.C. § 130).

It is important to note that the language immediately prior to Internal Revenue Code Section 5891(c)(1) states that the definition that appears there is "for the purposes of this section". Internal Revenue Code Section 5891 entitled "Structured Settlement Factoring Transactions" deals with the excise tax imposed on the "factoring discount" (see IRC 5891(c)(4)), when there is a purchase of structured settlement payment rights and the exceptions to the excise tax. A number of structured settlement industry commentators have been observed attempting to broaden the express language that appears in the Internal Revenue Code.

[edit]Legal Structure

The typical structured settlement arises and is structured as follows: An injured party (the claimant) settles a tort suit with the defendant (or its insurance carrier) pursuant to a settlement agreement that provides that, in exchange for the claimant's securing the dismissal of the lawsuit, the defendant (or, more commonly, its insurer) agrees to make a series of periodic payments over time. The defendant, or the property/casualty insurance company, thus finds itself with a long-term payment obligation to the claimant. To fund this obligation, the property/casualty insurer generally takes one of two typical approaches: It either purchases an annuity from a life insurance company (an arrangement called a "buy and hold" case) or it assigns (or, more properly, delegates) its periodic payment obligation to a third party ("assigned case") which in turn purchases a "qualified funding asset" to finance the assigned periodic payment obligation. Pursuant to IRC 130(d) a "qualified funding asset" may be an annuity or an obligation of the United States government.

In an unassigned case, the defendant or property/casualty insurer retains the periodic payment obligation and funds it by purchasing an annuity from a life insurance company, thereby offsetting its obligation with a matching asset. The payment stream purchased under the annuity matches exactly, in timing and amounts, the periodic payments agreed to in the settlement agreement. The defendant or property/casualty company owns the annuity and names the claimant as the payee under the annuity, thereby directing the annuity issuer to send payments directly to the claimant. If any of the periodic payments are life-contingent (i.e., the obligation to make a payment is contingent on someone continuing to be alive), then the claimant (or whoever is determined to be the measuring life) is named as the annuitant or measuring life under the annuity.

In an assigned case, the defendant or property/casualty company does not wish to retain the long-term periodic payment obligation on its books. Accordingly, the defendant or property/casualty insurer transfers the obligation, through a legal device called a qualified assignment, to a third party. The third party, called an assignment company, will require the defendant or property/casualty company to pay it an amount sufficient to enable it to buy an annuity that will fund its newly accepted periodic payment obligation. If the claimant consents to the transfer of the periodic payment obligation (either in the settlement agreement or, failing that, in a special form of qualified assignment known as a qualified assignment and release), the defendant and/or its property/casualty company has no further liability to make the periodic payments. This method of substituting the obligor is desirable for defendants or property/casualty companies that do not want to retain the periodic payment obligation on their books. A qualified assignment is also advantageous for the claimant as it will not have to rely on the continued credit of the defendant or property/casualty company as a general creditor. Typically, an assignment company is an affiliate of the life insurance company from which the annuity is purchased.

An assignment is said to be "qualified" if it satisfies the criteria set forth in Internal Revenue Code Section 130 [2]. Qualification of the assignment is important to assignment companies because without it the amount they receive to induce them to accept periodic payment obligations would be considered income for federal income tax purposes. If an assignment qualifies under Section 130, however, the amount received is excluded from the income of the assignment company. This provision of the tax code was enacted to encourage assigned cases; without it, assignment companies would owe federal income taxes but would typically have no source from which to make the payments.

To comply with the provisions of IRC 130, periodic payments generally cannot be accelerated, increased, decreased, etc

What is structured settlement plan?

What is structured settlement plan?

A structured settlement plan is a financial arrangement or insurance agreement which includes intermittent payments that an applicant accepts to decide on a personal injury claim or to compromise an obligation of statutory periodic payment. Structured settlement was first introduced in Canada and in United States in the year 1970s and it was introduced as a realistic alternative to lump sum settlements. Presently, this mode of investment has gained wide popularity in common law countries like United States, Australia, Canada, and in England.
However, among the structure settlement plans for these countries a general uniformity is present but in actual tune they are all different in their definitions, standard, rules, and limitations. Structured settlements may include spendthrift and income tax requirements and benefits in its plan and this due to its unique payment arrangement provision, payments are called periodic payments. When a structured settlement gets integrated into a trial judgment plan it is called periodic payment judgment.
There are certain advantages for structured settlement plan. The first and foremost advantage of this investment plan is security and guarantee for income source for life time. The next important advantage of this investment plan is its tax benefit; while you are making structured investment plan you are automatically saving on your taxes.
There is another fact to be remembered and considered. This investment plan is a better option for spendthrifts because this investment plan is a secured way to acquire a fixed monthly income instead of getting a lump sum amount at a time.
There are some negative implications of the structures settlements plans. Before going for any of these plans, you should consider these limiting factors as well. This plan is a fixed plan and does not have any flexibility. So once it is settled, it cannot be modified later. Hence it is of prime importance that before taking a structured settlement plan, you should contact a reliable and experienced attorney and tax adviser.

Is selling a structured settlement a good investment decision?

Is selling a structured settlement a good investment decision?

In nine cases out of ten, selling a structured settlement is not a good investment decision. Ideally, selling a structured settlement for cash should be the last alternative and should be resorted to only if the individual is confident of managing his own investment portfolio in a competent manner. This is because in any sale of a structured settlement, it is possible to lose up to half of the long-term value of the structured settlement.

A structured settlement offers guaranteed payment that is tax-free; this may not be the case with investments made by selling a structured settlement. Moreover, the regular payments offered by a structured settlement are a source of great comfort to retired individuals and those with an impaired earning ability. A structured settlement offers the advantage of a regular income without having to worry about managing it.

If one has sufficient business experience and is confident of himself, he can use the money obtained from the sale of a structured settlement as capital, and the money can also be used to make intelligent real estate purchases. In case, an individual has to sell his structured settlement, he should try and sell as few payments as would be required to get his work done. Exchanging the security of structured settlement payments for another investment plan has its risks and one should consider alternatives in collaboration with a financial advisor. An advantage of investing money obtained from selling a structured settlement is that one gains control of his own finances; with a structured settlement, the control is largely in the hands of lawyers and companies that pay the settlements.

Selling structured settlements can be particularly detrimental to individuals who are disabled, minors, workers compensated for loss, and compensation due to severe injury.

February 1, 2010: Federal Task Force Highlights Value of Annuities

February 1, 2010: Federal Task Force Highlights Value of Annuities

Late last week, the federal government’s Middle Class Task Force, chaired by Vice President Joseph Biden, issued a report highlighting ways for Americans to improve their financial security, including maintaining a more secure retirement. The report concluded that annuities, which are typically the preferred way to fund structured settlement payments, are an effective way to improve financial security, given the high degree of certainty and the benefits of regular income. The Legal Broadcast Network has an important post about the implications of this report for injury victims or dependents considering a structured settlement: For those in the annuity business, particularly those who work in structured settlement annuities or work with lawyers on their pension plans, this [report] comes as welcome news but no surprise as to the value of the annuity concept to lock in guaranteed income investors can't outlive, outspend or dissipate. As New York Times columnist Ron Lieber says in his current “Your Money” column, “If the biggest risk in retirement is running out of money, an annuity can help guarantee that you won’t.” The NSSTA has published a hand-out on the financial security associated with structured settlements funded through annuities. To download a free copy, please click here. About structured settlements Recognized and encouraged by the federal tax code since 1983, structured settlements provide strong financial security to victims of physical injuries and their families. Using a tailored stream of payments, a structured settlement provides a long-term payment stream that is completely exempt from state and federal income taxes. A structured settlement’s future payment stream is funded through a highly secure life insurance annuity. For a free handout that describes some of the consumer protection regulations that bolster the security of a structured settlement annuity, please click HERE. The National Structured Settlements Trade Association (NSSTA) represents nearly 1,200 licensed consultant, brokers, insurance companies, and other professionals involved in establishing and administering structured settlements.

February 18, 2010: Video - “I love it when my structure person becomes involved”

February 18, 2010: Video - “I love it when my structure person becomes involved”

“I'm seeing more first-notice lawsuits [today] than I've ever seen in my career,” says Nevada defense attorney Steven Jaffe in a new video published by the National Structured Settlements Trade Association. In the four-minute video, Jaffe describes the positive role that a structured settlement consultant can have during litigation and mediation.

Jaffe says, "If I've got [a case with clear liability], you better believe [the plaintiff attorney] is going to know that…we are bringing structure people [to mediation] because I'm not going to waste my time on a settlement conference that's of no benefit."

The video can be played on the NSSTA Videos page and on the NSSTA channel on YouTube. It is adapted from Mr. Jaffe’s speech at NSSTA’s 2009 Fall Regional Meeting.

“I love it when my structure person becomes involved and proactive in the whole mediation process with me,” he says. “They'll often come up with something that I hadn't thought about or something they can do that we hadn't thought about.”

A name partner with the law firm of Hall, Jaffe & Clayton in Las Vegas, Mr. Jaffe is a trial attorney specializing in civil litigation. He typically defends against premises liability lawsuits; motor vehicle lawsuits, including automobile, trucking, and motorcycle claims; product liability lawsuits; matters involving complex and traumatic injuries; and professional liability.

Mr. Jaffe is rated as an A-V lawyer by Martindale Hubbell. He also serves as a court appointed arbitrator, and as a Judge Pro Tem in Clark County.

For a partial list of his firm’s courtroom victories, please click HERE.

About structured settlements

Recognized and encouraged by the federal tax code since 1983, structured settlements provide strong financial security to victims of physical injuries and their families. Using a tailored stream of payments, a structured settlement provides a long-term payment stream that is completely exempt from state and federal income taxes.

A structured settlement’s future payment stream is funded through a highly secure life insurance annuity. For a free handout that describes some of the consumer protection regulations that bolster the security of a structured settlement annuity, please click HERE.

The National Structured Settlements Trade Association (NSSTA) represents nearly 1,200 licensed consultant, brokers, insurance companies, and other professionals involved in establishing and administering structured settlements.

Structured Settlement Payment Rights Sales: A Guide

Structured Settlement Payment Rights Sales: A Guide

Finding the money you need, at the time you need it, can often be a challenge. For many who do not have liquid investments, such as stocks and bonds, other options could exist. One source of money could lie in a structured settlement. It is possible to sell structured settlement payment rights, but a few things should be considered in making a decision.

What's a Structured Settlement?

A structured settlement is a financial vehicle, including periodic payments, that a claimant accepts to resolve a personal injury tort claim. The process of cashing out a structured settlement is known as a structured settlement factoring transaction. People’s reasons for selling structured settlement payment rights vary but can include medical expenses for oneself or a loved one, the need for improved living quarters or transportation, education, or the pay off debt. An annuitant has a choice whether they would like to sell all or part of their structured settlement, this includes splitting the number of payments being sold or the amount of each payment being sold.

Structured Settlement Sales Legalities

In 2002 Congress enacted IRC 5891, requiring that all structured settlement factoring transactions be approved by a state court. These transactions are governed by state statutes. Today all transfers are completed through a court order process. Most state statutes contain similar provisions including pre-contract provisions between the buyer and seller of the payment rights, notice to certain interested parties including the insurance company and lien holders, the recommendation to seek independent professional advice, and court approval that the transaction is in the best interest of the seller and dependents of the seller.

Settlement Quotes, LLC provides structured settlement recipients with a marketplace to sell structured settlement payment rights.

Structured Settlement Sales Economics

Structured settlement factoring transactions are priced using a discount rate to calculate the present value of the payment stream. A discount rate is similar to an interest rate of a credit card but reversed in the sense that time is calculated into the transaction to acquire the present value. Discount rates can range from 8-18% depending upon many factors including the payment stream, funding company, and court costs.

It is important for annuitants to shop their structured settlement payments to multiple companies in order to receive the best price for their future payments. A common practice in the structured settlement factoring industry is for companies to low-ball and adjust the quote if the annuitant has received a better offer. Other worst practices in the industry include “interest drag” which is the practice of prolonging the court process in order to increase profit through the per diem rate. It is also a good idea to check the Better Business Bureau record of the company you are doing business with to make sure the company has less than 5 complaints. This will ensure that you are working with a reputable company.