Can I Sell My Structured Settlement?
What is a Structured Settlement?
A structured settlement is a monetary benefit legally awarded to a victim of, typically, a personal injury event. Often, the money awarded is received from a series of future payments, known as a structured settlement. Knowing exactly what is a structured settlement, allows the seller to answer the question, “should I sell my structured settlement?”
The process of selling structured settlement payments is often referred to as selling a structured settlement annuity. So, while this is common vernacular it may be more accurate to describe it as a structured settlement factoring transaction.
A structured settlement is typically paid out by the insurance company of the liable party. Typical reasons a structured settlement is awarded is for:
- Professional or Medical Malpractice
- Personal Injury
Selling Structured Settlement Payments is a Big Decision
The decision to sell a structured settlement is a major decision and should not be taken lightly. Sometimes, the injuries incurred (both mental and physical) may affect the victims futures earning capacity.
The process of selling structured settlement payments is held to a higher burden. The Structured Settlement Protection Act of 2002 increased regulations on the industry and added provisions and safeguards for the structured settlement seller. As such, this law now requires a judge’s approval to transfer the payment rights. The judge will determine if the structured settlement seller is getting a fair deal. There are several factors which a judge will consider.
Factors Regarding Selling Annuity Payments
- The severity of injuries -Were the injuries received ‘catastrophic’ which affects the plaintiffs ability to be able to generate income on his own. Is the victim cognitively impaired?
- Age- The age of the structured settlement seller is a major factor. Generally speaking, the younger the seller, the less chance the judge will approve. Judges often approve selling a structured settlement for older sellers.
- Other income -What other income streams can the potential seller expect? Is the seller currently employed? If retired, are there other assets or income that can compensate such as a pension or Social Security.
- Whole or Partial Sale –You be thinking, if I sell my structured settlement do I have to sell all my payments? You don’t. Selling structured settlement payments doesn’t have to be an ‘all or nothing’ decision. In a partial transfer, you sell the rights to just a part of the structured settlement, and receive a lump sum from a structured settlement payment buyer for that just that portion. In this example, you still continue to receive some structured settlement payments. This could help gain the judge’s approval if there is some uncertainty with the ruling.
- Use of Proceeds- The judge’s will hear what the reasons for the sale are. It may be a financial emergency such as medical costs or staving off foreclosure. It could also be for tuition costs, purchasing a home or car or starting a business. If the use is a lavish vacation or some other frivolity, the judge may not sign off.
- The Payment Buyers Reputation- Let’s face it-the judges can usually tell if a structured settlement seller is getting ripped off. They are familiar with the bad apples in the industry and have hopefully reviewed the history of their deals.
- Discount Rate-The discount rates used to determine the payouts can vary widely by structured settlement companies. This is important because a slight difference in discount rates can be the difference in thousands of dollars lost for the structured settlement payment seller. Discount rates generally range between 10% and 25%. So, using a lower discount rate results in a higher value paid by the structured settlement company to the seller.
Should I Sell My Structured Settlement? Pros and Cons:
It is your money. You are entitled to receive it in any reasonable fashion you’d like.
Given the stringent requirements when selling structured settlement payments (overseen by a judge with attorneys involved, etc.) you’re likely to get a higher payout value than if you were selling payments from a traditional investment annuity.
Removes the counter party risk from the insurance company who could into financial difficulty.
Finally, by investing the money yourself or through the services of a qualified financial advisor you could potentially receive more money than you were receiving from the structured settlement.
Tax –Typically, structured settlement payments are tax free. So, when you sell a structured settlement, you not only give up the tax advantage from selling the annuity payments, you may have to pay taxes on the lump sum you receive from the funding company. We are not tax professionals and this is not meant to be tax advice. Instead, use this information to guide a conversation with your tax professional.
Discount –When selling structured settlement payments, you will receive less than the cumulative sum of the structured settlement payments.
Investment Risk- After receiving a lump sum from a structured settlement factoring transaction, you are now responsible for directing the investments. This is especially important if you are entitled to a lifetime of structured settlement payments.
Uninformed-Not knowing exactly what is a structured settlement, or how it works, leaves many beneficiaries without understanding they can receive a lump sum of cash. So, we have provided this Sell My Annuity Guide website to help individuals understand the process.
Finalizing the Structured Settlement Payment Sale
If the right’s transfer is approved, the funding company then finishes the paperwork and logistics with the plaintiffs insurance company and money is transferred very soon. Finally, a Transfer and Assignment form is signed and sent to the insurance company.
The process of structured settlement buyer should take somewhere between 70 and 90 days. Sometimes, you hear that it may be done sooner, but to maximize your chances of a judge’s approval, it must be done right. This takes some time. So, the answer is yes to the question, can I sell my structured settlement?
The majority of judges sign off of a structured settlement payment transfers. This speaks to the preparedness of the seller and solid work by the structured settlement companies that coordinate all aspects of the transaction. So, it is important to use a reputable company.