What you need to know before selling your structured settlement payments. Before the state structured settlement protection statutes and the Victims of Terrorism Relief Act of 2001 which created §5891 of the Internal Revenue Code, any one wanting to sell their settlement payments were on their own. The sale of structured settlement payment rights today requires a Court in your state to review and, if appropriate, make a "qualified order" approving the sale of such payments or a hefty 40% excise tax is applied.
The concept of Court approval is intended to protect you from entering into a deal that is not in your best interest. Should I sell my payments? The answer to that one is difficult. The question you might ask yourself: Do I need the money now? For example: to buy a house, pay for an education, a business opportunity or to keep from filing bankruptcy. Any good reason would make sense. To go on vacation or buy an Acura Legend might not be in your best interest.
If you have other money sources to explore, I suggest using those options first. Selling your structured settlement should be a last resort. Five things NOT to do when Selling your Structured Settlements. One: Don't sell to the highest bidder. Why? There is what is called High Balling. Some brokers or structured settlement or annuity sources will make a high offer just to get someone under contract.
Then they will start making excuses and reduce the offer. Once you are under contract with a funding source, it is very difficult to back out. Even if you are able to pull out, you will have to start the whole process over again losing valuable time, at a time when you may need money desperately. Two: Believing the funding source when they say you will have your money in a couple of weeks. The time to close is dictated by individual state laws, both where the state and the insurance company have their home office and the state where the client resides. In some states, it is possible to close in about a month.
In other states, it can take as long as four months. With the rest, it is somewhere in between. Court orders take time and all transactions need one. Don't believe it if someone says they can close in a week or two. Three: Thinking you have to sell the whole settlement or annuity. Not determining how much you really need.
Why sell a $300,000 settlement when you only need $25,000? If you need additional cash sometime in the future you will be able to sell more payments or lump sums at that time. You will end up with more cash, than if you sell all payments at once; and it allows you options. Four: Letting emotions or being desperate control our decisions. We have all gotten excited or felt desperate when faced with various situations.
We could be excited about buying a home or starting a new career; or we could be feeling desperate because we are about to lose our home or are facing high medical expenses. Even though we are excited or desperate, we really must think through our decision. Some brokers or funding sources will try to take advantage of us and our situation.
We should discuss our situation with a trusted family member, friend, attorney, pastor or whomever. We do not want to ruin tomorrows financial options by making irrational decisions today. Five: Check out the reputation of the structured settlement or annuity purchaser. Call the attorney general or consumer affairs in your residence state and the state where your funding source is located to see if there are any complaints about that funding source. If there are a lot of complaints against the source you are considering, take that as a red flag and move onto the next source.
Don't agree to anything or sign any agreements until you feel you are dealing with a reputable structured settlement or annuity purchaser. Remember to first look for other sources of money like family, banks and ect., before selling payments. If your settlement is your only source of income it is not in your best interest to sell.
Make sure the people who are buying your payments have your interests in mind. SELLER BEWARE. I hope that you have a positive experience and put the money to good use, if you decide to sell your payments.
Frank ReCouper has been in the financial services (financial planning) for over 40 years. Buying structured settlement payments for 17 years and can be reached by going to FDR Resources.
