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What It Means To Sell My Structured Settlements
Selling a structured settlement refers to the process of “selling” or “converting to cash” a structured settlement.
In other words, to sell structured settlement is to exchange your rights to receive future structured settlement payments for a lump sum of money today.
The Oxford Languages defines a structured settlement as follows: A structured settlement can be defined as follows:
A legal settlement paid out as an annuity rather than in a lump sum, usually with certain tax advantages for the recipient and a savings for the payer
In other words, a structured settlement is:
- A legal settlement
- Paid in the form of annuities or periodic payments
For example, a person getting an annuity coming from the legal settlement of a personal injury lawsuit, wrongful death claim, auto accident, medical malpractice, or similar types of claims.
Since you are getting a periodic payment, if you prefer to have the full value of your structured settlement paid to you today (the net present value to be exact), you can choose to sell your annuities in exchange for a certain sum of money today.
Unlike commercially available annuities, structured settlement annuities can only be sold when and if approved by the court.
This means that a court must evaluate the context in which you are selling your annuities to ensure that you know what you are doing and that you are not making a decision that may end up being detrimental to you.
When you sell structured settlement payments, you can choose to sell all your future payments or a fixed number of payments in the future.
Depending on how many payments you sell, the payment dates, the value of each payment, and other factors, you can calculate how much all those payments are worth today so you know at what price to sell your structured settlement annuities.
Why Sell My Settlement
The reason why you may want to sell your structured settlement payments is that you can convert them immediately to cash.
Many consider that selling their structured settlement can have a negative impact on their finance.
However, in some cases, it may be more advantageous to receive a lump sum cash payout by transferring your payment rights to a third party (like a factoring company).
If you need to access the structured settlement money immediately and you cannot wait, the option of selling your settlement payments can be attractive.
If you wonder what are the benefits of selling your structured settlement, the short answer is immediate “liquidity”.
With the sale of your structured settlement, you are essentially selling payments in the future in exchange for cash today.
If you are dealing with an emergency and you really to cash quickly, if you have no other option available to you but you are getting structured settlement payments, an option is to sell your future payments to a factoring company and get the cash you need today.
Here are some reasons why a person may sell his or her payments:
- Deal with a family emergency
- To pay for an unexpected medical expense
- To get medical care
- To prevent the foreclosure of your home
- Pay off debt
- Pay for funeral expenses
As you can see, the common reason why people choose to sell structured settlement payments is to deal with a short-term and immediate financial need.
In most cases, structured settlement holders do not sell their annuities.
According to the National Association of Settlement Purchasers, less than 20% of structured settlement holders actually sell their payments.
How Do I Sell My Structured Settlement
Asking yourself “how do I sell my payments”?
It’s important to know what you are doing and how to legally sell your structured settlement as structured settlements, in general, are regulated at the state and federal levels.
First and foremost, if you are interested in possibly selling structured settlements, you should consult a qualified attorney in your jurisdiction to obtain legal advice on if it’s possible (at all) and how it can be done in your specific case.
You can also consult with financial advisors who have a practice dealing with structured settlements.
Step 1: Verify Legality of Sale
The first step is to validate whether the laws applicable in your jurisdiction allow you to sell or not your settlement payments.
There are many laws regulating structured settlements at the federal and state level.
For example, state laws that fall under the Structured Settlement Protection Act are typically designed to protect individuals from structured settlement buyers pressuring them or abusing their vulnerability for instance.
Step 2: Determine How Much To Sell
Once you’ve validated that you are able to sell your structured settlement, you will then need to decide how much of it you are looking to sell.
Do you want to sell all of your annuity payments or only a portion?
To help you answer this question, you’ll need to consider the financial objectives that you have in mind.
How much money do you need?
How much is your structured settlement worth?
Once you have a clear financial objective in mind, you can then decide if you are going to sell all or a part of it.
Step 3: Find A Factoring Company
The third step is to find a structured settlement buyer.
Who can buy your settlements?
Typically, factoring companies are possible purchasers of settlement payments.
With the help of your attorney, you can find a reputable factoring company that is known to do “good” business and be reasonable.
You may also find a factoring company yourself by doing your own research and ensuring that you are dealing with a trustworthy and credible organization.
Step 4: Negotiate Terms of Sale
With the factoring company selected, you will then need to negotiate the terms and conditions of your contract.
You will want to have your contract reviewed by a contract lawyer or a qualified attorney who understands how structured settlement contracts work.
It’s important that you ensure you read all the terms and conditions in the contract so that there are no surprises.
Be sure to ask the factoring company to clarify any aspect of their contract or make any changes to reflect terms that you are comfortable with and make sense to you.
Again, you want to make sure that you are accompanied by an experienced attorney for this step.
Step 5: Get Court Approval
When you have negotiated the appropriate terms and conditions with your factoring company, the next step is to ensure you get the proper court approval for the sale.
This step is an important one as it allows the court to ensure that you are selling your rights without the exercise of unethical behavior of structured settlement buyers.
Overall, the court (or judge) will evaluate:
- The terms and conditions of the intended sale
- Whether you are selling in whole or in part
- The impact of the sale on your financial position
- The possible financial hardship that you may suffer
- Your living expenses
- Your life expectancy
Although we are listing some factors here, the judge can evaluate other factors related to your decision to sell, the circumstances in which you are selling, and how it will affect you financially.
As you can see, the judge is like the gatekeeper ensuring that you are selling your structured settlement in a reasonable manner.
To get court approval, you may need to wait about forty-five to sixty days.
Documents For The Sale of Structured Settlements
What documents do you need to formalize the sale of your structured settlement?
The sale of your structured settlement will require the preparation and execution of many documents (in most cases, you’ll need to be supported by a professional), such as:
- Benefits verification letter confirming your annuity and payment streams
- Authorization letter given to your transfer company or factoring company
- Disclosure statement required for every structured settlement payment
- Purchase and sale agreement
- Statement of independent professional advice
- Statement of marital status
- Statement of dependents
- Spousal consent
- Funding application
- Seller’s wiring instructions
Depending on the jurisdiction where you are performing the sale, the requirements may be different.
Under Federal laws, these types of transactions are called “structured settlement factoring transactions”.
Every state can also have laws regulating the sale of structured settlements where you may need to respect a certain “wait period”, have documents signed in person, or other.
How Much Is Your Structured Settlement Worth
One key aspect that will determine whether you will want to sell your structured settlement payments or not is how much your payments are worth.
How do you calculate the value of your structured settlement?
Net Present Value
The value of your structured settlement is essentially the present value of all the future payments that you are expecting to receive.
Accountants and finance experts are well experienced in calculating the present value of your payments so you may want to have them give you an idea.
In essence, to calculate the present value of your structured settlement, you will need to use the net present value formula that will take into consideration the following aspects:
- How many payments are you expecting to receive in the future
- How much is the value of each payment
- When are you expecting to receive each payment
- What growth potential is the factoring company losing to pay you a lump sum today in exchange for cashing payments in the future?
If a factoring company considers that it could have used its money and generate a 10% return on it, then by paying you a lump sum, it will need to earn at least 10% plus an additional premium for taking the risk to do business with you.
If the factoring company needs 10% to compensate it for the loss of opportunity on its money and another 8% for taking the risk to do business with you, it will then want to use an 18% discount rate to calculate the present value of the annuities you are selling to it.
You can use online structure settlement calculators to quickly estimate the value of your structured settlement but you’ll need to ensure you speak to a professional to get the right information.
Another aspect that must be carefully considered is the tax consequence relating to the sale of your structured settlement payments.
Generally speaking, when you sell your structured settlement, you should not be taxed on the amount that you receive.
However, it may not be the case all the time and the specific nature of your structured settlement payment along with other factors may result in a tax consequence.
For example, if you received compensation for lost wages due to discrimination, emotional distress, or absence resulting from physical injury, or even punitive damages, you may actually get taxed on the amount that you receive.
You should consult a tax advisor or speak to an expert who can provide you with further guidance on this aspect.
Consider Your Options And Protect Yourself
In the end, although selling your annuities may appear attractive, keep in mind that over 80% of structured settlement holders do not sell their payments.
Before you consider selling your annuities, consider all your options.
Can you get the funding or cash that you need through other channels that may not cost you as much?
Do you really need the money to pay for an emergency or will you be spending the money on non-essential expenses?
Make sure you have a clear plan and that you validate that the sale of your structured settlement is the right option.
If you do choose to sell, make sure that you ask questions and you are fully clear about the process and the documents you are required to sign.
According to the Consumer Financial Protection Bureau, here are some questions that you should be prepared to ask:
- Can the transaction be canceled?
- What are the tax consequences of the sale?
- Will you see any impact on your public benefits?
- Will the payment affect your Medicare?
- What are your rights under state and federal laws?
- What documents do you need to sign and why?
- If you need to file a complaint, what is the procedure?
Make sure you deal with reputable factoring companies or structured settlement buyers so you are not deceived or misled by signing a contract that you did not want to get into.
If you are pressured to sign a contract or that they need you to sign before they give you the terms and conditions, be cautious.
You may also want to speak with multiple factoring companies so you can get a few quotes and choose the best one.
Before you sign anything, make sure you get legal advice and read everything (without pressure) so you are comfortable with the transaction.
Sell My Structured Settlement Takeaways
So there you have it folks!
Are you asking yourself the following questions:
- Why should I sell my structured settlement payments
- How to sell my structured settlement annuity
The first thing that you should know is that the process of selling your structured settlement annuity and payments are regulated.
This means that you need to make sure that what you are doing is compliant with the law and that you are not (unintentionally) being preyed upon by aggressive buyers taking advantage of in need of money.
However, with that being said, if you are fully aware of your rights, have a clear purpose for selling your structured payments, and do it properly, you may be able to convert your settlement into cash to achieve your specific financial objective.
It’s important that you consult with a lawyer or structured settlement expert so you get a full picture of what it means to sell your settlement annuity for cash.
In many cases, the beneficiary of structured settlement will consider selling for various reasons, such as:
- Medical emergency
- Losing a caregiver
- The arrival of a new baby
- To pay for school
- To move the family
- To avoid foreclosure
- Important home repairs
- To replace a car
- Unexpected expense
Keep in mind that when you sell your future payments, the money that you will receive will not be the exact amount of the payments you are entitled to (you will lose some value).
The reason why you lose value is that the factoring company will want to earn a profit in doing business with you so they’ll pay you something but less than the full value of the annuities you sell.
In the end, my recommendation is that you speak with a structured settlement lawyer who understands these types of transactions and can guide and accompany you through the process.
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Sell My Settlement Payments (Overview)
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