Structured Settlements: Frequently Asked Questions
Click on any of the questions below to jump to the answer you’re looking for about structured settlement payments:
What Is A Structured Settlement or Periodic Payment?
A “structured settlement” is an alternative to a lump sum payment that may result from any of the following:
The term “periodic payment” is simply the legal definition of a structured settlement as set forth in the Internal Revenue Code.
Why Would Someone Sell Their Structured Settlement Payments?
When beneficiaries of structured settlement arrangements decide they need cash now and would be better served with a settlement lump sum, they may consider selling their structured settlement payments to a funding, or factoring company. This becomes a desirable option due to the fact that you cannot use these payments as collateral for a loan, but you can sell partial amounts for cash now.
Selling a structured settlement or annuity payments is not the best choice for everyone. Having a steady stream of income over the long term can be a valuable thing, particularly these days. Those who are disabled, are being compensated for work or other accident related injuries, who have not yet attained the age of majority or otherwise are impaired in their earning potential, should think twice before deciding to sell a structured settlement.
There are circumstances that may warrant such action, however. Sudden, catastrophic loss – for example, a home that has been damaged or destroyed because of a natural disaster – is one reason that people may wish to sell a structured settlement. Another reason is control. Structured settlement payments are disbursed by the payees according to a strict schedule; you don’t have much control over the payout once your case is settled. However, with a lump sum, you are in complete control. For an individual with business experience and wanting to become self sufficient, selling a structured settlement can be an excellent way to obtain capital in order to start a company, invest in real estate or participate in some other type of investment. Other typical reasons for selling a structured settlement include purchasing a home, higher education and unexpected medical expenses.
Is Selling Structured Settlement Payments Legal?
The answer here is yes – and 47 states have laws in place regulating selling structured settlement payments for the protection of both the seller and the buyer. Three states – New Hampshire, North Dakota and Wisconsin – do not currently have any regulations governing structured settlement sales. However, it is still possible for residents of these states to sell their structured settlements to a funding company and have that transaction carried out under the laws of the state in which that company or insurance carrier is domiciled.
Can I Get Cash For My Structured Settlement?
The simple answer is “yes.” If you are receiving structured payments from a court or insurance settlement, if you won a lottery jackpot with annual payments or if you have some other type of annuity payment, the sale is regulated in 47 states.
How Long Does It Take To Receive My Settlement Lump Sum?
It typically takes between 30 and 45 days to receive a cash payout from a structured settlement buyer. However, it may take up to two months depending upon the circumstances.
One reason that the process may take longer is that the laws governing the sale and transfer of structured settlements vary from state to state. Most states require the review of all documentation by a third party, which can also add to the time it takes to receive a lump sum.
The court proceedings can also affect the timing of your lump sum payment. A hearing first needs to be scheduled, which can take up to 30 days. The assigned hearing date can be 20 days later. Sometimes there are multiple hearings, as there may be in complex cases or ones in which multiple parties are involved. More hearings add more time to the process of getting payment.
Most individual court hearings only take 15 to 20 minutes, during which you must explain to the judge that the structured settlement sale is in your best interest. However, the judge or other parties can object to the sale, which can also lengthen the process.
Once the court approves the transaction, the structured settlement buyer can deliver the settlement funding. How long does that take? It depends on the company involved. CBC will typically transfer your money to you within 48 to 72 hours after a written court approval is received.
This process for obtaining a lump sum does take time. While the process requires diligence and patience, it is important to remember that it is designed to protect your interests.
Why Would Someone Buy a Structured Settlement?
The buying and selling of structured settlements is a for-profit business. Companies that buy a structured settlement provide a lump sum that is less than the amount of the future value of payments. The prospective buyer – in this case, the funding company – will disclose the trade-off to you in plain language. Funding companies have high operating costs to engage in these transactions including but not limited to: administrative fees, legal fees, marketing costs, financing costs, employee costs and other operating overhead.
Structured settlement buyers typically borrow money from financial institutions in order to finance the purchase of such payments. The borrowing costs can fluctuate depending on a variety of factors. Structured settlement buyers also have risk associated with the credit worthiness of the insurance company required to make payments. These risks are often difficult to anticipate as highly rated insurance companies can quickly lose their financial footing, as history has shown.
Do I Need To Show Up In Court To Sell My Structured Settlement?
There is a court proceeding involved when you sell annuity payments or are looking to receive lump sum cash for structured settlement payments. A judge must approve the transaction before it can go forward; this is what takes the most time. There is a possibility that the judge may deny the petition if s/he does not feel that the sale is in your best interest.
Normally, the seller of a structured settlement or annuity payout will have to appear in court. Structured settlement buyers such as CBC provide their own legal experts who will file all necessary paperwork and on the day of the hearing, will appear in court to present the transaction. If there are any issues, our attorney will discuss this with you directly and communicate directly with the judge.
Is it My Decision Alone to Sell My Structured Settlement Payments?
Other than the fact that the sale of a structured settlement or annuity payments must be approved by a judge, as long the settlement was awarded to you and/or you are the sole beneficiary of such payments, there is no legal reason why you need to get permission from anyone before selling your payments or annuity to a qualified structured settlement buyer.
Can I Still Work With You If My Settlement Agreement Contains Anti-Assignment Language?
It is not uncommon, even today, for settlement agreements to contain anti-assignment or anti-acceleration language. This has been a standard practice since the use of structured settlements became common in the 1980s. However, with the passage of federal legislation in 2002, such language in these settlement agreements was invalidated.
Can I Sell Part Of My Structured Settlement?
When it comes to selling a structured settlement or annuity payments in exchange for a lump sum settlement payment, you have numerous options. You can:
Note the wording in the last point: “right to receive payments.” This is what you actually own, not the settlement or annuity itself. A structured settlement or annuity is owned by a legal entity, such as an insurance company or other Obligor; it is this entity that directs the disbursement of payments to you as beneficiary. What you do have – and what you are selling or transferring – is your right to receive these payments.
Is There Any Risk Involved in Selling a Structured Settlement?
When dealing with qualified, reputable structured settlement companies that have had experience in providing cash for structured settlement payments to beneficiaries of such arrangements, there is no risk as far as losing your money is concerned. Reputable structured settlement buyers have a transparent process, and take every step to insure that you are fully aware of the terms under which you will be receiving your settlement money.
However, there are some issues to consider when selling structured settlement payments. Keep in mind that the sale and purchase of structured settlements and annuity payouts is a business; structured settlement buyers provide this service to make a profit. As with any business, there are operating costs that come out of those profits; building or office lease payments, marketing costs, employee salaries, etc. Among these costs are those associated with the legal paperwork and court filings. Any costs to be paid by you will be disclosed in plain language in your transaction documents.
It is also important to know the percentage of loss you will take when selling structured settlement payments. Because the transaction itself costs money and because it involves a for-profit business, you can expect a reduction on the total value of your structured settlement. Obviously, you want to minimize this as much as possible.
On the other hand, getting the highest payout may not necessarily be for the best. Do your due diligence and understand who is actually paying the costs associated with the transaction itself, as this can have a significant effect on your final payout. If you have any questions at all, make certain that you get clear answers before accepting the offer – and if necessary, consult your own attorney or CPA.
What Documents Do I Need To Provide To The Settlement Buyers?
When seeking lump-sum cash for payments from a lawsuit settlement, annuity or a litigation cash advance, it will be necessary to prove two things to settlement buyers: your identity and your right to receive these payments. While the exact documentation required varies from one case to another, in general, you will need to provide the following before receiving your structured settlement money:
This will be the case for virtually everyone who is selling a structured settlement or who is trying to cash in their annuity payout.
What Other Documents Will I Need To Sell My Structured Settlement Payments?
Depending upon the state you live in and settlement terms, you may need the following items:
- Settlement Agreement and Release documents from your court case stating the terms of the settlement and releases. These may be obtained from your attorney, insurance company, or from the courthouse where your case was argued or settled.
- Annuity Contract and Benefits Letter from the insurance company issued on official corporate letterhead that lists your payment schedule. It may be necessary for you to make a written request to the insurance company in order to receive this.
- Recent Check Stubs, Deposit Slips and/or Bank Statements to prove that you are receiving monthly payments.
- If you were under the age of 18 when your case was settled, you will need to provide a copy of your Order Approving Minor Claim and Dismissal documents containing court approval, allowing you as an under aged person to enter into the settlement.
- If the defendant’s insurer assigns its obligations to you over to a second party, you will need to provide Qualified Assignment documents.
How Much Structured Settlement Cash Can I Get?
The amount of money an individual will ultimately receive from structured settlement companies depends on a number of factors:
How Do I Get My Structured Settlement Payout?
Once the judge has approved your structured settlement payout, you have different options when it comes to receiving your money. Traditionally, the seller receives a check for the agreed amount. This could be handed over in person, or delivered via a courier service (such as FedEx).
Today, however, it is much easier and faster to receive your structured settlement money. Electronic fund transfers can be completed within a few hours and the funds deposited directly into your bank or credit union account.
Will I Get Taxed When I Sell My Structured Settlement?
Typically, a person who elects to receive cash for a structured settlement – that is, selling their structured settlement to CBC – does not incur tax liability on the sale. The settlement was non-taxable when you received it, and remains non-taxable when you sell it in exchange for a lump sum. Be aware, however, that although your lump sum payment for a structured settlement is non-taxable, should you invest it, any returns will be subject to the current capital gains tax.
For more information regarding a potential structured settlement tax, and legal impact of such a transaction, you should consult with a legal and/or tax professional.
What Is A Structured Settlement Transfer And Is It Legal?
When you sell some of your future payment rights for a cash lump sum payment, you are transferring the rights to those future payments to a third party otherwise known as a factoring company. This is known as a Structured Settlement Transfer (SST) or structured settlement factoring transaction.
A factoring company such as CBC Settlement Funding will provide the annuitant or payment recipient with cash today in exchange for a certain number of future payments. For individuals who find structured settlements too restrictive, having the flexibility of accessing their future money now is a viable option.
It is perfectly legal to sell some or all of your future annuity payments for cash. When it comes time to sell these payments, forty-eight states and the federal government has enacted additional consumer protection statutes establishing strict conditions when an annuitant sells some or all of their future payments.
What Requirements Must One Meet To Complete a Structured Settlement Sale?
Aside from the fact that you must be of legal age and of sound mind and judgment, the only requirements that the seller of a structured settlement or annuity payments must have is:
Other requirements for a structured settlement sale are set forth under the Internal Revenue Code. Beyond this, however, there are no particular requirements or qualifications that one must meet in order to engage in this type of transaction.
What Is The Present Value Of My Structured Settlement Payments?
The present value is how much your future money is worth in today’s dollars. Think of it as reverse compound interest; where instead of determining the amount you would need to invest now in order to have a specified balance in the future, you’re looking at the future balance and determining the value in today’s dollars.
When you sell your future structured settlement payments to a factoring company, they will determine the present value of your payments using a mathematical equation. This equation uses number of years, interest rates as well as inflation rates to make that determination.
I Inherited A Structured Settlement: What Are My Options?
When you inherit a structured settlement, you have all the same options as the original annuitant. You can continue to receive the periodic payments or you can sell them for a cash lump sum payment. You also have the option of selling a portion of the payments for cash and keeping the remaining payments. This can come in handy if you have an immediate need for cash to pay off debts or funeral costs. Of course, you can sell all of your future payments for a large amount and reinvest part of the lump sum in more liquid assets.
CBC will explain the transaction and provide everything in writing. Be aware of companies that use high pressure tactics or will not put their offer in writing. Read everything before signing to ensure there are no hidden costs. A good structured settlement buyer will encourage you to get tax or legal advice before selling your future payments. Also, when you sell your future structured settlement payments it requires court approval to determine that the transaction is in your best interest. While the statues vary by state, these processes were designed to protect annuitants to ensure they’re receiving a fair amount for their payments.
What Are The Common Pitfalls Of Selling Structured Settlement Payments?
Not researching the company first– Do your homework and research the company before getting a quote. Check with your state’s Attorney General’s Office and look the company up on the Better Business Bureau’s website to see if they’ve had complaints about their business practices.
Taking a verbal offer – Get a concrete written offer. If the company won’t put it in writing go elsewhere. Reputable firms always give written offers.
Not reading your paperwork – Sometimes companies will hide their fees or other costs. It is important to know what you’re paying and why before you sign. If you don’t understand the wording ask or get advice from an independent third party.
Getting only one quote – If you don’t shop around you may not get your best offer. Don’t rush into a transaction with the first or only offer you receive.
Going with someone you don’t trust – If your representative gives you a run-around or won’t take the time to explain things, they may not have your best interest at heart. Go with a company that respects you and provides top-notch customer service.
Letting emotions cloud your judgment – Just because your financial situation is pressing doesn’t mean you should make hasty decisions. Do your homework and make an informed decision.
Not showing up for court – It is always in your best interest to go to court to explain your situation to the judge. Don’t let others determine your fate.
Do I Need An Attorney To Sell My Structured Settlement?
Consulting with an attorney or financial advisor about the sale of your structured settlement is a smart move. It also gives you a chance to ask questions and clear up any doubts you may have about the process.
The factoring companies that buy structured settlements often have legal professionals on staff. Still, just as you might seek a second opinion after receiving a medical diagnosis, you also should review documents or questions with your own attorney before committing to a structured settlement sale.
There is another reason to have an attorney involved. Regardless of the circumstances or the nature of the structured settlement, the transaction will need to be reviewed and approved by a judge in a court of law. A very good reason for this is that structured settlement transactions that are not approved by the court are subject to a whopping 40 percent federal? excise tax.