Under a nationwide policy to encourage the use of structured settlements over cash payments in personal injury cases, Stage and Federal governments created special laws. The structured approach was favored as a means of providing annuity income. This reduced the risk of beneficiaries rapidly spending the capital proceeds from a cash settlement. In the past former beneficiaries have had to rely on direct public assistance as a source of support for the rest of their life. Others found themselves with no cash flow and had to rely on loans for family living expenses. To encourage their use, the offer of favorable tax treatment was extended to the cash received under a structured settlement agreement.
Although, both lump cash and structured settlement payments are not subjected to income tax, structures are becoming more popular. One reasons of note is that a structured agreement is a contract for "guaranteed payments" from the insurance company holding it. Many people like the support and security this offers year after year. In addition, the person receiving the annuity payments cannot easily get extra cash out of their structured settlement. This puts the beneficiary on a budget, which prevents them from spending the entire proceeds of the settlement on needless buying. The beneficiary receiving structured payments, unlike a cash settlement, does not have to worry about managing, financing, or investing a large sum of money.
However, there are specific drawbacks including a lack of flexibility. In a cash settlement you get fast access to all your money. Once established, a structured agreement is inflexible and does not provide that option. The recipient of settlement payments cannot ask the insurance company or broker holding the annuity to increase their benefits or have their structured settlement cashed in. In this situation some individuals have had to rely on credit and other resources to meet changing living expenses.
When a person chooses a structured agreement, they give up their right to a cash settlement in exchange for a series of payments over a period of time. The total of all the future structured payments is larger than a cash settlement quoted today. To some people may appear to better deal. You must remember that money received in the future is worth less because of inflation rates and the time value of money. The proceeds from a cash settlement could be invested to purchase an asset or other options that can earn a return or interest. To properly evaluate the alternatives you must compare the present value of the structured settlement payments to cash. For more information please fill out the form on the right.
If you agree to the structured payment process, you are giving up control and flexibility. If a sudden financial emergency occurs, the amount of your payments cannot be increased. Other times money is needed for life events like funding a college education, unplanned medical expenses, or for retirement. People in these situations find that to get cash for their structured annuity payments they must sell their rights to future annuity payments to brokers or investment corporations.
The Creation of Settlement Protection Acts
Traits of a Good Structured Settlement Company
Professionalism. This is a significant financial transaction and you should only work with a structured settlement companies that conduct business in a professional and ethical manner. It doesn't take long to get a sense of the professional manner of a business. It is easy to notice everyday things like communication style in correspondence and even how the phone is answered. Ask the structured settlement company if they are members of trade and professional organizations.
Experience. Even though the sale of structured settlement payments is relatively new, firms in related fields have been buying and selling annuities for wealthy clients for years. Feel free to inquire not only about the history of structured settlement company, but about your agents experience as well.
Style. You should feel comfortable when you work with a structured settlement company. Remember that this is your transaction and you are the one making the decision. When you are presented an offer to sell a structured settlement payment, the buyer obviously wants to buy it but you should not feel pressured. If you ever get a bad feeling about the arrangement or feel pressured in any way, you may want to consider working with someone else, there are many structured settlement companies to choose from.
Finding a Buyer of Structured Settlement Payments
Many people that are currently receiving a stream of monthly structured settlement payments do not realize that it is possible to sell all or a portion of their payments for a lump sum of cash. Access to these funds could provide funding to meet the current life needs of one's family instead of waiting for a future stream of inflexible payments structured over a long period of time. This process of entering into a contract to sell ones legal right of receiving future structured payments to settlement companies in exchange for the present value of the money is called factoring. A large number of companies now offer cash for a structured settlement payment. When evaluating your options, try to work with financially sound companies that are competent and ethical. These factors are important considerations to note of when you compare the knowledge and integrity of a company or corporation as well as their dollar offers.
Continue Reading Finding a Buyer of Structured Settlement Payments
How to Sell Structured Settlement Payments
Many people who receive monthly annuity payments under a settlement agreement do not realize they can sell all or a portion of their stream of annuity payments in exchange for a cash lump sum. Getting paid this money can be a way to help fund the current life needs of your family. Receiving the cash now rather than waiting a period of a year or more for a stream of inflexible payments structured in the future can be a big advantage to some people. Factoring is the name of the process of selling ones legal right to receiving future structured payments in exchange for a the present value of that money. This sale becomes a legal contract with the settlement company.
Companies now offer to pay for your rights to receive future annuity payments under structured agreements. The settlement companies offer annuitants the benefit of direct access to cash.
To receive more information please fill out the form on the right.
On January 22, 2002, President George W. Bush signed new protective legislation. This law was designed to protect any individual who has received a settlement annuity as part of a lawsuit or settlement that wishes to sell their structured payments. Under the law a court would have to authorize a transaction to sell future settlement payments. A transaction must in the best interest of the annuitant, their family, dependents or estate to be approved. If a court order and approval is not received, a federal excise tax of 40% would be paid on the total payments sold. This law is intended to help people who receive offers of cash for their annuity payments from being defrauded or taken advantage of by settlement buyers or even their own families.
You have probably seen advertisements urging you to "sell a structured settlement payment". Many beneficiaries wonder if they should sell and cash out, especially if they are in a situation where they need the money. This is a major financial decision and you would be well advised to carefully evaluate your options before making a decision. You need to determine if selling all or even a portion of your guaranteed settlement payments is in your best interest. It usually takes about two months from the date you start to complete a sale and for you to receive the cash when you sell insurance payments. For more information please fill out the form on the right.
What are Structured Settlements?
Historically, personal injury or product liability lawsuits were settled by the exchange of a single lump sum cash payment in return for the release of claim in a lawsuit. Under this arrangement, it was up to the individual and their families to manage the large initial sum and to use it to provide for the victim's medical and income needs over their entire lifetime. Structured settlements laws were created to help reduce the difficulties faced in these types of situations and to help provide the claimant and their families with long-term financial security.
Structured settlement payment agreements are unique in that they focus more on the beneficiary's financial needs and may provide payments for a certain period of time or throughout the injured persons life time. Formally recognized by the U.S. Congress in 1982, structured settlements are voluntary compensation agreements between the injured person and a defendant(s).
Structured settlements enable the beneficiary to receive a series of periodic payments instead of a cash lump sum. Most settlement agreements are entered into privately (e.g., a pre-trial settlement) while others, usually involving minors or persons deemed mentally unfit, may be created by a court order.
Structured settlements are a creative solution in that the payment amounts and the future annuity timetable are completely up to the parties negotiating the structured agreement. Rather than receiving a single lump sum, victims can receive a customized stream of annuity payments. Using structured settlements, annuity payments may be in equal amounts at regular intervals, or they may be paid in periodic lump sums. Larger intermittent payments are sometimes used to provide for anticipated future needs such as funding; a college education, medical equipment replacement (motorized wheelchairs), or planning for retirement. It is important to note however, once the parties have agreed to the structured settlement annuity amounts and timetable, the plaintiff cannot make changes. When unexpected financial emergencies arise individuals may consider selling all or some of their payments for a lump sum of cash. To receive more information please fill out the form on the right.
Properly structuring payment benefits is very important. Most victims and their lawyers know that structured settlements are tax-free to the injured party. There are other factors however that you and your financial advisor should consider. Special tax ramifications on the investment income of the settlement proceeds need to be considered. In some cases, receipt of a large sum can result in loss of public benefits. It is important for the victim that the structured settlement benefits are properly structured so that the principal can be invested, and that the investment income remains tax free to the injured party. Structuring payments properly can also avoid the loss of public benefits. These are all important financial considerations.
What Is a Structured Settlement Payment?
Formally recognized by the federal government since 1983, structured settlement payments are specified in voluntary settlement agreements between and injury victims and defendant(s). A settlement payment or annuity comes as the result of a contract between a victim and a defendant whereby the injured victim receives a stream of tax-free settlement payments as an annuity tailored to meet their future needs instead of receiving one lump sum. Once a structured settlement payment agreement is reached, the plaintiff cannot make changes.
Structured settlement payments are used more frequently these days because they offer substantial benefits to all parties involved in the structured settlement agreement. Victims receive tax-free payments and defendants get an end to litigation as the result of reaching a structured settlement agreement.
Settlement Companies
In recent years, a complete settlement funding industry has been created. Companies will offer to pay for the rights to receive future annuity payments under structured agreements. These companies offer customers the benefit of direct access to cash.
To gain immediate access to their money, a person can sell their right to receive all or part of their future structured annuity payments to a settlement buyer. The factoring company acquires the right to receive future structured settlement monies in exchange for a cash payout. Reasons to sell a series of payments include gaining access to financial capital during a family emergency. Some people choose to repay a debt or to use the cash for investment purposes such as starting a business or buying a home. Others use the money to fund an entire college education.
