Creation, Sale and Purchase of Structured Settlement Annuities

creation and sale
A structured settlement is an agreement between parties which generally results in an insurance entity committing to make tax-free payments to an individual for an agreed upon period of time or for the life of the individual. Structured Settlements are based on a financial plan for immediate cash and future tax-exempt payments which take into consideration the future needs of the injured party. Structured Settlements are also designed by the plaintiff in order to maximize their settlement by receiving secure and tax-free payments.

Upon reaching a settlement which includes the requirement of future periodic payments, the Plaintiff often requires the Defendant to transfer its obligation to make these periodic payments to a subsidiary or affiliate of an insurance company (often referred to as an assignment company). The Defendant or its liability insurance carrier pays the assignment company an agreed amount of money in a lump sum in exchange for its agreement to assume this periodic payment obligation. The assignment company uses this lump sum to purchase an annuity from an insurance company which is often affiliated with, or a parent of, the assignment company. After the assignment, the assignment company or the insurer will make all of the periodic payments directly to the Plaintiff.

Each insurance company is regulated through state insurance commissions, who mandate the repayment of these annuities as claims paying obligations. In addition, each state has a specific limited guarantee or fund for repayment in the event that an insurance company is unable to meet their obligations. Physical, personal injury settlement payments are generally received tax-free by an injured person by reason of Section 104 Internal Revenue Code. With a qualifying structured settlement, the individual receives a tax-free accrual of interest for the life, or term, of the annuity. In this manner, the injured person becomes the payee of a Structured Settlement, which generates payments at a fixed rate, for a fixed term.

In some instances, the individual annuitant who is receiving periodic payments under a Structured Settlement desires to sell some or all of their future payments for a lump sum of money. The cash flows are sold at a discount in exchange for the lump sum payment, and this discounted Structured Settlement is available for sale to the Purchaser. This manner of securing the payment streams at a discount directly from the seller is how the Purchaser secures such favorable yields. Financial brokers normally facilitate this transaction on behalf of the seller (or annuitant) and the purchaser.

Purchase

The payment rights to the future cash flow can only be transferred from the Annuitant to the Purchaser pursuant to a court order process, mandated by state law. Financial brokers typically engage a legal counsel to meet the requirements of each state. Part of this court order process requires confirmation from the judge that the transaction is in the best interests of the Annuitant. A broker facilitates this process by working directly with the annuitants and local legal counsel. The local councel arranges for all the appropriate contracts and agreements between the seller and purchaser, ensures that all state and federal requirements are being met, and ensures that the insurance company or assignment company acknowledges or stipulates that the purchased payments are being redirected from the Seller to the Purchaser. Also, the broker arranges for the retention of independent legal counsel, who will be engaged to secure a court order approving the sale of the Structured Settlement payment rights from the Seller directly to the Purchaser. The court order will specify that all of the purchased payments are to be paid directly to the Purchaser from the insurance entity.

It typically takes 2 or more months to complete a purchase and sale transaction from the time that the broker reaches an agreement with an individual to purchase his or her Structured Settlement payment rights and when a final court order is obtained approving the purchase and sale transaction.

These transactions vary in size from approximately $10k to well over $1M in principal invested. There is also a wide variety of “start dates” and “end dates”, providing a wide range of cash flow durations. These cash flows are NOT volatile, and can be expected to be received as agreed to. Purchasers can choose which Structured Settlements meet their specific objectives. A Purchaser can purchase assets backed by different insurance entities, of different sizes, with different durations. Fixed Income Annuities can also be purchased for an individual investment portfolio through Self Directed Retirement Accounts. The Purchaser can choose an asset that has a specific start date, ensuring income in retirement.

In each state, there have been thousands of approved transactions where Plaintiffs have sold their lump sum payment. The market is established, and processes exist in each state to successfully complete these transactions.

The Internal Revenue Code, which exempts from tax the Structured Settlement payments being made to an injured person pursuant to a settlement, is not applicable to secondary market purchasers. Hence, the receipt of Structured Settlement payments is generally taxable to a secondary market purchaser. Investors should consult their own tax advisor as to the tax considerations that would be applicable prior to purchasing any Structured Settlements.

A fixed Rate Structured Settlement Annuity

A fixed rate structured settlement annuity is often created in connection with the settlement of a personal injury lawsuit. In a typical transaction, the defendant and plaintiff reach a settlement which provides for the plaintiff to receive periodic payments over a period of time.

The use of structured settlements has risen dramatically in the past twenty years. Previously, claimants were presented with the option of an immediate cash settlement, which created significant tax related burdens, and did not always address the long term needs of the plaintiff. Structured settlement growth is most attributable to the favorable federal income tax treatment that such settlements received as a result of the 1982 amendment of the Internal Revenue Code. These amendments approved a structure under which personal injury tort claimants could receive periodic payments over a term of years in settlement of their claim from insurance companies and assignment companies. These amendments confirmed that the personal injury tort plaintiff could receive the periodic payments under a structured settlement on a tax-free basis, including the ability to receive the “inside build-up” value or gain in investment value over the life of the payments. The Internal Revenue Code was also amended by adding new Section 130, which provided substantial tax clarity to insurance companies that establish “qualified” structured settlements and led to the creation of assignment companies that were affiliated with the insurance companies that issued the annuities.

The most significant downside for a plaintiff with a structured settlement comes from its inherent inflexibility. In ways unforeseen at the settlement table, the plaintiff’s financial needs often change over time resulting in a demand for liquidity options. Beginning in the late 1980s, a few small specialty finance companies started meeting post settlement liquidity demands by offering new flexibility for structured settlement payees through a lump sum cash payment to the plaintiff in return for some or all of the rights to the plaintiff’s structured settlement payments. During the late 1980s and early 1990s, certain legal and tax issues surrounding settlement transactions limited the growth of the assigned structured settlement market.

Tax Advantages of Structured Settlement Payment

If you are looking for more information on the tax advantages of structured settlement payment, here's an article worth reading. Structured settlement payments are a key part of any settlement between both parties and because it involves financial numbers, it automatically factor in some issues over taxation. Let this tiny bit of information illustrate how a long-term structured settlement payment agreement can give you tax advantages. When a person sues another person due to some sort of injury and wins the case, the claimant will receive monetary compensation for the loss through a settlement payment agreement. Before, settlements come in the form of a lump sum but this proved to be very demanding on the spot for the paying party. The solution in the recent rimes is the structured settlement payments which are gaining popularity because of its practicality and benefits for both parties. As a substitute to a single lump sum payment, the claimant will be compensated a monthly structured settlement payment for an agreed period of time Choosing such structured settlement payment series over the lump sum amount means a guaranteed source of long-term income for even a whole lifetime. One of the highlighted benefits of these regular payments is the excellent tax advantages that come with it. It is basically income exempted from taxes unlike the usual salary or other forms of income like royalty or dividends. For the record, there is no income tax on structured settlement payments since 1982. The tax savings itself makes this option of maintaining the long-term monthly payments very attractive. Over the entire period of the settlement, such savings is a big amount in itself. A decade ago, there are problems with issues on the burden of taxation over transactions of transferring or selling of structured settlements. Insurance companies asserted that their clients or even their companies are at the losing end with the dealings in structured settlement selling. When an individual sells the structured settlement payments, the annuity obligors suffer tax consequences. This became the source of several litigation in the past between insurance companies and settlement purchasers and annuitants. With the enactment of the Structured Settlement Protection Act, it will further benefit these individuals receiving the monthly regular payments. Such regulation also clearly mandated that annuity providers will also not suffer from further tax consequences as a result. The law clearly states that annuity owners and providers do not owe any taxes as a result of these transactions. Selling your structured settlement payments will make you lose many tax benefits in the process. Selling this guaranteed income has only an advantage of large yet single payment. Before deciding, it is best to consult with your financial advisor regarding selling your structured settlement payments. Your advisor will definitely help in defining with what you will lose in the process, especially the tax savings you will forego.

Life Annuity Structured Settlement Company

Are you looking for a life annuity or structured settlement company and not certain how to designate one? There are abundant factors involved in your cast around. Your chief apply to…. Appreciation what is correctly for you.

Check out the companies’ breeding and chance upon outside how estimable the company is. There are in fact those that would capture aid of the un-informed. Some structured settlement companies aim to load you when their payments achieve not advance in.

Those broken, as a rule accept delivery of a life annuity or settlement. Selling your settlement for cash may not breathe allowed. There may be alive additional reasons to conserve your settlement at the time that it is and not barter it. In some cases beguiling a lump amount may accord you slighter value than had you taken the payments. Interrogate the Structured Settlement Companies these questions.

1. What anent deferring the taxes in harmony to come to rescue?

2. What as regards my prospect and concealed needs, will I have any options for this?

3. Will the Configuration Settlement Company arrange gain with other benefits?

4. Are these options finest for me and my outlook needs?

5. How will I accept delivery of payments and acquire the most for my money?

Aye glance at the agreement ahead signing and let a lawyer clarify it. You have a abundance of options when dealing with structures. You may call for a annually discharge with lump sums approaching in quarterly. You may desire a lump amount to be alive cancelled in the prospect at a definite epoch. The configuration of your agreement is what you are depending on to acquire you locate up for the outlook. You desire the finest value tax benefits. The opener answer is in choosing the fair Structured Settlement Company.

Injuries catch our prospect plans and origin us to catch sight of alternatives for earnings. Choosing and making the fair choices can breathe hard. Companies who attend to with these cases create their earnings from the acquire of your settlement. It is valuable to comprehend the structured settlement company you are choosing. All state can crave specifics for that state, so there will changing degrees of the law. You may have a arrangement of annuities that are not barter adept. The clear gone on taxes changes with the choices. You may bail out taxes in a structured settlement nevertheless not in a cash amount payout. You may have to clear the complete the taxes when you accept delivery of the lump aggregate.

The following essential step to capture is ask advice of with a lawyer. The language of your agreement demand to be alive glance at by one trained. Interrogate admitting the life annuity is abundant for your settlement. Inquire in your appointment what happens allowing the company who bought your settlement and cancelled your cash cannot acquire their payments? Catch sight of outside allowing your Lawyer has any association to the Structured Settlement Company you are all things considered or that they advance. Inquire as regards the illogical, bereavement, and acquire your match to advancing to your estate. The level will decamp near to the Insurance Company admitting specifics are not stated.

Finding a structured settlement company can be alive a piece of cake when consequent these rules. Constitute your check for a company creative and you will determine accurately.

Not Ignore List for Selling your Structured Settlement

Structured settlement is a contemporary allowable admiration that has been appreciated by countries the complete accomplished the earth. It is a free from harm and assuring path of receiving what you be entitled to. You may have got your structured annuity by any assorted situations which escort to a structured settlement. Admitting you are planning to sell the structured annuity, you may have to be over yourself and inquire admitting you apprehend abundant to favourably entire the sale. There are copious facts without whose education; a seemingly acknowledged sale of a structured settlement can advance absolutely erroneous. Did you comprehend that some states in the US have restrictions on the sale of such structured settlements? Allowing you achieve sell your settlement without this education, there is a pleasant liability you will be alive denied in court. Ergo, it is absolutely valuable to assiduously enquire into the entire action of the sale of structured settlements ahead you carry on any additional.

It is along with during the time that essential to believe anent which settlement would chief agree your needs. You may determine from receiving an bulk cancelled in smaller divisions accomplished a season of time or you have the choice of receiving a lump sum bulk in one advance by selling your structured annuity. Nevertheless amuse conserve in attitude that whatever the lump sum bulk you accept delivery of by the sale of such structured settlements is aye lesser than the all expanse you would have got by auspices the settlement. For this reason prize gone your requirements and allowing compulsory, articulate to an adept who ability aid you designate the fair choice.

Structured settlements are designed in such a method that you acquire your compensation typically tax clear. Ergo allowing you chew over selling your structured settlement, you may have certain tax affiliated problems. A tax aide ability aid you catch a glimpse of the fair blaze in such cases. Be alive certain to chat to one and not to bury one´s head in the such contemptible nevertheless much denoting facts.

At the time that mentioned earlier, there are some allowable restrictions placed on the sale of structured settlements in some states. Abundant people bolt into federal limitations for selling such settlements without actuality acquainted of this event. It pays to sign that inexperience of law is not an absolve. It is appropriate to constitute certain that there aren’t any allowed barriers or if not that capability place you in a embed for selling your settlement.

How Getting Cash for a Structured Settlement Works

If you receive an award from your injury case, an attorney or financial advisor will likely recommend setting up periodic installment payments instead of giving you a lump sum of cash up front for your structured settlement. Then, an independent third party will purchase an annuity that will provide you with tax-free periodic payments.


Companies that offer cash for structured settlements have a variety of programs that can allow you to access any portion of your annuity. For example, you may want to sell as little as four year’s worth of payments or receive a lump-sum payment while still enjoying some portion of your monthly payment. Or you can sell your settlement for a large payment that is five or six years in the future. You can also customize an arrangement to get cash for a structured settlement based on your unique needs.


Here’s an example of how obtaining cash for a structured settlement works: Let’s say you were in an accident five years ago. The accident caused you to be hospitalized for several months and undergo nearly a year’s worth of physical therapy. So you hired an attorney and sued the responsible individual-or, rather, the person’s insurance company. Ultimately, your attorney advises you that you’ll be awarded a substantial sum of money.


After several months or years of negotiation, you receive a sizable settlement. However, the cash you get upfront is only enough to cover the medical expenses. The rest of your compensation is scheduled to be paid out in regular installments through an annuity over the next 15 to 30 years. Rather than being restricted to monthly or annual payments, you contact a settlement purchaser to secure immediate cash for your structured settlement. You’re then able to use the cash to enhance your current cash flow-rather than waiting on periodic future payments.

LOAN FOR STRUCTURED SETTLEMENT

If you won in a lawsuit, you are entitled to a structured settlement. As an award, the court will order the insurance provider or the company to pay you an amount which is just and reasonable. The money is a big help especially if you have lots of debts during times of appearing in court. You will be receiving an agreed amount either semi-annually or annually. The best thing about it is its ability to assist you financially. You don't need to worry of running out of cash for you will be receiving timely payments. However, sometimes people with structured settlements opt to go for a loan.

The loan is called structured settlement loan. Instead of receiving the money semi-annually for a stated period, you'll be receiving a lump-sum amount by providing your structured settlement as collateral. Many are doing it because of some financial emergencies like medical bills or other obligations. Some will be using the money to purchase a home or a car. What you will have is large amount of cash to purchase anything you want. Sounds attractive to grab, right? But before you go and get the loan, you should know the disadvantages of structured settlement loan. Sometimes, we only look for the positive side of things and we tend to neglect the downside.

If you really need big amount of money, I can't blame you if you will go for a loan. Large amount of money will be immediately yours once your application is approved. Sometimes, you are not contented for just a small amount but good for longer periods. Or in times of financial difficulty, we don't have any choice at all. One of the disadvantages of structured settlement loan is the lesser amount of money you will be getting in availing it. If for example, the settlement has a value of $20,000, don't expect to receive a full amount. There are charges imposed by the financial company and you are the one responsible to pay.

It all boils down to business profits. How will the lender gain income if there are no charges? Unlike other types of loans where you need to make monthly payments, in this case you don't need to. With the lump-sum money coming from the financial institution, you don't have to pay it back. This is because the lender will be receiving the settlement payments in return. The structured settlement loan is a form of assignment where your receivable will be collected by the lender. But try to analyze it thoroughly; it is you who is losing in this battle. You will not be receiving an amount worth of the settlement.

You will be paying for interests as well. The bottom line about the loan is the loss of money. So you better think twice about getting a structured settlement loan. It's not all about the advantages but you should consider as well the disadvantages. You must be very clear about where the money will go. If you really don't need the money, then might as well be contented with the payments for longer periods.