Before the state structured settlement protection statutes and the
Victims of Terrorism Relief Act of 2001 which created section
5891 of the Internal Revenue Code, anyone wanting to sell their
settlement payments was 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
tomorrow's 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 etc., 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.
About the Author: 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.
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