News and Tips on structured settlement transfers.

Cash

November, 2010


30
Nov 10

4 Terms To Know Before You Sell Your Structured Settlement: Factoring

In this series, we have been discussing common terms associated with selling a structured settlement. The intent of the series is to provide sellers with information to better equip them when dealing with potential buyers. We have discussed the future value, present value, and discount value of structured settlements and how each term relates to selling a structured settlement. The final term for discussion will be factoring and its significance to the lump sum a potential buyer will offer. First, let’s discuss what factoring is all about. It could be that you relate factoring to the business world. This is similar to factoring which is used in businesses when they need to maintain their cash flows. An option that has been used for years by businesses is to sell their accounts receivables to another company as an investment in exchange for a lump sum to be used to continue operations. For example, let’s say a company performs monthly custodial services for a government agency and the company is currently owed $50,000 for services. The custodial company can wait for the check to come or it can sell that future payment to a factoring company. The factoring company will purchase that future payment at a discount and offer the custodial company a check immediately for $35,000. Unfortunately, the money they received today is less than the money they would have received if they had waited for the check, but it could be that they couldn’t afford to wait because they had immediate expenses that had to be met today. The same logic applies when you consider selling a structured settlement. You will receive less today for payments you will receive in the future.

Factoring by definition is what determines the amount you can expect to receive from a potential buyer because it is the process used to value structured settlement payments. A potential buyer will evaluate several key factors in determining the value. These factors include the total value of the annuity payments, the remaining number of payments, the safety of the asset, and whether it is a full or partial sale. For example, let’s say you have a structured settlement and you decide to sell all of the remaining payments to the same type of company or individual. After the sale is complete, the settlement buyer will begin to receive the structured settlement money that the seller was previously receiving. In exchange the seller has been traded the payments for a lump sum payment minus the discount rate. Hopefully, this series has been successful in providing helpful information to use when considering selling all or part of a structured settlement.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.


29
Nov 10

4 Terms To Know Before You Sell Your Structured Settlement: Discounted Value

In this series, we’re discussing the four basic terms you need to be familiar with before you sell all or a partial structured settlement. Understanding these terms is paramount to ensuring you receive a fair offer for your settlement. We purposely discussed the time value of money and the present value of money before tackling the next term, discounted value. The discounted value is the amount in today’s dollars of future cash flow payments. This value is calculated by using the discount rate to estimate a present value. The lower the discount rate, the larger the lump sum offer you will receive for future payments. In this post, we will discuss how potential buyers evaluate future cash flow payments to determine discount rates. Currently, discount rates vary widely from 7% to 19% percent depending on the buyer. The discount rate applied to any structured settlement will depend on how many payments remain and the length of time left to receive the full payout. The further out the payout is the larger the discount rate because the potential buyers will have to wait longer to receive the money. They will perform an analysis based on their own financial health and how much risk they can tolerate. Additionally, potential buyers will pass on the standard costs associated with purchasing a structured settlement to the seller. Standard costs may include filing fees, court costs, lien search fees, and other miscellaneous transfer fees. This part of the discount rate is also referred to as the “cost of money”. Unfortunately, some potential buyers will use this as a means to encourage the seller to sell more than what they actually need to sell. Because each potential buyer uses different factors to evaluate the transaction to determine the discount rate, the seller should receive quotes from multiple buyers to effectively determine a competitive offer. To ensure you receive the best offer possible, avoid disclosing one potential buyer’s offer to another.

The following example illustrates how varying discount rates significantly impact the discounted value a potential buyer will offer:

Future Value Number of Payments Discount Rate Discounted Value
$50,000 10 8% $33,550
$50,000 10 14% $26,081
$50,000 10 18% $22,470

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.


23
Nov 10

4 Terms To Know Before You Sell Your Structured Settlement: Present Value of Money

The present value of money is defined as the value on a given date of a future amount discounted to reflect the time value of money. Money has a time value because it can be invested to make more money. When considering selling all or a portion of a structured settlement, you must understand several terms that significantly impact the offer a potential buyer will make. The further away the payments are the more difficult it is to determine the present value. Many factors have to be considered such as inflation, interest rates, interest lost, market opportunities, risk and more. So, the further in the future your payment is, the less it is worth today. A potential buyer will take all the factors into consideration and determine a discount value to apply to the payments for sale to reach the present value. The amount of the offer will be determined by the discount value the potential buyers use. We will elaborate further on discount value in the next post.

As an example, let’s say you have been awarded $500,000. According to the terms of the settlement, you will receive $100,000 over the next five years. Let’s further say that each year you will receive the $100,000 in twelve equal installments. You are guaranteed to receive the entire $500,000 if you continue to receive the payments each year for the next five years. Of course the terms of your settlement are probably very different, but hopefully this illustration will help you to understand the present value as it relates to any structured settlement. For argument sake, let’s say that you’re in the second year of the settlement and to date you’ve received eighteen payments. Now let’s say, for any number of reason you begin to consider the option of selling a portion or all of your future payments. Before any potential buyer can make you an offer, they must determine the present value of the future payments you’re considering selling. For simplicity sake, let’s say you decide to sell all the remaining forty two payments of the settlement. A potential buyer is going to take the future value of the payments, for argument sake, let’s say that’s $350,000 over forty two payments. After weighing all the factors, let’s say they have reached a discount rate of 8%. You can easily figure out the present value using any type of financial calculator or one of the numerous ones online. Using this example, our future amount of $350,000 that you will receive over the next forty two months is worth $264,770.22 today. Depending on the company, they can offer you different discount rates. It is incumbent on you to seek the best offer.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.


22
Nov 10

4 Terms To Know Before You Sell Your Structured Settlement: Time Value of Money

Quite simply, the definition of the time value money is the value of money, given an amount of interest earned over a period of time. Unfortunately, that definition may not mean too much to you and certainly doesn’t provide an explanation of how much you can expect to receive from selling your structured settlement. However, if you are considering selling all or a portion of a structured settlement, this is a term you need to be very familiar with. The time value of money is a complex term that is the basis for finance. At the core, is the principal that any amount of money is worth more now than the same amount of money in the future. This is due to its future earning potential. Let’s use a simple example to illustrate this term. If someone offered you $100 today or $100 next year, which offer would you accept? Naturally, you would prefer to have the $100 today because now you have the option to spend it immediately or invest it using interest to increase its value to more than $100.

Apply this same logic to selling a structured settlement. Using the time value of money, a potential buyer can determine what a structured settlement is worth due to the concept that a single lump sum or a series of future payments can be converted to an equivalent value today. Another important concept is that money has different values depending on when it’s received. In considering whether or not to sell a structured settlement, you need to understand that you will certainly receive less money than the future value of your settlement. Why? Because the time value of money means money promised in the future is worth less than money in your hands today. Additionally, a portion of the payments you are due to receive in the future is interest and has not yet been earned. When you decide to sell your future payments, you are trading them for money today. Let’s look at an another example. As a recipient of a structured settlement, you will be receiving $800 per month for the next 20 years totally $192,000. However, if you decide to sell that money stream for a lump sum today, you will receive less than $192,000 because tomorrow’s money is worth less than today’s. A potential buyer will need to know the payment amount, number of payments, the interest rate and future value in order to determine the present value of the settlement. Potential buyers will use this information in combination with other factors to determine an offer for your settlement.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.


19
Nov 10

4 Terms To Know Before You Sell Your Structured Settlement: Introduction

If you or someone you know is considering selling a structured settlement, you might be a little overwhelmed by all the terms and jargon associated with this industry. Whether you have actually consulted a potential buyer or are just beginning to research the possibility, you probably keep running across terms that you have never heard of or know very little about. Unless you are a financial guru or an attorney, this is fairly common and easy to remedy. Obviously if you’re reading this, you’re already on the right path. Without question, there are extremely complex terms associated with selling a structured settlement. As such, it is always in your best interest to seek professional advice before, during, and after you consider selling your structured settlement. The goal of this series, 4 terms you should know before you sell your structured settlement, is to provide some basic background knowledge that will hopefully assist you in your negotiations. While some of the potential buyers you will be working with will throw these terms around like everyday language, this may be new to you. Please do not let these terms intimidate you. Taking the time to learn and understand some of the more common terms will hopefully provide a more level playing field and allow you to feel more prepared during the process.

Throughout the course of this series we’re going to discuss four main terms that are commonly associated with selling a structured settlement. Although there are many terms that may be unfamiliar to you, the following are the terms that we have identified that will have a significant impact on the final amount of money you can expect to receive as a result of selling all or a portion of your settlement:

o Time Value of Money
o Present Value of Money
o Factoring
o Discounted Value

Your knowledge and understanding of these terms will vary depending on your experience. Most people have only dealt with these terms topically, whereas they were discussed and even used briefly in financial applications or investments. For each of the four terms above, we will take the time to break them down into simpler language by defining them, demonstrating their practical applications, and providing easy to understand examples. Hopefully, after reading this series, you will find you have a much better understanding and are a lot less intimidated.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.


18
Nov 10

5 Important Steps Before You Sell Your Structured Settlement: #5 Seek the Best Offer

In this series, Five Important Steps Before You Sell Your Structured Settlement, we have been discussing the importance of arming yourself with all the facts before you consult any company to sell all or part of a structured settlement. Chances are, if you are a recipient of a structured settlement, you may have already been approached to sell your future payments. If you are considering this as an option, you must understand that companies that purchase structured settlements are in business to make a profit. As such, the less amount of money you accept, the more profit they make. When considering selling all or a portion of your future payments, it is in your best interest to seek offers from multiple companies. This approach will help guarantee you receive the best offers and obtain the highest payoff. You will also want to ensure that the companies you are considering are established, well funded and reputable.

There are many reputable companies in business to purchase structured settlements, however, as in any business, some exists that are less than reliable and some that are nothing more than unscrupulous. Take the time to thoroughly check out companies for consideration. You can consult the Better Business Bureau for complaints or even do a search on the internet for complaints against certain companies. It is of the utmost importance to remember that the highest bidder may not be the best. Some companies will make a high offer in order to entice you to sign a contract only to discover after the fact that there are “hidden” costs and fees that result in much less than anticipated. Remember that not all companies are created equal and this is a “seller beware market”. Seeking the best offer should not only be tied to the best price. There are several factors that must be taken into consideration before deciding which company will provide the best offer to meet your short term goals while ensuring your long term goals are accounted for as well. In general, seek a company that will work closely with you to review your needs and customize a plan to meet your needs while offering you the maximum benefit possible.

Finally, if you have been reading this series, Five Important Steps Before You Sell Your Structured Settlement and you have made the decision to sell all or a portion of your structured settlement, then I urge you to seek the best offer by allowing the most well established companies to compete for your business. Once you have selected the top offers, it would be prudent to have your attorney and financial planner review each one to ensure your best interests are being served.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.


17
Nov 10

5 Important Steps Before You Sell Your Structured Settlement: #4 Decide What You Are Going to Sell

As each structured settlement details are unique, so too are the options to sell all or part of the future payments of the settlement. In step #4, we discuss the options available when considering selling or transferring the rights to receive payments awarded in a structured settlement. As a recipient of a structured settlement, there are both advantages and disadvantages to structured settlements. For the purpose of this step, we are providing information on the options available. As specified in the previous steps, professional advice must be consulted to determine the best option to meet your needs. If you are just beginning to consider selling or transferring your structured settlement, you may have not realized that you do not have to sell all of it. In fact, most companies will work directly with you to customize a partial sale to meet your needs. Because the sale will significantly reduce the amount you will receive from the settlement, you might consider selling only the portion you need to meet your immediate cash flow needs. This will help to ensure that you have access to the cash you need now while securing your future.

A financial expert or a qualified broker will review the settlement documents to determine the viable options to sell the future payments from the structured settlement. Structured settlement recipients can receive weekly, bi-weekly, monthly, bi-annually, annual , or even scheduled lump sum payments over a period of time. The details of your structured settlement will provide the specific options available for sale. Following are some options you may be able to consider:

• Sell the entire structured settlement
• Sell specific future regularly scheduled weekly, bi-weekly, monthly, bi-annually or annual payments up to a certain point
• Sell one, several or all of the future lump sum payments
• Shared payment plan
• A combination of options

After you have determined the options available to you based on your specific settlement, it will be important to review how to decide what you want to sell. Each situation is unique and there is no right or wrong answer or an easy fix for every situation. The first thing a potential seller needs to determine is how much cash is needed. Take a realistic approach to determine this need. The seller needs to determine the role the settlement plays in their budget. What can they afford to sell and will the anticipated lump sum cover their needs. The last step, Seek the Best Offer, will provide information to help you decide on what company meets your needs in consideration of selling a structured settlement.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.


16
Nov 10

5 Important Steps Before You Sell Your Structured Settlement: #3 Seek Financial Advice

As a recipient of a structured settlement, you are guaranteed the security of a dependable revenue stream to be received in accordance with the settlement. Before negotiating terms to sell a structured settlement, you should seek financial advice from a reputable CPA, financial planner, or tax attorney. Not only do you need to understand all of the consequences of a sale or transfer, a financial planner will also assist in determining your future needs and provide an estimate of a sufficient amount of lump sum necessary to replace the periodic payments. Because the future is uncertain, there is simply no way to be certain about your future financial needs. A structured settlement provides an option to meet your current needs. A professional financial advisor acting on your behalf will evaluate your specific needs and help to determine whether or not selling part or all of your structured settlement is the right course of action. Legal considerations aside, there are definitive financial implications and only a professional financial planner, CPA, or tax attorney can help determine if selling your structured settlement is in your best interest.

There are many reasons why someone might consider selling or transferring all or part of their structured settlement. Besides current financial hardships, a recipient might consider selling to pay off outstanding debts or to finance other endeavors. Consulting a professional financial planner or tax attorney can help to navigate through extremely complicated and sometimes confusing information. If you have been researching the sale or transfer of a structured settlement, you are more than likely discovering there are significant tax penalties imposed. A professional financial advisor will be able to provide information on comparing the impact of paying the income tax as opposed to taxes on capital gains from reinvestment or paying off higher interest loans and credit cards. It must be understood from the beginning that when you sell all or a portion of a structured settlement, the lump sum amount will be less than the full settlement amount. Although the cash can be immediately used to pay debts, medical expenses, make large purchases, or make investments, the recipient will receive a smaller amount of the projected sum of the payments because the structured settlement broker has to account for inflation, fees associated with the settlement, and of course, the broker’s percentage. There are inherent risks associated with selling all or part of a structured settlement and only a qualified financial planner can provide the facts necessary to make this decision. In step #4, Deciding What to Sell, we will discuss the options that are available for consideration.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.


15
Nov 10

5 Important Steps Before You Sell Your Structured Settlement: #2 Seek Legal Advice

While the internet provides an invaluable tool to assist in researching topics normally reserved for experts, it is not intended to serve as a substitute for seeking professional advice whether legal, medical, or financial. Depending on the author and purpose of the article, there could be many conflicting opinions on the same issue. The objective for this series is to provide the necessary information to assist someone considering the sell or transfer of a structured settlement. Because each structured settlement is unique, it is the responsibility of the seller to seek legal advice before forfeiting rights to future payments. Unfortunately, there have been many instances of recipients of structured settlements being taken advantage of by companies preying on their financial hardships. In an effort to prevent this from happening, most states have adopted a Structured Settlement Protection Act that allows the sale of future payments if certain requirements are met. Seeking legal advice from a reputable attorney with experience in structured settlement laws will ensure that the seller has all the facts before making the decision to sell.

Most states followed a model when adopting the Structured Settlement Protection Act requiring certain conditions be met before the sell or transfer of structured settlement payments. Following are the common requirements that must be met from state to state:

• The seller must be given full disclosure about the financial terms of the sale.
• There must be a “cooling off” period after the documents are signed to allow time for the seller to change their mind and cancel the sale.
• The seller must be advised in writing to seek independent professional advice regarding the sale.
• There must be a court hearing to review and approve the sale. The judge examines the seller’s financial situation and the intent for selling the settlement payments and rules whether it is in the seller’s best interests to sell payments.
• The judge must issue a court order approving the sale.

While most states adopted this general model, each state’s statute could have further restrictions or requirements that must be met. An attorney will review the settlement details, even if there is anti-assignment or anti-sale language with respect to all applicable federal and state laws and provide their professional opinion on whether the sale of structured settlement payments is in the best interest of the seller. In step #3, Seek Financial Advice, we will discuss further the need to seek professional guidance to ensure the seller understands all the implications of this decision.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.


13
Nov 10

5 Important Steps Before You Sell Your Structured Settlement: #1 Do Your Due Diligence

Chances are if you’re reading this article, you’re contemplating whether or not to sell, transfer or factor some or all of your structured settlement. The purpose of this series is to provide you with information that will assist you in making this decision. Of the five important steps before you sell your structured settlement, the most important one by far is to do your due diligence. This is not a decision to be taken lightly regardless of how many advertisements you have seen or heard that lead you to believe otherwise. Depending on the type of structured settlement you have, there may be legal and contractual restrictions that make it difficult or even impossible to sell them. Additionally, the tax considerations alone are an important factor when considering this course of action.

If you or someone you know is the recipient of a structured settlement and are considering the option to sell, it is imperative to understand the legal restrictions that may apply to the settlement. In general, a structured settlement is most often negotiated to benefit both the claimant and the defendant. Congress passed the Periodic Payment Settlement Act in 1982 to regulate the legal process of these types of settlements. Once the settlement has been negotiated, the terms cannot be changed. Depending on the state you live in, there may be state laws as well as federal laws that restrict the sell and heavily regulate the transfer of structured settlements. It is also important to note that there may also be contractual language that applies to the sell or transfer of the settlement.

In order to encourage defendants to settle with claimants, the Periodic Payment Settlement Act of 1982 included a provision that attached significant tax benefits to structured settlements. The law states that annuity owners and providers do not owe any taxes as a result of these transactions, if you choose to sell your structured settlement payment you will lose this tax benefit. Before deciding to sell a structured settlement, it is imperative for the seller to understand the tax consequences of receiving a lump sum payment as opposed to the scheduled payments. In step #2, seek legal advice, we will more thoroughly examine the need to consult an attorney as an essential step to arm yourself with the necessary information required before the sell of a structured settlement.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.