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Annuities / Sellers / Structured Settlements / Tips — No Comments
20
Jan 11

Dude, Where’s My Money?

If you’ve decided to sell your structured settlement for a lump sum, you’ve hopefully shopped it around to several buyers (if you haven’t, QMAP offers a fast and easy way to do this – try it now!).  You may have noticed that the amounts being offered you are less than the total of your settlement.  Why so much less?

The answer is simple:  the discount rate.

A discount rate is a percentage that a buyer of a structured settlement uses to figure how much your settlement is worth now.  Think of it as interest in reverse:  when you borrow money, you pay the lender interest for the privilege of allowing you to use his money.  When you sell a structured settlement, you are paying the buyer for the privilege of getting an up-front cash payment.

This may seem unfair, but put yourself in the buyer’s shoes.  You are compensating the buyer for many things.  Of course, he’s in business to make a profit.  But on top of that, he has operating costs:  office rent, utilities, a support staff, legal fees, and all of the overhead that goes into running a business.   If he doesn’t have the cash on hand to buy your structured settlement, he has to get it somewhere, and pay interest on it.  Even if he has the cash available, by giving it to you he loses the ability to earn interest on it himself.

Most importantly, because the stream of payments is not accessible to the buyer right away, you are compensating him for having to wait until the payments become available.  After all, money now is worth more than money you will get at some later date. 

Opinions differ on what a “reasonable” discount rate should be.  In a 2010 New York court case, the judge evaluating the sale of a structured settlement criticized a 20% discount rate.  Other experts set a range of percentages.  The best way to determine whether your discount rate is fair is to look at all the offers you’re getting for your settlement.  If one buyer’s discount rate is far higher than all the others, they should be removed from consideration unless they have lots of other good qualities.  If one buyer’s discount rate is far lower, this is a red flag, too; buyers will often float a generous bid in order to get your initial commitment, only to change the terms or add additional fees later on.

If possible – and some states require it – find a lawyer or financial advisor who has handled structured settlement sales recently.  See if what you’re being offered is consistent with recent events in the marketplace.  This is a great way to make sure you’re getting the best possible deal.

Annuities / Factoring Education / Notes / Structured Settlements / Tips — No Comments
14
Jan 11

Selling a Structured Settlement – Warning Signs

If you’re reading this, you’re probably giving serious thought to selling all or part of a structured settlement you own in order to gain quick access to cash.  If you decide to go through with it, though, understand that the companies who buy settlements are in business to make money, and you have to protect yourself through every step of the transaction.  So, consider the following list of red flags that should make you reconsider the deal.

Bad Reputation.  Before you even accept an offer, you should research prospective buyers to see if they’ve racked up consumer complaints.  The Better Business Bureau and/or the Attorney General for your state are the best places to find what other consumers have said about your potential buyer.  The more complaints you find, the bigger the red flag.

Warp-Speed Deal.  Typically, a structured settlement sale averages about 45-60 days from initial offer to closing.  It can take longer than that, depending on the state where you live.  If a company is promising to close your deal in just a few weeks or days, they’re likely trying to prey on your need for quick cash.  They can’t keep that promise, and you shouldn’t use them. 

Unrealistic Starting Offer.  If you’ve used a site like QMAP to get competing offers from several structured settlement buyers, great.  You should always get multiple offers.  But don’t just bite at the biggest offer you get.  A common complaint about settlement buyers is that the company reduced its offer after the initial contracts were signed; so, an opening bid that’s way out of whack compared to other companies may mean the buyer is trying to lure you in…and may try to pull a fast one later.

Changing the Terms.  Disappointed sellers have complained – often – that as soon as the ink is dry on the initial contract, the buyer will begin whittling down his price and/or introducing fees.  Yes, if you back out, you’ll have to start the process all over again with another buyer, but it’s worth not being taken advantage of.

Pressure.  Like any big financial decision, beware high-pressure tactics to get you to sign a contract right away, take an offer without getting competing bids, or to ignore changes made to the initial deal after the contracts are signed.  And make sure you read and understand every agreement you’re given before you sign; if you have questions and the buyer avoids answering them or just tells you not to worry, consider it a deal-breaker.

Annuities / Factoring Education / Marketplace / Sellers / Structured Settlements / Tips — No Comments
12
Jan 11

Why It Pays to Shop Your Structured Settlement

You’ve got a structured settlement and you’re ready to sell it for cash now.  You’ve found a willing buyer and the offer’s not bad.  So, why not go right ahead?

Like buying a house, a car, or making any other major financial decision, you should always compare your options if you’re looking to sell your settlement.

The main reason should be obvious:  making sure you’re getting the absolute best offer for your settlement.  If a prospective seller knows he has no competition, there’s no reason for him to offer you more.   A site like QMAP is great for putting the details of your settlement out there, and letting prospective buyers come to you.  Since they know they’re competing with other players in the market, they’ll make offers that are worth your while.

Another reason, though, is to let you compare the details of every deal.  The discount rate buyers are using will affect the lump sum you’ll get for your sale.  You’ll also be able to see whether any of the buyers are trying to charge you additional fees that will cut down on the total amount you’ll receive.  You can also compare the time frames in which the buyers plan to complete the transaction.  Typically, a sale will take some 45-60 days to close if all goes smoothly, but companies can vary.

Sometimes a prospective settlement buyer will float a lowball offer in hopes of getting you to bite.  If you shop around, however, you have the option to turn him down and go elsewhere.  Once rejected, that prospective buyer may come back with something even better.  Remember, though, that you should never disclose details of offers you’ve received to other prospective buyer. 

Having a sampling of prospective buyers to choose from also gives you the option to check the reputations of each of them.  Checking the Better Business Bureau will let you see if the company has any complaints against them.  Even if a buyer has offered you the most money, if they’ve racked up loads of complaints, reconsider using them.  Disappointed sellers may have complained that the transaction took longer than promised, that buyers charged hefty or hidden fees, or that buyers changed the terms of the deal midstream.

One final reason to have a list of prospective buyers:  things can change.  Sometimes a prospective buyer will make an offer only to retract it before closing the deal.  If this happens, you’ll essentially have a Plan B in the form of other willing buyers.

Annuities / Factoring Education / Notes / Structured Settlements / Tips — No Comments
11
Jan 11

When NOT to Sell Your Structured Settlement

Turning a future payment stream into a neat sum of money now may seem enticing, but it’s a big decision.  Because you will undoubtedly get less for selling your settlement than you would have received over time, many of the blog posts here on QMAP and articles all over the Web on structured settlements encourage prospective sellers to get financial and legal advice before doing so.  In fact, many states require it.  

But you might save yourself the trouble of consulting with professionals if any of the following conditions apply to you.  If they do, you probably shouldn’t sell your settlement.

You don’t need the money.  You don’t need, truly need the money for something important, such as medical expenses, staving off foreclosure, or college tuition.  Even if there is a true need for the money, is there someplace else you could get it?

The money won’t completely solve the emergency.  If you’re looking to pay off expenses but what you’ll get for selling your settlement won’t take care of what you owe, selling may not be a good idea.  Structured settlements are designed to help you support yourself and cover your medical expenses over time, especially if you can’t work any longer.  Once those payments are sold, the money is gone, and your debts remain, what will you do?

You need the money in less than 45 days.  Even the fastest structured settlement sale will take 45-60 days.  If you don’t have, or barely have, that much time, you may be cutting it too close.

You’re a spendthrift.  Be honest with yourself.  Whenever you get any money, does it immediately start burning a hole in your pocket?  If you’re unsure how well you’ll resist the temptation to spend, leave that settlement alone.  Again – a structured settlement is intended to take care of you.  If you sell it, how will you manage?

Your spouse, kids, etc., want to spend it.  Even if you’re a fantastic money manager, if you’ve got someone in the family who always seems to need money, reconsider the sale.  Once they know you have cash on hand, they’re sure to want some, they’re sure to have a persuasive reason, and they’re sure to promise to pay you back.  Someday.

You’re planning to use it for a risky investment.  Just about everybody has daydreamed of stumbling onto that undiscovered opportunity and striking it rich.  It’s nice to think that you could convert your structured settlement into a tidy seed that can be planted in the stock market, a great new business idea, or some other no-fail investment.  Except that investments and new businesses often do fail.  And, even if you’re lucky, will the return on that investment exceed what you’re paying (in the form of the discount rate) on the sale of your settlement?  If not, better to keep what you have.

Annuities / Marketplace / Notes / Structured Settlements / Tips — No Comments
31
Dec 10

Selling Your Structured Settlement Online Now

You’ve got some kind of a structured settlement – maybe from a lawsuit, maybe from winning the lottery, maybe a note secured by a mortgage or a business.

But it’s just sitting there.  Your next payment could be months away.  You need cash now.  What can you do?

Thanks to sites like QMAP, you have access to a fast, easy online marketplace where you can shop your note or settlement to willing buyers to come up with the best deal for you.  So – what’s next?

Put out the details of your settlement arrangement, and what you want to sell.  You can sell all of the future payments if you want, or sell only a few of them.  It really depends on how much cash you need.  Using a site like QMAP, you can list the details and get offers from interested buyers.

Shop Around.  Like the song says, don’t be sold on the first offer.  Every buyer of structured settlements is different.  There are some firms who do a high volume of business and have well-known names in the business.  Others might be small or start-up businesses looking for a return on your structured settlement.  Some firms may start out with a low offer, only to come back with a higher one when you say no.  Remember that when you sell a structured settlement, you will receive less in a lump sum than you would have received altogether over time.  This is how companies make money – and how you get the cash you need right now.

Fees.  Buyers of structured settlements are in the business of making money on the difference between your total payments and the cash they pay you now.  But the buyers incur costs in doing so; they have overhead (office staff, communications expenses), legal fees, court fees, and the interest cost of getting access to the cash they will use to buy your note.  As a result, the deal you’re offered may include varying amounts of fees.  Each offer should be up front about the fees that will come out of your lump-sum settlement.

What’s the Money For?  Annuities, particularly those entered into as part of a personal-injury settlement, are intended to support the annuitant for a period of time.  The buyer of your settlement is looking to turn a profit, however, and is not concerned with why you want the money or how you plan to spend it, or how the loss of this annuity will affect your personal finances.  However, the court may have to review and approve the sale of your settlement, and will want a compelling reason for the sale of your settlement.  Don’t be vague.  If you want to sell, you should have a good reason to do so, such as a compelling financial emergency, college tuition, or a solid business or investment opportunity.  Be prepared to substantiate your reasoning.

Annuities / Tips — No Comments
22
Dec 10

Annuities – The Basics

An annuity is, simply, a promise to make a series of regular payments over a period of time.  The annuity contract spells out the terms of this promise.

There are various types of annuities, but this discussion centers on those used for retirement or income planning.  An annuity can be a great way for someone to guarantee an income for himself and prevent himself from blowing his savings too early.

An immediate annuity is created when someone uses a lump sum of cash, such as accumulated retirement savings, to purchase an annuity.  The annuity will consist of payments usually made over the life expectancy of the retiree.  A deferred annuity occurs when someone makes periodic payments into an annuity; when all of the payments are made, the annuity begins making periodic payments to the annuitant.

Annuities can be fixed, that is, they pay a fixed interest rate over the life of the payments. This is a very safe and conservative option, but deprives the annuitant (that’s the person receiving the payments) the opportunity to reinvest the annuity funds into an investment with a higher rate of return.

A variable annuity does not provide that guaranteed rate of return, but also allows the annuitant more control over the investments underlying the annuity – and therefore a greater chance at earning more money.  Generally the annuitant (and probably his investment advisor) will choose an allocation of investments designed to generate the desired return.  The annuity may also call for reallocation at periodic intervals, where the annuitant can change the underlying makeup of his investment portfolio.  One downside of this more active management of the annuity funds is the fees involved with buying, selling, or reallocation of the investments.

The structure of your annuity depends on the initial investment, interest rate, underlying investments, your life expectancy, and the beneficiary arrangements on your annuity.  Obviously, the longer your life expectancy, the smaller the regular payments must be.  If your annuity provides for distributions to your heirs in the event of your premature death, this changes your payments too. 

Also important is the financial health of the company who issues your annuity, often an insurance or investment company.  If this company becomes defunct, your annuity could be at risk, so you should research and be satisfied with the issuing company’s financial stability prior to buying in.

While an annuity can be an excellent retirement planning tool, there are plenty of investing and tax issues you should consider before deciding if one is right for you.  significant risks and tax issues associated with them.  Shop around, and talk to a competent financial and tax planning professional before you choose an annuity.

Tips — No Comments
21
Dec 10

Who Can Take My Lottery Money?

Congratulations!  All of your numbers match up and you are the proud winner of a huge lottery prize!  Time to start thinking about the cars, mansions, and vacations you will buy, right?  Maybe not.  As soon as word gets out about your newfound wealth, there are sure to be others to stake a claim.  

Ex-Spouse.  It’s fairly well-established that if you win the lottery while married, the winnings become joint property.  Things get more cloudy, however, if there is a pre-nuptial or post-nuptial (yes, there is such a thing) agreement, or if the winning ticket is purchased after you’ve separated but before the divorce is final.  Much of it depends on where you live, but the court can also take into consideration the circumstances surrounding the purchase of the ticket, the duration of the marriage, whether the marriage produced any children, and so on.  Even if a court decides that your lottery winnings are all yours, your ex will likely want to revisit any child-support arrangements you might have.  

IRS.  Before you collect a penny of your winnings, the Feds will take their cut.  If you’ve won more than $5,000, 28% is taken off the top and you will receive a Form W-2G to help you report your winnings on your tax return.  If you opt for your winnings in an annuity, tax is withheld on the annuity payment each year.  

State.  If your state has an income tax, they will get a cut, too.  Additionally, if you’ve racked up a tab for, say, delinquent child support or back taxes, you’ll have to settle up before you make that shopping list.  

Everyone Else.  Of course, you’ll get requests from every charity, would-be entrepreneur, relative, friend, ex-lover, and anyone else you’ve met for money.  But be extra vigilant for underhanded attempts to get at your fortune.  Watch out for bogus invoices from companies you’ve never heard of showing up in the mail.  Collections agents may resurrect old or invalid debts and try to collect, even though they have no right to do so (they do this to people who haven’t won the lottery, too).  Lots of lawyers and financial advisors will offer their services to you, but check references to make sure they’re competent and legit.  And, unpleasant as it may be, think about your personal safety.

You.  Plenty of lottery winners have overspent and gone broke.  Think of yourself as your own worst enemy, especially if you’ve had money troubles in the past.  Avoid major changes in lifestyle; a fleet of sailboats or several vacation homes might be fun to own, but the upkeep and taxes will drain your fortune, too.  Get with that financial advisor you hired to set up a strict budget.

Notes / Sellers / Tips — No Comments
21
Dec 10

Selling a Business Note

If you owned a business and sold it, the purchaser may have given you some cash and a note for the balance.  If you’d rather not wait for payments and want to sell that note now, you can exchange some or all of the future payments in exchange for a lump sum up front.  Like a sale of a structured settlement or lottery award, you will receive less in total than you would have over time, but if you need cash right away, this may be a good option.

When considering what your business note might be worth, prospective buyers consider many factors, including the following:

Note Terms.  The longer the term of your note, the less it is likely to be worth to a purchaser; they don’t like to wait for their cash, either. Five years (60 months) appears to be a rule of thumb, investors don’t like to see longer terms than this.

Interest Rate.  Of course, prospective buyers stand to make more money on a note with a higher interest rate, and will pay more for it. 

Down Payment.  A larger down payment made when the buyer purchased your business indicates a stronger business and a more creditworthy note payor. 

Business Characteristics:  Is this business in a growing field?  How established is it?  How strong is its client base?  How have sales been lately?

Assets.  The business is the collateral for the note, but what does the business own?  Does it have strong financials, a good cash balance, and valuable underlying assets? 

Liabilities.  The prospective buyer is certain to check for other potential claims against the business, such as loans, lawsuits, or tax liens. 

Seasoning.  Investors often like to see that one or two payments have already been made against the note; this is referred to as “seasoning.”  A successful payment history suggests that default is less likely in the future. 

Should you enter into an agreement to sell your note, you’ll need to assemble documents for the buyer. 

Notes and Contracts:  You’ll need the actual promissory note you received, and the contract for the sale of the business. 

Security Agreement:  This is the contract that demonstrates your interest in the business itself if the payments aren’t made on the note – in other words, it proves your collateral.

Proof of payments made on the note to date.

Financial statements and/or tax returns for the business.

This is a short list, of course, and you may be asked for much more.  Bottom line is, the prospective buyer will want lots of assurance as to the strength of the note.

Tips — No Comments
19
Dec 10

All in the Letters – A Guide to Financial Advisor Certifications

If you are shopping around for a competent financial advisor, or FA, to help you decide whether to sell a structure settlement, or the best way to invest the proceeds, you should consider their education, experience, and expertise.  One easy way to get an idea of a prospective FA’s background is to look at the letters after his name; that is, whether he carries any special certifications or professional designations.  Attainment of any of these suggests a minimum level of knowledge and/or work experience.    Here’s a guide to some of the more likely ones you’ll see when evaluating prospective advisors.

Designations of professionals with general financial planning knowledge:

CPA – Certified Public Accountant.  CPAs have studied accounting and have passed exams to earn the certification.  CPAs can specialize in a number of areas, however, so if you are seeking a CPA who has further expertise in financial planning, look for the PFS, or Personal Finance Specialist, designation.

CFP – Certified Financial Planner.  This designation is given by the Certified Financial Planner Board of Standards, Inc., to candidates who have completed extensive study in financial planning, have passed certification exams, and have attained experience in financial planning.

ChFC – Chartered Financial Consultant.  Much like CFPs, the ChFC has demonstrated knowledge of financial planning topics, passed certification exams, and has gained related work experience. 

Designations of professionals who concentrate on investments:

CFA – Certified Financial Analyst.  A designation for professionals who have at least three years of work experience and who have passed rigorous exams concentrating on portfolio management and investment analysis.

CFS – Certified Fund Specialist.  This professional concentrates on analysis and investment in mutual funds.

CIC – Chartered Investment Counselor.  Another designation that emphasizes investing.

Designations of professionals who concentrate on insurance and estate planning:

CFTA – Certified Trust and Financial Advisor.  This person has passed an exam that focuses on retirement and estate planning, investment management, and taxation.

CLU – Chartered Life Underwriter.  This is a designation administered by the American College, and goes to individuals who have demonstrated expertise in the areas of estate planning and life insurance.

This is far from an exhaustive list; many other designations exist, each with their own qualifications.  While a professional certification should not be your sole criterion for choosing a financial advisor, the institutions that award these designations usually require the professionals to maintain certain ethical standards and even continuing education.  You might consider giving a few bonus points to these professionals when choosing the one who will help you.

Structured Settlements / Tips — No Comments
18
Dec 10

Finding the Right Financial Advisor

Virtually every post here has recommended that a prospective seller of a settlement, lottery award, or mortgage note seek the advice of both legal and financial counsel.  You can open the phone book to “Accountants” “Financial Advisors,” or “Financial Planners” to get a list of names, but this isn’t enough to find someone qualified to help you. 

References.  Talk to people you know about how and where they get financial and investing advice.  Find out what types of services they got from the professionals they hired; optimally, you want someone who handles your type of settlement on a regular basis.  If you have a settlement as a result of a lawsuit, your attorney might have suggestions, but you should evaluate their recommendations with the same critical eye as any other. 

Professional Associations.  Accountants and financial advisors often belong to professional associations, such as the American Institute of Certified Public Accountants or the National Association of Personal Financial Advisors.  Find your local chapter for these organizations and talk to them.  Ask about members who’ve handled your type of situation before. 

Beware.  Beware of financial advisors who work on commission, or who work solely with one or two investment organizations.  Beware any accountant or advisor who guarantees investment returns and glosses over the risks.  If they’re anxious to get their hands on a large sum of cash, they may be too eager for you to sell your settlement, rather than give you objective advice about all of your options.

Fees.  Many financial advisors work for “fee-based,” “fee-plus-commission,” or “commission-based” compensation.  This means that they earn a commission or the products or services they sell you.  While this is legal and doesn’t mean the advisor is dishonest, it may lead him to steer you toward the products that will earn him a commission.  By contrast, a “fee-only” financial advisor doesn’t work for commission; you will pay him directly for his services.  While this means a cash outlay up front for you, it also means he has no incentive to lead you toward a particular product and may give you more objective advice.

 Certifications.  Look at any professional designations your prospective advisor has.  Designations such as CPA (Certified Public Accountant) or CFP (Certified Financial Planner) indicate that the person has certain levels of education and/or has passed certification exams.  Ask the prospective advisor about his qualifications. If he has a professional designation, check to make sure the designation is still active and good standing.  For example, you can check with your state’s regulatory agency for Certified Public Accountants to ensure a CPA has a valid license.

The Interview.  Most importantly, talk with your prospective advisor on the phone or in person.  Get the details about his qualifications, and determine whether his areas of expertise meet your needs.  Ask about prior experience with your type of settlement.  Ask him specifically about relationships with investment and insurance companies, and how you can be sure that his advice is independent and objective.

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