News and Tips on structured settlement transfers.

February, 2011

14
Feb 11

Why Now is the Time to Cash Out Your Structured Settlement

You may have been debating for some time when, or whether, to cash out your structured settlement. If you want to go for it, now could be the best time to do so, and here’s why.

Low Interest Rates. You may be wondering what low interest rates have to do with you and your structured settlement. Well, nothing directly. But, the companies that buy structured settlement love the current low interest rate environment, because it allows them to secure the financing they need very cheaply. Interest rates are at historic lows, and won’t stay there forever. Once they start creeping up, structured settlement buyers will need to make up for the higher interest cost somehow, and a higher discount rate to you – the money you give up so you can get a lump sum now – will eat into more of your settlement.

While you may decide that you don’t care, that you’ll accept a higher discount rate as the cost of doing business, the judge reviewing your case might not be so inclined. If a judge reviews your case and decides that a too-high discount rate is not in your best interest, he might turn down the deal.

Regulatory Environment. There always seems to be talk of revamping the legal process for structured settlements, but do an Internet search on this topic and you’ll find more chatter than ever. 2010 was a great year for structured settlement companies, and, as a result, they’ve drawn increased scrutiny for everything from business practices to the discount rate charged. Should there be a groundswell of interest in changing the whole structured settlement process, you may find yourself with fewer options than before.

The Perfect Storm. As the world climbs out of recession, consumer spending is up, and there’s plenty of talk about the “I” word: inflation. Even if inflation doesn’t grow out of control, prices for everything seem to be rising, so structured settlement buyers will have to pay more for office help, cash flow, legal assistance, and everything else. Sure, the buyers can raise their discount rates to make up for it, but if the deal takes too much out of your settlement, the courts can start rejecting the deals. Faced with the inability to make profits to sustain their businesses, many structured settlement buyers may choose to – or be forced to – get out of the structured settlement business. This could result in fewer choices for you.

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.

10
Feb 11

Structured Settlement Show-stoppers

Even if you’re resolute about selling your structured settlement, there are plenty of reasons why it won’t – or perhaps shouldn’t – happen.

Contrary Legal or Financial Advice. Most states require sellers of structured settlements to seek out legal and/or financial advisors to review the sale and help you determine if selling is in your best interest. Expect them both to look at the discount rate, the rate that the buyer uses to scale back your settlement to an amount he’s willing to pay for it. The discount rate is intended to compensate the buyer for the lost ability to invest the cash, as well as for his overhead. But your lawyer or financial advisor might suggest not selling if the rate’s too high. They may suggest that you can do better elsewhere, or they might remind you that you’re not in a position to make up lost revenue when your structured settlement is gone.

The Court. A judge will have to look over the structured settlement transaction and approve it. You may even have to appear in court, depending on the state where you live. A judge may decide that your reason for wanting to sell isn’t compelling enough. Or the judge may question or outright deny the transaction based on – again – that discount rate. This happened in one case in New York in 2010.

The Seller. When you’re looking over bids that you’ve received for your structured settlement – and hopefully you’ve used a site like QuoteMeAPrice to find competing bidders – hopefully you are checking out the companies who’ve made offers. You may find that other prospective sellers complained about buyers who backed out of the deal midstream. Unfortunately, this happens – the buyer may look over his offer and decide that he can do better elsewhere, or that the discount rate will fall short of the profit he wanted to make. If this happens you will have to start over again.

You. Most states provide for a “cooling off” period after the structured settlement sale has jumped through all of the hoops mentioned previously. This is your last chance to think over your decision to sell and make sure you’re doing what’s right for you. Think hard about the reasons why you’re selling. Think about the stream of payments that will no longer be yours, and make sure you will still be able to support yourself. Think about how the discount rate will cut into the settlement you would have gotten over time. Finally, think about your plan to use that money, and make sure selling your settlement is the best option.

9
Feb 11

Should I Invest in Structured Settlements?

You may be frustrated at the generally low interest rates being paid on most conventional investments, and are looking for something else.

The structured settlement industry had a great year in 2010. If you’re looking for a huge rate of return, purchasing structured settlements might be a way to make your money work harder for you.

Structured settlements take many forms, from personal injury lawsuits to lottery awards. But the basic premise remains the same: A lump sum is placed with an insurance company, who invests the money so that it will earn enough interest to make a fixed stream of payments at some time in the future. Lawsuit defendants love structured settlements because it allows them to set aside less than the court-ordered settlement amount, and also gets rid of the responsibility of managing the money and the payments.

For the annuitant, the chief benefit of a structured settlement is the peace of mind in knowing that a steady stream of income will be coming their way.

However, because of impending foreclosure, medical expenses, or some other reason, an annuitant may decide he no longer wants to wait for his money, and he wants to sell. If you’d like to get in on that action, what should you do?

Have some cash. You’ll need a stockpile of cash in order to pay the annuitants for their payment streams up front. If you don’t have the cash available, you’ll need a good financing arrangement that will allow you to get it when needed, and creditors who understand the business of structured settlements.

Know the Law. All states have laws governing the sale of structured settlements, designed to protect the annuitant from charlatans who would purchase his annuity too cheaply. If you’re serious about buying annuities, you’ll need a good lawyer with an understanding of the process in your state. Realize that sellers of annuities are encouraged to get legal and/or financial advice, so if you try to take advantage of a potential seller, you might wind up empty-handed. Even if the seller signs off, a judge can always nix the deal if you’re trying to get too much for too little.

Discount Rate. And that brings us to the discount rate. Structured settlement buyers (that’s you) discount the total amount of the payment stream in order to determine how much you’ll pay the seller. While this rate is often in the double digits, don’t think you can set any rate with impunity and expect the seller to accept it because he is desperate. Even if he does, the court can reject your offer.

Know the Players. A site like QuoteMeAPrice gives you a great forum to shop your best deal to prospective buyers. But understand that you may have to float a better deal to get past some of the big players in this market. There are big names and they have big reputations; even though there are complaints against them, sellers have heard of them, and that name recognition is huge. So, you may have to make better offers that aren’t profitable just to get noticed.

8
Feb 11

Structured Settlement Concepts – What’s an annuitant?

If you have a structured settlement, you’ve likely heard this term many times. The annuitant is the recipient of the ordered payments in the structured settlement. In other words, that’s you.

The term annuitant comes from the underlying investment that makes your structured settlement possible: an annuity.

If your structured settlement is the result of a personal injury lawsuit, the defendant likely found an insurance company and purchased that annuity. That allowed him to set aside an amount less than your total settlement inside an annuity contract that guaranteed a specific rate of return.

So, the defendant sets aside an amount of money less than the total court-ordered settlement; that’s good for him. He gives it to an insurance company who invests it in fixed-return investments in order to ensure that you will get the stream of payments promised to you as part of the settlement. The defendant doesn’t have to worry about managing the money set aside, and neither do you.

The annuity payments don’t just help the defendant, however – they also help you. By putting your settlement into a specified stream of payments, you are guaranteed cash flow to help you with your living expenses, medical bills, etc. This is particularly important if your injury has left you unable to work.

There is a tax benefit to a personal injury annuity – as long as the award relates to a personal injury, there is no tax on the payments. But just to be safe, before you sign any structured settlement, talk with a tax expert to get a solid understanding of how it will be treated on your tax return.

The annuity payments are virtually guaranteed. Yes, they are with an insurance company, and if that company goes belly-up, you might be left holding the bag. But most insurers set these funds aside in trust, so even if they bankrupt, you will still get your payment.

The number one benefit to being an annuitant is protection from yourself. Were you given thousands, or even millions of dollars, the temptation to spend it would be overwhelming. By putting that award in a structured settlement, you don’t have to worry about spending it or investing it badly. Someone else takes care of all that for you. So you can rest assured that the payment stream comes only to you.

Before you sell, take a hard look at your finances and make sure there is some other income that will make it possible for you to meet your expenses. Without the structured settlement, who will pay for you food? Rentals?

5
Feb 11

Structured Settlement Concepts – What’s a Factor?

If you plan to sell your structured settlement, the official name for this is a structured settlement factoring transaction. The factor is the buyer of your settlement.

Factoring – where a buyer purchases the right to receive future payments from a third party – happens in lots of industries other than structured settlements. Lots of businesses who need quick cash will sell their accounts receivable to a factor. The business gets quick cash, and the factor gets to collect from the customers.

Why would anyone do this? The answer is the discount rate. In any factoring arrangement, including a structured settlement factoring transaction, the buyer is not paying for the full amount of the future payments. Instead, he pays a reduced amount. By paying you less than what he will ultimately collect from the scheduled payments on your settlement, he makes a profit – and you get the cash you need sooner.

This reduction is called the discount rate. The discount rate that the factor applies to your stream of payments is, essentially, reverse interest that you are paying in exchange for the ability to get cash ahead of schedule. The discount rate is intended to compensate the factor for a number of things. First, he must secure the cash he needs to pay you off. That means he has to get financing from someone, and that financing costs money. Even if the factor has the cash on hand, by giving it to you he is missing out on the ability to invest that money elsewhere, so the discount rate compensates him for that, too.

Factoring is a business, and business involves overhead. Factoring businesses have offices, employees, and lots of costs to recover. Since the structured settlement process is strictly regulated and all states have statutes to cover these transactions, factors need legal help in navigating the legal system, and lawyers don’t work free. They need other people to cut the checks and keep the books, too. And, of course, the factor wants to make a profit; they are not in business to help you.

So that’s why discount rates are often in the double digits. Of course, you may not want to sacrifice that much to get cash quick, even if there is a reason for it. Even if you do, if the discount rate is too high, the court may not approve the transaction. You always have the ability to walk away from the sale during the “cooling off” period, and sites like QuoteMeAPrice allow you to understand the deal you’ll be making up front.

5
Feb 11

Buying Structured Settlements – A Great Investment?

With interest rates at all-time lows, it’s hard to find a reliable investment with a solid return. This is what makes structured settlements so tempting. 2010 was a great year for most structured settlement buyers…so is this a business you want to get into?

Rate of Return. The real money from buying a structured settlement comes from the discount rate, which is essentially reverse interest that the buyer charges the seller. It is a fee for the annuitant to get his money ahead of schedule. Discount rates in the double digits are common, and that’s what covers your overhead and gives you a rate of return to brag about.

Caveat: All states have structured settlement statutes that provide for the transaction to be approved by a court. The seller – and you – may even have to show up. A judge is going to look at the transaction and decide whether it’s in the best interest of the seller. A too-high discount rate might doom your transaction. In 2010, for example, a New York court questioned a discount rate of 20%.

Cash Flow. Borrowing is cheaper than ever, if you can secure it. Get your hands on enough cash, for enough time, and you’ll have the ability to buy out several settlements and let the money come in.

Caveat: Nothing lasts forever. Should the Fed start raising rates – and a healthier economy might mean just that – the cost of borrowing will go up for you. If you can’t raise your discount rate, something else will have to give.

Motivated Sellers. The current economic slump has meant that many annuitants might be facing foreclosure or job loss. A big medical bill, a car accident, or some other unpleasant surprise can make the pressure to get cash now absolutely unbearable. These sellers are ready to go, and will likely accept whatever deal you offer.

Caveat: Again, courts have to approve the sale, so taking advantage of distressed annuitants won’t serve you. Besides, with services like QuoteMeAPrice at their disposal, annuitants can choose between competing offers.

The Process. Every state has a legal process for the sale of structured settlements. Become familiar with, and follow, the rules, and you’ll know what to expect.

Caveat: The process also allows for a “cooling off” period for the seller; if they don’t like your deal, get a better offer, or just plain change their minds, all bets are off. Also, an increasing number of structured settlements prohibit their annuitants from selling. And there is always talk in the industry about new and tougher regulation in response to reported abuses by factoring companies.

4
Feb 11

Structured Settlements – Winners and Losers

Wondering about the structured settlement factoring process? Wondering who comes out ahead when you sell, and who doesn’t? Well, here’s the scorecard.

The Winners

The Factor. The factoring company has two things to bring to the party: time and money. He’s got the cash to front you for your structured settlement. And he has the time to wait for the payments you sold to start rolling in. Since your payments are tied to a structured settlement, which are usually tied to an annuity issued by an insurance company, he’s all but assured to see the cash eventually. And when he does, the rate of return is far greater than any other stock or bond he could have bought. Yes, he had to pay for legal advice, and the cash he gives to you he can’t invest elsewhere, but there’s a significant payoff to be had. All he had to do was wait.

The System. Most states require you to get advice from a lawyer, and maybe also from a financial advisor, prior to selling. These folks don’t work pro bono. Whether you pay the fee or the factor does, they will get paid for their work. But hey, it’s valuable advice, and worth the investment.

You…Maybe. This depends on how much you got for your settlement, and what you plan to do with it. Factors charge a “discount rate,” sort of a reverse interest rate that you are charged in order to get your money ahead of schedule. You might be planning to pay off debts or start a business. If your debts are wiped out by the settlement, and no more bills are coming, great. If that new business takes off, great. If not, well….

The Losers

You…Maybe. Structured settlements are intended to provide you with a reliable stream of income over time. If the settlement came about because of a personal injury lawsuit, and your injuries have left you unable to work, the settlement needs to cover your living and medical expenses. If you sell, what will you have left? What will be there to take care of you?

It’s tempting to think that you truly need money now, and your immediate need may well be legitimate if you’re facing life-or-death medical expenses, or foreclosure. But check your options. Is there no other way out of your debts? Is there some other way to fund that new business that’s got you excited? Don’t trade your future for a quick fix.

2
Feb 11

Getting the Right Lawyer for Your Structured Settlement Sale

Previously, we discussed a case against structured settlement giant J. G. Wentworth that alleged the company referred structured settlement sellers to attorneys, then unlawfully charged the attorney fees back to the sellers.

If you’re selling a structured settlement, you should definitely get legal advice. But how do you know whom to trust?

First, don’t let a structured settlement factoring company try to steer you toward a “preferred” attorney or refer you to attorneys in your area. Remember that a factoring company is a business; no matter how reputable they are, they are in business to make money, not to help you. You have no way of knowing if the attorney is working with the factor, or has some relationship that might taint their advice. You want to ensure the lawyer you use is independent – and on your side.

And you don’t want to use just any lawyer. Structured settlements are a specific and regulated area, and you want to find a lawyer with experience in these transactions. Your friends or family might have recommendations. If not, check one of the many find-a-lawyer websites that are easy to come by through a simple Internet search.

Once you’ve put together a list of names, give each one a little more scrutiny. Check to see the areas in which he specializes by looking at your state’s bar association or regulatory websites. You want an attorney who has worked in business-related matters, who has likely seen a few structured settlements in his time. He may be the world’s greatest tax or divorce attorney, but if he’s never seen a structured settlement, try someone else.

Narrowed down that list? Now, take the time to interview the most likely suspects. Ask them directly whether they’ve handled structured settlements, how many, and how recently. A good candidate will have seen many recent structured settlement factoring transactions, and so will have a good idea of the discount rates you’re likely to see from competing firms, and how to guide your sale through the legal process quickly. A good attorney should also come across as professional, competent, and responsive; if he can’t be bothered to return your calls, hire someone else.

Just remember that even though you’ve hired a lawyer and he is supposed to be on your side, you are your best advocate. Ask your attorney – and yourself – every step of the way if selling is the right thing for you to do. Read every document related to the sale of your structured settlement. If there’s something you don’t understand, ask. If you still don’t understand, ask again, and don’t sign until you do.

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News and Tips on structured settlement transfers.

February, 2011

Let Companies Compete to Buy your Structured Settlement!

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