-THE LEGAL REALITIES OF Selling an Annuity or Structured Settlement for “CASH NOW”
We have all seen the commercials:
- “It’s my money, and I want it now!” – Or:
- “It’s your Money – Use it when you need it”
- “GET CASH NOW” for your Structured Settlement!
ALL are very popular and very expensive advertising campaigns put on by companies such as J.G. Wentworth, Peachtree Financial, and similar companies engaged in the business of purchasing structured settlement payments, lottery and casino jackpots, and annuities (hereinafter “future payment streams”), for a significantly discounted present day value.
Unfortunately, however, what all the commercials and the catchy “CASH NOW” phrases don’t tell you is that: CASH NOW, DOES NOT ACTUALLY MEAN CASH NOW!
WHAT “CASH NOW” TRULY MEANS
There are 3 PRIMARY “unspoken” truths that most companies that advertise generally do NOT want you to know about (at least NOT at first), when you initially see their Television Commercial, or locate them on the Internet. Those 3 realities are:
1. That “CASH NOW” really means that the SOONEST you will be able to receive “YOUR MONEY” will probably be about 90 DAYS AWAY; if you are lucky!
2. That a completely SEPARATE COURT PROCEEDING IS ALSO REQUIRED FIRST, where a Judge must ACTUALLY determine that it is both in the “best interests” of the seller, as well as any dependents the seller may have; AND
3. Most Important, that the FINAL AMOUNT that a seller can expect to receive for their payments WILL BE FAR LESS “CASH NOW” than the actual “face dollar amount” of the payments that are being sold!
THE LAWS “BEHIND THE CURTAIN” OF THE “CASH NOW” INDUSTRY
Due to the long history of predatory practices in the industry of buying future payment streams , numerous laws on both the Federal and State levels have been adopted in order to “protect people that are seeking to sell their future payment streams”.
These laws are commonly referred to as “consumer protection legislation”, and vary slightly from state to state. But, all of these laws, however ALSO have TWO primary GOALS in common:
1. To make sure that sellers of future payment streams are not misled, or taken advantage of by companies wishing to purchase their payment streams; and
2. That it is actually a “good idea’ and in the “best interests” of the seller to liquidate a future payment stream for an amount significantly less than the actual “face value” amount of the payment stream.
For specific references to the Federal Law that governs the sales of ALL Structured Settlement and Annuity payments please see: http://uscode.house.gov/download/pls/26C55.txt
Also note that in addition to the federal Law, located at 26 U.S.C. 5891, 47 individual States have also adopted similar laws, all “modeled” the Federal law governing the “protection of sellers”. Depending on where a person wishing to sell their structured settlement payments resides, those individual State Laws can be located, by clicking here.
SHOULD A PERSON NOT SELL THEIR STRUCTURED SETTLEMENT OR ANNUITY PAYMENTS?
Does that mean that person who is seeking to sell a future payment stream should NOT do so? NO-OF COURSE – NOT! It simply means that any person wishing to sell a future payment stream UNDERSTAND exactly what they are doing, and also what the PROCESS actually entails.
Especially, in these changing economic times, with the country facing a possible another “recessionary” period, many people find themselves in “un-foreseen” circumstances that require making “difficult decisions”, including the liquidating of assets such as structured settlement annuity payments in order to address immediate “cash flow” problems, such as un employment, mortgage foreclosure issues, or even simply a need to pay the most basic costs of living expenses.
So, selling annuities, structured settlements, lottery, casino jackpots and other types of future payment streams for “liquidity” has become just a basic reality of the current economic climate for many average middle-class Americans.
How the process of selling structured settlement payments really works – and what every possible seller must know before agreeing to enter into a contract with any company
A. TWO SEPARATE “DISCOUNTS” OF A SELLER’S PAYMENTS ARE USED TO DETERMINE A CONTRACT PRICE
1. Once a person agrees to accept an offer from any company – and before any contracts are issued – the purchasing company will go through a two-step process to reduce the actual value of the payment stream to be sold.
A. First, the total value of a person’s future payment stream is “discounted” to a “present day value” using a Federal Rate as established by a monthly rate that is published by the IRS for the purpose of valuing annuities for “estate”. For a detailed reference as to how that rate is calculated, please refer to: http://www.irs.gov/pub/irs-drop/rr-11-14.pdf
For reference purpose, that rate is currently averaging between 2.4% to 3%.
B. Next, and this is critical, the company will then use that “present day value” to then assess the “profit margin” that they are going to seek to make from the purchase of a seller’s (your) payment stream.
More important, that second discount is NOT based on any rules, or regulations, but ONLY upon how LITTLE the company can get a seller to agree to for their “future payment stream”. And the author of this article, having personally handled over 8,000 transfers – has seen the “end” interest rates charged to sellers range from between 8.0 to 29.9% – all based on what the company can “lure” an “un-sophisticated” seller into accepting!
the Steps that every person contemplating a sale of their “structured settlement/annuity payments” – should do to protect themselves before any contracts are ever signed
For more information please check these websites: