These answers are based on the federal and state legislation that is so important to the 21st century’s version of the structured settlement purchase business.

Why would anyone sell his or her structured settlement payments?

While structured settlements serve an important role and more often than not meet the payees’ needs as originally planned, they are incapable of resolving unplanned, immediate financial needs of the payees. If the individual seeks money from his settlement payments, it’s usually because he has a financial emergency and does not have access to traditional credit sources. The payee may have lost his job or gotten a divorce, he may need to save a home from foreclosure, or maybe he encountered medical emergencies. There are a number of valid reasons. Liquidating a portion of settlement payments is sometimes the only solution to critical problems.

What do the laws say about transfers?

Most states have laws that provide for the transfer of structured settlement payments. In addition, federal law HR 2884, which took effect on July 1, 2002, granted structured settlement payees the right to sell their annuity payments, without tax consequences, via a court review process.

Don’t I have a conflict of interest in referring someone to you?

The transfer process itself resolves the dilemma. Both federal and state laws require that the transfer of structured settlement payment rights be determined by a court of law to be ”in the best interest” of the annuitant while considering the support and welfare of his or her dependents. If, after full disclosure of all contract details to the court, notification to all interested parties, and an appearance before a judge, the individual is granted permission to complete the transfer, the court has assumed the responsibility of determining what is in the best interest of the annuitant.

Why would I refer someone to a purchaser of structured settlements?

If an individual has a financial emergency and does not have access to traditional credit sources, he or she may need the assistance of a purchaser of structured settlements. Without assistance, the customer may not be well served as he/she negotiates the vast array of offerings from companies with little experience and without the funds to buy direct.

What about the insurance company? Won’t they object?

A few insurance companies object to these transactions, but most do not. Settlement buyers have working relationships and agreements with most insurers and know in advance what venues they desire as well as the representations, warrants, and stipulations they require in each court order. As a result, they can prepare the orders in advance with the proper language expected by each company, ensuring an orderly transfer without contentious and costly court battles.

Who protects the seller's dependents?

The federal law requires that every transfer meet certain conditions or it will be subject to an excise tax. Among the conditions is that the transfer be determined by a court of law to be in the best interest of the seller while considering the support and welfare of his or her dependents. The court considers the interest of the seller’s dependents before permission to transfer payments is granted.

What information is available to the judge to determine if the transaction is in the seller’s best interest?

The judge has complete disclosure of all information about the transaction including:

The discount rate applied to the payments
The retail value or replacement cost of the payments being transferred
Evidence that all interested parties have been sent a notice
Names and ages of all dependents
Personal testimony by the annuitant about the need to sell payments
Testimony from any interested party who may oppose the transfer
A copy of the contract, the original settlement, and the annuity policy

From this information, the judge will determine if the seller’s immediate need for funds is greater than the value of the payments being sold, i.e., that the transaction is in the best interest of the seller and his or her dependents and should or should not proceed.

Why would a judge approve such transactions?

Most judges carefully scrutinize each file to determine if the transaction is indeed in the client's best interest while considering the support and welfare of the seller’s dependents. Judges realize that these annuitants often do not have access to traditional credit sources and the only way some of them can reach their financial goals is by selling a portion of their settlement payments. As long as the seller is an adult of sound mind, has a legitimate need for this money, and can prove to the judge that selling is in the best interest of both the seller and his or her dependents, the judge has little reason to deny the transaction.

What about the courts that have held anti-assignment language as enforceable?

Courts throughout the country have made conflicting decisions, with some upholding anti-assignment language and others holding that such language is unenforceable. For the most part, these transactions are rarely denied in court due to anti-assignment language. Even in states where the courts have upheld anti-assignment language, judges often rule that a transfer of payments is in the best interest of the annuitant notwithstanding such previous rulings. A funding source’s cooperative relationship with most insurance companies allows it to structure transactions that are ultimately in the seller's best interest and agreeable to the courts.

Will the court review the original settlement agreement?

With the possible exception of an interested party opposing the transfer based on anti-assignment language, the court generally does not review the original settlement agreement. It is, however, a required document for identifying interested parties and beneficiaries.

Do the sellers get independent legal and financial advice?

Most state laws provide the seller the option to seek legal, financial, and/or tax advice before entering into a purchase and sale agreement. Some states have made this mandatory, while others require the seller to sign a waiver if they choose not to seek independent legal or financial advice. The settlement buyers and consultants should encourage clients to seek advice before asking court approval to sell their payments.

What costs will the annuitant bear if the court denies the transaction?

None. If the court denies the annuitant’s petition, the funding source assumes the cost and learns from that experience. Experience has taught us what criteria determine "best interest" by most judges, so we seldom enter into contracts that would fail the test. As a result, we have a success rate of over 90 percent.

When will the annuitant get paid if the order is approved?

Usually within eight working days after receiving court approval. Once an Order is issued, the funding source notifies the insurance company and obtains its acknowledgment, after which the funding source pays all parties.

What will the annuitant be paid?

Each transaction is priced on an individual basis. The average transaction is about $40,000, but can range from $15,000 up to $500,000 in cases where estates are being settled. The amount purchased is a function of four things:

What the annuitant is attempting to raise to meet their immediate needs
The size and term of their remaining guaranteed payments
The seller and his or her dependents’ reliance upon the payments for their livelihood
The discount rate applied to the payment stream

Knowing these four things allows the funding source to apply the "best interest" standard prior to entering into a contract.

Can the annuitant sell only a portion of his or her payments?

Yes. The funding source works with the client to ensure the transaction is structured to meet his or her needs. We attempt to leave as much as possible of the seller’s monthly payments by purchasing smaller amounts for longer periods or by concentrating on irregular lumps.

Aren’t there tax consequences to the annuitant and the insurance company?

No. With the passage of HR 2884, that issue has finally been put to rest. This law specifically states that neither the issuers, owners, nor annuitants will suffer tax consequences as a result of these transfers. In addition, the law clarifies that transfers done prior to the enactment of this law do not invoke taxes to any party.

Can this be done on workers’ compensation settlements?

No. Nearly all states have laws that specifically prohibit the assignment of worker’s compensation benefits, and the laws that govern structured settlement transfers specifically say that such transfers cannot contravene existing laws.

Can this be done in all 50 states?

More than two thirds of the states now have transfer statutes in place. Individuals living in states that do not currently have a transfer statute are often permitted to file their petitions in the state where their insurance company is headquartered. It is, therefore, rare that a proper venue cannot be found to file a petition for transfer.