Important Things To Know About Structure Settlements And How To Compare Them
What’s important to know about Structured Settlements?
- What is a structured settlement?
- Do I have to sell my entire settlement?
- What are the tax consequences of selling a structured settlement?
- Does selling a structured settlement effect my Medicaid eligibility?
- Do I need a lawyer to sell my structured settlement?
- If I received a structured settlement as a minor when can I sell it?
What is a structured settlement?
A settlement is a legal agreement with which the parties in a lawsuit agree to resolve the case in exchange for something, usually a sum of money. With a structured settlement, the settlement money is paid in periodic payments over a specific period of time instead of as a single lump sum payment. Structured settlements are commonly the result of personal injury lawsuits. The payee-the person who receives the settlement-can transfer his or her payment rights to a company that buys structured settlements and receive a reduced lump sum.
Do I have to sell my entire settlement?
You don’t have to sell your entire settlement. Structured settlement companies are willing to buy a certain number of settlement payments, such as the next 10 payments. They will also buy portions of each payment, which allows them to receive a percentage of each future settlement payment while you keep the rest.
What are the tax consequences of selling a structured settlement?
The tax consequences of selling a structured settlement will depend on why the settlement was awarded in the first place. If your structured settlement was part of a personal injury lawsuit, the settlement is tax-exempt, and so is the lump sum you will receive if you sell the structured settlement. However, if you received the structured settlement because of any other kind of lawsuit, the settlement and its future sale are taxable. Since almost every state has passed a structured settlement protection act, the state tax consequences may vary depending on where you live, so you should speak to an attorney or tax specialist to make sure whether the sale of your structured settlement is taxable or not.
Does selling a structured settlement effect my Medicaid eligibility?
Since a structured settlement is considered an asset, you could lose your Medicaid eligibility when both receiving a structured settlement and selling it. To be eligible for Medicaid, applicants must be below a certain level of income as determined by the state that administers the program. When you receive a structured settlement, the money you are paid periodically may put you above that income level. If it does not, selling your structured settlement and receiving a larger lump sum might.
Do I need a lawyer to sell my structured settlement?
You do not necessarily need a lawyer to sell your structured settlement, but it is highly recommended. Some states require by law that you have “independent legal advice” when you sell a structured settlement, meaning that you cannot consult the company’s lawyer. Some of these states are Alaska, Delaware, Louisiana, Maine, Maryland, Minnesota, North Carolina, and Ohio. Other states do not require it, but it is a good idea to retain your own lawyer to guide you through this process. The sale of structured settlements requires a judge’s approval during a court hearing, and an attorney could give you advice on the fairness of the sale, among other things.
If I received a structured settlement as a minor when can I sell it?
If you were awarded a structured settlement as a minor, you are able to sell it when you turn 18 years old. Before then, parents are not allowed to sell their child’s structured settlement because it is understood that the settlement was structured in order to protect the child’s best interests and provide a steady source of income to meet his or her needs while growing up. A judge will only approve the sale of a minor’s structured settlement if the parents have an urgent need to sell it and if selling it would be in the child’s best interest.
HOW WE COMPARE STRUCTURED SETTLEMENTS:
The structured settlement industry can thought of as serving two distinct markets. It’s important to understand the difference between the two. The buyers in the primary market are usually casualty and liability insurance companies that have agreed to pay an injured person a certain sum of money in installments over a period of time. The sellers in the primary market are also often other insurance companies or financial insitutions that sell annuities, which are essentially contracts to make periodic payments. Other stakeholders in the primary market may include lawyers for the injured party and the insured party, the courts, and structured settlement brokers. Payments are determined considering the current and future needs of the injured party. However, if that person’s financial needs or circumstances change, he or she may wish to sell the annuity rights to a structured settlement buyer. In such cases, the injured party sells a portion or all of his or her future payments for a lump sum of cash. This is the structured settlement secondary market.
Any transfer of a structured settlement must comply with Internal Revenue Code section 5891, and any applicable state laws. Forty-eight states require a court to review a structured settlement buyout offer. During this procedure, the judge will ask people receiving structured settlements what they intend to do with the money, if they understand the fees and rates they are being charged, if they understand that the amount being approved is less than the amount over the life of the original settlement, if they have consulted a financial advisor or lawyer, and if they understand that the process is irreversible.
It is of paramount importance that you work with an established, well-funded, and reputable company. The array of organizations that are able to buy structured settlements is vast, spanning everything from long established and reputable financial firms, to fly-by-night outfits that target those with disabilities. There is no central authority or commission for structured settlement buyers. Unlike the insurance industry, the secondary market for structured settlements is largely unregulated. Many consumers looking to sell their structured settlements are often in a tight financial situation and need fast access to cash. This can make them vulnerable to those who promise easy, immediate cash. Structured settlement buyers make their money by charging what’s called a discount rate, which is essentially a percentage of the present value of the remaining structured settlement payments. A discount rate of 6%-10% is normal, but many companies charge more, which works strongly to the consumer’s disadvantage.
As a result, we encourage consumers to shop around and employ due diligence in identifying the kind of company they are working with. Ask for credentials. Is the person you are dealing with a certified financial planner, chartered life underwriter, or lawyer? Ask about academic credentials and professional certifications. If the agency deals in securities, you can use FINRA broker check. For financial advisors, you can use the Securities and Exchange Commission’s Investment Advisor check. Insurance agents can be checked out at your local or state insurance department. But above all, always consult your own independent financial planner or lawyer before you sign anything.
Beyond this we’ve taken several additional factors into account when looking at the structured settlement buyers we’ve evaluated. We looked at how long the company has been in operation and where it is registered. We’ve verified the company’s address and phone number, ensuring a customer’s ability to contact. We’ve also documented pertinent financial information such as past bankruptcies and financial history where relevant.
Structured settlement buyers offer a variety of options when it comes to types of settlement buyouts, disbursement methods, and additional services. Processing time can be anywhere from 45-90 days. This represents how long it will take to get the lump sum after you have accepted the purchaser’s offer. Companies usually disburse the funds through pre-paid debit cards, checks, wire transfers, or direct deposit. We’ve also looked at a given company’s customer service hours and how easy the firm is to contact.
Structured Settlement Buyouts
Providers typically offer three main ways to buyout your structured settlement. The company can buy out the entire rest of the annuity and issue one, large lump sum. They can purchase a portion of future full payments, i.e. there are 10 years of payments left and the company buys 2 full years. Finally they can buy a portion of the regular installment. So say you receive $500 monthly, the provider can buy $250 of this for the remaining payments, issue a lump sum, and you’d still receive $250 monthly.
Other services structured settlement buyers offer could include:
Pre settlement payments
Workers comp settlement buyout
Lottery winning buyout
Annuities that are not the result of a structured settlement buyout
In order to assess a structured settlement buyer’s overall reputation, we consult the usual BBB and Trustpilot data. We not only take careful notice of a given company’s overall grades, but also the number of positive and negative customer reviews. Sometimes, even a company with a high grade may have a disproportionate number of negative reviews, which we then consider in our overall appraisal. We also survey each company’s recent history to see if they have been the focus of any significant litigation or regulatory actions.
Founded in 1912, the Better Business Bureau has been a standard-bearer for marketplace trust, calling out unethical and subpar market behavior for over a century. For structured settlement buyers, we looked to see if the company was accredited and what grade the BBB had assigned them. We also compiled the number of good, neutral, and negative reviews.
Trust Pilot Rating
TrustPilot is an online review community founded in 2007 in order to help online shoppers make informed decisions, based on a belief that people’s voices should be heard. The website averages roughly 500,000 new reviews a month and employs a staff of over 500 people. Companies are searchable by web presence, and Trustpilot compiles reviews to determine a score between 1 and 10.