“CASH NOW” IS NOT “CASH NOW”-THE LEGAL REALITIES OF SELLING A STRUCTURED SETTLEMENT OR AN ANNUITY

Eugene Andre Ahtirski

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Litigation Lawyer

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Posted almost 3 years ago. 3 helpful votes

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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 various companies engaged in the primary 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, located at 26 U.S.C. 5891, please see: http://uscode.house.gov/download/pls/26C55.txt

In addition to Federal Law, 47 individual States have also adopted similar laws, which are also based on the “protection of sellers". To locate the law for any individual state, simply "Google" the name of the state with the words "Strcutured Settlement Protection Act". For example, if a person were looking for the California state statute, the Google phrase would be: "CA Structured Settlement Protection Act".

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 WORKS - AND WHAT EVERY SELLER NEEDS TO KNOW

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 BOTH to reduce the actual value of the payment stream being sold, and to determine the “profit margin" that a company expects to make.

  1. The process of reducing the value of the payment stream is based on a process of using TWO SEPARATE “DISCOUNT" rates; that ultimately will also determine what the final contract amount and “purchase price" will be for a seller’s future structured settlement annuity payments.

  2. Specifically, the first “discount" rate is based on establishing what the “present day" value of a person’s future payment stream actually amount to; and is determined by using a specific Federal Rate (published by the IRS). 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. And that “Federal rate" rate is currently averaging between ONLY a “discount" of 2.4% to 3% of the total future value of the payment stream.

  3. Next, and this is critical, a company will then use that “present day value" to assess the “profit margin" that they are going to seek to make from the purchase of a seller’s payment stream. That “profit margin" then becomes the second “discount" rate that is applied to the payment stream.

  4. More important, that second discount rate is NOT (in general) based on specific rules, or regulations, but instead upon a “negotiation" between what a willing seller and a willing buyer can agree to between themselves to be a “fair" purchase price.

  5. And, depending on how skilled a seller is in negotiating a price, the end result as to what the second “discount rate/profit margin" can be a difference ranging anywhere from 8.0% to 15% or more!;

  6. At the same time, however, a seller cannot ALSO expect to receive the “full value" of a future payment stream either, because a structured settlement annuity payment due even a couple of years in the future is NOT worth the full “face value" amount of the payment until the year the payment is actually due.

THE STEPS THAT EVERY PERSON SHOULD TAKE BEFORE MAKING A DECISION TO SELL STRUCTURED SETTLEMENT ANNUITY PAYMENTS.

  1. Learn as much as possible about the process, by reading different articles, blogs, web-posts, etc.

  2. When seeking offers, a person should ALWAYS get at least 2-3 competitive offers, just to see how much difference there is in the prices offered.

  3. A seller should try to figure out what their “magic number" is. That is, the actual amount of money that a person is seeking to obtain in order to meet the initial “need" for funds that motivated the desire to sell their payments; and

  4. Because the process is complex, and does involve a number of choices and possible pitfalls, including a court hearing, EVERY person seeking to sell a future payment stream SHOULD obtain the advice of an experienced attorney, financial advisor, structured settlement consultant, and/or structured settlement expert to assist them in the finer points of the negotiations, and Court Approval process.

Remember, selling payments is NOT a bad idea, if done properly, and if there are no other financial alternatives available to obtain the necessary "liquidity" to meet immediate financial needs!

For more information on all of the above, including how to locate individuals experienced in the industry of selling structured settlement and annuity payments, please Google “Eugene Ahtirski", or twittering “Ahtirski", or click on any of the related web-sites tied into Eugene Ahtirski’s profiles on either: www.avvo.com/attorneys/91411-ca-eugene-ahtirski-46883.html, or at www.yelp.com

Additional Resources

http://structuredsettlements.typepad.com/structured_settlements_4r/2012/08/cash-now-is-not-cash-now-says-attorney-for-structured-settlement-buyer-.html

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