They do not own the annuities that fund their periodic payments even though they are typically named as annuitants and may even possess the annuity contracts as common law secured creditors. What they own instead are structured settlement payment rights.
“Anti-assignment’ clauses in settlement documents are enforceable and, if enforced, could prevent structured settlement recipients from selling their payment rights.
Selling structured settlement payment rights is subject to state protection statutes and requires advanced approval from a state judge or responsible administrative authority.
When evaluating proposed sales, these state judges or responsible administrative authorities are required to apply a “best interest” test that takes into account the welfare and support of the sellers’ dependents.
Many state judges require proposed sellers to appear in court and answer questions to determine whether proposed sales meet this “best interest” test.
Most state structured settlement protection statutes require a finding that sellers either have received independent professional advice or have knowingly waived the right to receive it. At least eleven statutes require findings that sellers have in fact received independent professional advice and waivers are not permitted.
One criterion to consider when selecting a purchaser is whether that purchaser belongs to the National Association of Settlement Purchasers (NASP), a professional association that promotes best practices among its members and provides industry education about the transfer process.
Like what Patrick Hindert has to say? Read their opinion on our other Structured Settlement Roundtable topics.
There are 3 things I think sellers should keep in mind:
This is a longer process than they might imagine. From start to final funding, the process can last up to 90 days, or more, depending on where you live (how busy the courts are, etc.). Most factoring companies will be willing to advance some of the purchase price to you, but the majority of the sales price will not come until the matter is finally approved. A court must approve all transfers. In most cases, that means the seller will need to appear in court, in order to answer questions about the transfer.Related to the above, sellers should keep in mind that when they go to court, they must be ready to tell the judge exactly why the transfer should be approved. They must be their own best advocate and be ready to show how the transfer is in their best interest.
Like what Matt Bracy has to say? Read their opinion on our other Structured Settlement Roundtable topics.
The true value of money received over time as compared with a lump sum today. There was a radio station in Cincinnati that held a “$1 million contest” – the winner got $1 a year for a million years. Even with this some people thought this was a lot of money. I wonder if the winner tried to cash in the stream of payments.
Another sleeper here is the set of post-closing problems that can arise – disappointed contingent beneficiaries, for example. People should get disinterested advice from some knowledgeable person, but that’s really not what happens very often.
Like what Joseph J Dehner has to say? Read their opinion on our other Structured Settlement Roundtable topics.
Unfortunately, the nature of the State Structured Settlement Payment Transfer Statutes requires court approval of any “transfer” of one’s structured settlement payment rights. What that means is that the payee/annuitant, who owns this valuable intangible property right, must secure approval of a Judge in order to liquidate future structured settlement payments. Because “transfer” is a broad term, which includes any sale, assignment or pledge/security interest for consideration (meaning that anyone who wanted to use their future structured settlement payments as collateral for a loan from their bank or credit union would also need to secure court approval of such transaction), that in most circumstances where a payee/annuitant was seeking any sort of liquidity relative to their future structured settlement/annuity payments, via a secured loan or a sale/assignment, they are going to have to go to court and secure approval of the transaction from a Judge.
Many payees/annuitants are surprised to learn that they must secure court approval in order to liquidate their future payment rights. So, these transfer laws, which were meant to protect payees/annuitants from being taken advantage of and insure that they were making informed, considered decisions regarding their financial assets do, in fact, restrict the payees/annuitants’ rights to manage their financial affairs and dispose of their assets in the manner that they (the payees/annuitants) feel is best for them.
So, the first thing payees/annuitants need to understand when they start off on this process is that, ultimately, they will not have control over this decision. The Judge will. Many Judges will often defer to the wishes and desires of the payees/annuitants, even if the Judge does not think the transaction is a great deal. A few, unfortunately, take the position that these transactions should rarely, if ever, be approved. Unfortunately, Judges do not all apply the law the same way and Judges do not all subscribe to the theory that competent, adult payees should be permitted, in most cases, to manage their own financial affairs how they seem fit and make their own decisions about their financial assets. So, payees/annuitants should be prepared to have to persuade a Judge that they (the payee/annuitant) fully and completely understands the transaction, desire to complete it, and that the transaction is in their best interest. Being confident and adamant, but respectful of the Court, is important for payees.
Different courts will be able to hear these matters on different schedules. In some jurisdictions, the case will be heard quickly, within 30 days after the court case is filed. In other jurisdictions, it may take longer (60-90) days and in a few jurisdictions, even longer than that.
Once the payee/annuitant reaches an agreement with the funding company (buyer), the funding company will send you a disclosure statement that sets for the primary financial terms of the transaction – i.e. schedule and total of future payments being transferred/assigned; detail of any expenses that will be assessed the payee; the purchase price that the payee/annuitant will receive, etc. Then, depending on the applicable State law, the payee will have 3, 10, or perhaps 14 days to think about it (a “waiting period”) before they can legally sign a contract. A payee/annuitant should be very suspicious of a company or sales person who suggests that they “back-date” documents. Strict compliance with the statutory waiting period is required.
Once the transaction documents are executed, the funding company will retain counsel in your State who will file a transfer proceeding in court and secure a hearing date. You will likely be contacted by counsel prior to the hearing. The payee/annuitant certainly has the option of retaining their own counsel or consulting with a financial advisor, but that is not required in most States. (Some States do require the payee/annuitant to be represented or receive advice from a financial advisor or lawyer.) I would recommend that the payee/annuitant request from the funding company early in the process a copy of the transfer statute in that state and review it carefully. The lawyer for the funding company is NOT the lawyer for the payee/annuitant. Their objective is the same, to secure court approval of the transaction, but they are not representing, advising, or acting on behalf of the payee/annuitant.
Some Judges are predisposed to be hostile to these transactions. There are some reasons for that, which are too complicated and involved to discuss here, but the payee should understand that they are important in the process of securing court approval of the transaction. The payee should understand that what they are doing is perfectly legal and permissible by the law. They should not be embarrassed about the transaction or having to go to court. Payees should be very clear and understand the transaction documents so that if the Judge asks, they can intelligently describe to the Judge the payments that they are transferring/assigning and the amount that they are receiving in return. Payees should demonstrate complete confidence that they want to proceed with the transaction and that they understand the transaction and the fact that they are receiving less money today than if they wait until the payments come due in the future, but that they desire to complete the transaction and they have thought it through, considered other alternatives (i.e. borrowing money), and that they want the court to approve the transaction. Be confident and certain.
Like what Earl Nesbitt has to say? Read their opinion on our other Structured Settlement Roundtable topics.
That the sale of a each structured settlement payment is unique and should be tailored to meet a person’s specific needs. Further that there is no “one size fits all formula”. And the best advice to give any potential seller of payment stream is to become as educated as possible about the process and the nature of the transaction and to obtain proper representation to assist in the sale. This advice is mirrored in all States’ structured settlement protection acts which either strongly recommend and/or mandate that a seller obtain the services of an expert, to wit, an independent professional advisor, to assist in a sale a payment stream.
Like what Eugene Ahtirski has to say? Read their opinion on our other Structured Settlement Roundtable topics.
That selling a structured settlement is a significant financial transaction and should be entered into with the same gravitas as the original law suit that led to their structured settlement. I have not had a single client who I have helped sell their structured settlement who wanted to set down and talk about the language in the purchase agreement. Their question has been where do I sign and when will I get my money.
Like what Terry Taylor has to say? Read their opinion on our other Structured Settlement Roundtable topics.