Based on a recent article on the secondary transfer market for structured settlements, you already know that transferring your future payments due from a structured settlement to an asset owner who will then take over the settlement is perfectly legal. However, if you’re selling your structured settlement, involving a lawyer or a specialized settlement broker who specializes in these tough financial life events is recommended long before you even shop around for an initial offer. The reason is simple. Banks and other asset-bearing companies have become very good at spotting inflated asset values, especially with the boom of subprime mortgages and the crisis in home buying/selling. The time can be at hand for your future payments to be converted to cash to reduce your tax liability.
There are companies that have been known to buy structured settlements “legally”. This includes companies such as Act Educations, formerly known as Act Education, that has a history of buying structured settlements and turn around and reselling them to individuals. The most common scenario: Your case was awarded to an insurance company that was paid out through Medicaid, but then the insurance company decides to foreclose. They are not required to give you a break; they simply must sell structured settlement payments that they own to a non-traditional settlement broker or insurance company.
The factoring company will give the cash-out award to the plaintiff in exchange for taking over your future structured settlement monthly payments. In most cases, the courts approve this deal. The factoring company gets a lump sum award instead of a monthly payment. The court does not require the factoring company to post a bond, which means the plaintiff is left with just his or her attorney fees – if not more. And if the case is won, there is no tax implications on the winnings because the state and/or federal governments typically do not have to pay any tax on lottery winnings.
Some people wonder how selling structured settlements to pay for taxes is allowed. The fact is, you can’t have the cash upfront. Once the cash payments have been made, the government takes over the remainder. That’s why the selling process is done through cash installments. The lump sum award that you receive is tax-free, meaning you never have to pay taxes on the amount of money you receive.
People are also worried about using structured settlements to pay for an annuity. After all, most annuities have periodic payments that are fixed for a certain number of years. If the insured has not made a payment for a year, the annuity starts to run out. The only way around this is to sell the structured settlement in order to have the immediate, guaranteed income. But there is nothing wrong with using the cash for other things, as long as it’s not used to pay for an annuity.
The key to selling a settlement for a lump sum payment is to make sure the terms of the sale are agreeable to both you and the company that bought the settlement. You need to make sure the company you choose will not pursue any claims against you and that your lump sum payment schedule does not violate any laws or contract provisions. If you’re unsure about whether you want to sell your settlement, consult with an attorney. An attorney can help you assess the pros and cons of selling your settlement.