Selling a Structured Settlement Annuity
Posted in Structured Settlement | |
Selling a structured settlement right can be about as legally complicated as it was obtaining the settlement in the first place. The primary motive for doing so tends to be an immediate need. But the seller always needs to understand that he is trading the opportunity to earn a full amount in the future for a lesser amount in cash up front.
The selling process begins with first confirming how much of a structured settlement still exists. In many cases, the full value of the original settlement doesn’t exist anymore. Some of it has already been paid out. As a result, the existing partial value is the beginning point of discussion. From there a selling price will be determined below the partial value figure.
The next step involves finding a buyer. Settlement buyers do not share the same interests as individuals selling. They are interested in making money off the settlement bought as an investment. To make the purchase worthwhile, enough of the settlement needs to remain, even after purchase, to provide a return on what is paid out in cash. Alternatively, a purchase can make a lesser profit by purchasing the settlement and then reselling it to another purchaser, pocketing a smaller profit margin immediately. Either way, what the original recipients wants out of the deal is irrelevant to the buyers.
When the buying actually gets down to working out the terms, a seller needs to have some kind of legal representation, which means another cost. A seller could go at it alone, however, this is a bad idea. Most buyers are companies who know very well what they are doing and will use that expertise via legalese contract language to get the best deal possible. If a seller is naive with regards to what is going on during the negotiation, it can cost significant dollars.
A seller has choice to review the contract with an attorney who may provide legal advice on whether the transaction is a fair deal for both parties. In some states the buyer has to pay for this legal advice up to $1500. It is recommended to always let an expert take a look at the paperwork.
Sellers should also keep in mind that once the deal is done, the lump sum payment received has the same tax status as the original structured settlement annuity payments the annuitant received prior to selling the future rights of said payments. In most cases this means the lump sum is tax free but in some rare occasions, the lump sum can be taxed.
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