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The only way to access structured settlement funds ahead of schedule is to sell the right to future payments to a factoring company. This process is legal, but also heavily regulated.
What Is the Secondary Annuity Market?
Over the past several decades, structured settlements have grown in popularity as one of the most efficient and equitable ways to compensate personal injury victims for pain and suffering. Structured settlements provide a steady stream of income, as opposed to a one-time, lump-sum settlement. Structured settlements are usually paid through annuities that are owned by insurance companies. To encourage their use, Congress passed the Federal Periodic Payment Settlement Act in 1982, which exempts structured settlement revenue from all income taxes, even when a structured settlement annuity earns interest.
Structured settlement buyers, also known as factoring companies, initially operated in an unregulated environment, sometimes taking advantage of uninformed and eager sellers. In some cases, factoring companies bought entire income streams at a steep discount, leaving the sellers financially vulnerable when the cash from the lump sum sale ran out.
In response to these problems, state legislatures worked with trade organizations such as the National Structured Settlement Trade Association and the National Association of Settlement Purchasers to promulgate laws to protect payees and provide clear and consistent standards for transferring structured settlement payments in the secondary market.
How to Sell a Structured Settlement: Key Considerations
If you are thinking about selling your structured settlement payments, we recommend you enlist the help of a trusted attorney or financial advisor with experience in the structured settlement secondary market. Most important, you should seek out a factoring company with a reliable and credible history of protecting the long-term interests of its clients.
You may be able to sell some of your payments, a portion of every payment, or your entire structured settlement. Some survivor benefits are also eligible for sale, as long as there is a period certain or guaranteed number of payments written into the settlement.
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Determining whether or not you qualify will depend on the stipulations of your settlement as well as the laws in your states. The federal Structured Settlement Protection Act of 2002 outlines strict rules for selling payments, rules meant to protect the rights of settlement claimants, and there are also state-specific laws that prevent selling certain payments.
Even if a state allows the transfer of workers’ compensation income, provisions in federal laws may prohibit it, depending on the nature of the settlement. The workers’ compensation boards in individual states typically object to sales of structured settlements, and judges often rule in their favor.
If the law does not prohibit you from selling your structured settlement payments, you will still require a judge’s approval to proceed with the transfer. The judge must deem selling payments is in your best interest and you will still be able to afford necessary medical treatment in the future. This entire process takes somewhere between 45 and 60 days to complete in court, which is why you may also want to select a factoring company that offers cash advances.
- Living expenses, such as a mortgage
- Family milestones, such as funding a college education for children
- Your life expectancy
If you have income from another source besides your structured settlement, your case is more likely to be approved. If you have a disability workers’ compensation case, you are required to have an additional source of income to be eligible to sell the disability income payments.
All regulations aside, it’s vital that you carefully consider all the implications of choosing to sell your payments. Think about any future financial needs you may have and how the sale could affect your taxes and eligibility for Social Security, government medical assistance and other benefits.
Selling Structured Settlements on Behalf of Minors
The most carefully guarded structured settlements are those awarded to minors. If a child recipient’s circumstances change profoundly, it is possible for a parent or legal guardian to sell the right to future payments, but the burden of proof is high.
Parents or guardians must demonstrate conclusively to the court that there is an immediate necessity for a cash buyout and the child’s needs would be served more by selling the settlement than by waiting on future payments.
Other companies have done it very infrequently, and even then the process dragged out for years, frustrating all involved.
However, when minors turn 18, they can decide to sell future payments — some or all of them — to a factoring company for a lump-sum payment just like any other adult with a structured settlement.