Independent Professional Advice

Independent Professional Advice for Structured Settlement Factoring Transactions
Independent Professional Advice for Structured Settlement Factoring Transactions

Independent professional advice is required under the structured settlement protection acts of certain states before selling the rights to future structured settlement payments, to make sure that the annuitant (seller) receives a fair market value from the factoring company (buyer) and that the transaction is in the best interest of the selling party and any applicable dependents.

Receiving independent professional advice is usually in the best interest of the seller and is recommended for all individuals selling the rights to their structured settlement payments. Making a decision to sell structured settlement payment rights should be arrived at after a careful thought and examination. Acting without such advice may neither be in your best interest, nor your dependents, nor that of any potential buyer and could lead to your application not receiving the required judicial approval.

Independent professional advice can be provided by an attorney, accountant, financial planner or someone otherwise qualified to provide such advice.

What States require Independent Professional Advice?
  • Alaska
  • Delaware
  • Louisiana
  • Maine
  • Maryland
  • Minnesota
  • Missouri
  • North Carolina
  • Ohio
Some settlement purchasers or factoring companies actually encourage structured settlement annuitants to seek independent professional advice even if not required by law, particularly in states like New York. From time to time we receive calls from new individuals who regretted having sold their structured settlement payment rights, or didn't shop around for the best deal when they did. The small cost of an IPA can provide additional piece of mind.

Is a Structured Settlement IPA a Rubber Stamp?

No, and it should not be. A Maryland lawyer who purportedly provided IPA services to a large number of Baltimore City MD lead paint victims with structured settlements found himself in hot water. See here and here.

Prepare to spend at least 30-45 minutes on a phone call or Skype and to have a frank discussion about your financial situation, including but not limited to the sources and uses of funds and your reasons for considering the sale of the structured settlement payments, explored negotiating with creditors**, how you were solicited and what steps you have taken to obtain more than one offer from unrelated settlement purchasers as well as assess whether you have a clear and informed understanding what you are doing. For example, how will selling a guaranteed lump sum payment at a discount impact financial aid? The IPA should provide you with a written summary of your discussion. The independent professional doing the IPA must make an informed opinion that a seller understands what he or she is doing and has evaluated the consequences. 

**For example, a client came to us with the notion of selling part of a lump sum that was due to be paid in only 3 months to pay for a $2,000 bill from a funeral home. Our review showed that the legal fees alone for the transaction together with the factoring discount and profit spread were a multiple of that. The transaction clearly was not in the client’s best interest, but the grief process temporarily diluted the client’s thinking. We suggested working out an arrangement with the funeral home and offered to help make the call. Even if the funeral home were to charge a nominal amount of interest, the interest accumulated over 3 months would be less than “haircut” from the factoring company “barber”. The client would still receive the full amount of the lump sum due.

Independent Professional Advice to Structured Settlement Annuitants, Guardians Ad Litem and Judges

If you need independent professional advice concerning structured settlements please consider 4structures.com, LLC's John Darer . Note that service is only provided where Mr. Darer holds an active insurance license. Mr. Darer does not accept IPA engagements in the State of Maryland at this time.

Furthermore as a general rule, Mr. Darer does not accept any IPA engagements where the structured settlement has been in effect for less than 2 years.

Some websites offer a structured settlement factoring discount rate calculator. It is important to know the effective discount rate inclusive of all charges and expenses. You can then use the number to compare to other sources of capital such as bank borrowing, credit cards, home equity loan, SBA loan etc.

What is the scope of Independent Professional Advice?

While the individual providing the IPA may be someone that you would later consider as a candidate to be your financial planner or financial adviser it’s important to understand that the role of the IPA in the context of a structured settlement factoring transaction is to make an independent assessment if the proposed deal is in your best interest and that of your applicable dependents. The IPA assessment may uncover items unrelated to the proposed structured settlement transfer, which the IPA chooses to inform the annuitant, that need to be addressed with the individual conducting the IPA, or another adviser or service provider of your choosing. The scope of the IPA assignment should be covered in the IPA report as part of the engagement.

What is the cost of an IPA?

An IPA for a structured settlement factoring transaction typically costs a $500 flat fee per engagement, for a phone or Skype consultation and written summary. $1,000 fee if court appearance is required (plus travel expense if outside New York City Metropolitan area or State of CT). A payment of $500 via PayPal is required before services are rendered. In the State of California, if the annuitant would like to obtain an IPA then the factoring company has the obligation to reimburse the seller up to $1,500.00.

Shouldn't the company or individual that is buying my structured settlement payment rights pay for this?

An IPA is intended to be ”Independent” professional advice. If the factoring company (buyer) was to pay for this service, then the professional advice would not be independent. There are certain cases that payment arrangements can be made to help out the annuitant (seller), so the transaction can be completed.
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