3) We've seen factoring companies entertain the purchase of payment rights from a structured settlement just issued! The capital loss is huge.
(4) We have seen both sophisticated and unsophisticated annuitants who are seduced by perceived investment opportunities. Before doing anything, consider the current market environment. Do you really want to trade "on time every time" for volatility or uncertainty. Consider contacting us or someone who can perform a Monte Carlo analysis , to evaluate their current and future needs and how they would be affected by the sale of payments at a discount followed by investments in equity markets.
(5) IMPORTANT TIP!
Some settlement purchasers are sending mailers claiming to be what seems like a government agency. The companies are engaging in fraudulent advertising. You do not need to register your structured settlement with any "agency" and your structured settlement does not need to be audited.
IV You also must understand the transaction. It's critical to your long term financial security.
A structured settlement factoring transaction involves several elements which can really add up:
(1) The discount rate which is the rate that the factoring company applies to your future benefit payments to come up with what those payments are worth in today's dollars Always ask for the "effective discount rate". This is the rate that takes into account all of the costs identified here in this section. It is the only way to really appreciate the cost of what you are contemplating doing and compare it. When credit is tight discount rates get pushed upward, meaning even less cash from the "cash now" pushers.
(2) The profit margin for the investor which can vary by company and transaction.
(3) The commission to be paid to the factoring company or the referrer of the business to the factoring company.
(4) Legal and Court costs to achieve a "qualified order".
V Beware Bogus Advertising
There are some established factoring companies who do responsible advertising and those that do not. Then there are individuals who factor on a part-time basis, or make money posting bogus "opinions" and "stories" which seem to relate a real life experience that prove to be little more than dubious endorsements to draw you in to the main event, which is getting you to part with long term financial security through a factoring company.
Some factoring companies falsely imply that you can simply call them up and get "cash now", "all of your cash now", "fast cash now" "immediate cash now" , "full value"and the like. The reality is that it could take months and you will NEVER get "full value" or "all of your money" if you go down that road. Note that some offer a nominal stipend that is then reflected as an offset against the funding amount when the transaction is finalized.
Plaintiff/annuitants should know that some of the issuers of structured settlement annuities, like Allstate Life and Berkshire Hathaway Life, will actually commute your annuity internally if presented with a "qualified order", so consider approaching the structured settlement annuity company as part of your research. While one tax attorney has opined that commutations might be a perilous way to go for the qualified assignee of the annuity issuer, you just may find that the commuting company''s "effective discount rate" is less than the one embodied by a third party factoring company. At the very least you should be able to use this as negotiating leverage.
Finally, if you must go down the path of selling your structured settlement payment rights, write a note to yourself, setting forth your reasons for selling, so that in the future you can be reminded why your younger self took steps that affected your financial future. It may come in useful some day.
Please contact us if you have any questions. We're here to help you better understand your options.