Myths in the structured settlement purchasing industry that you need to watch out for
Are you in the middle of a financial crunch, and strongly considering selling off your structured settlements? Well, you must be prepared for a lot of contrasting information that is generally delivered by agencies, brokers, and self proclaimed consultants of structured settlement sales. This article intends to clear all the common myths that are prevalent in the structured settlements purchasing industry.
Most common myths, with the truth behind them
Structured settlements purchasing industry is a contemporary financial force – This is a rather inconsequential, but pretty widespread myth about structured settlement purchasing industry. The truth is that the existence of such purchasing companies in the forms and functions they assume today can be traced back to at least 20 years, when the demands of annuity owners to convert their periodic annuities into immediate cash gave impetus to this industry.
The entire structured settlement needs to be liquidated -This is certainly not true, and if you are being made to believe such untrue information bits, you might as well look for a different buyer. On a broad basis, there are three types of structured settlement sales – shared payment, partial payment, and complete payment. It is only if you consciously opt for a complete payment that you need to convert the entire structured settlement into immediate cash. Otherwise, there is no such obligation on you as you try to sell your settlements off. A structured settlement, being a momentous asset for an individual, deserves to be treated with all the possible care, and it will serve you well to be aware of the different ways in which you can sell them.
Selling a structured settlement means immense tax burden – There have been many cases when so called consultants have advised their clients to retain their settlements because of the fact that they would otherwise have to shell out a lot of the converted amount in the form of tax. True, a structured settlement comes with a lot of tax benefits, and the seller is bound to be worried about the tax implications of selling the same. However, as far as the annuities being sold are tax free themselves, the amount that you get upon converting them into cash is certainly not going to be taxed. This has been clearly laid out in 26 U.S.C. § 5891 (d) (1).
Therefore, if an annuitant seeks to sell off his tax free annuities, the converted lump sum will also be treated as tax free, as per a post on myths prevalent in the structured settlement selling and purchasing markets on Stone Street Capital’s website.
Structured settlement purchasing companies fool owners of settlements into selling annuities – It is not uncommon for people to question the kind of enticing late night television commercials that structured settlement purchasing companies’ float, showing flowery sides of immediate cash. However, in no way can this treated to be as an attempt to fool people into parting with their annuities. The nature of the Structured Settlement Transfer Act is such that even a willing seller will have several chances of contemplating over the implications of the sale, which can further act as outlets for the seller to walk away from the sale. Moreover, all structured settlement sales have to be routed through a court approval process. It has been observed that these approvals generally take anything between 15 days to 2 months. So, there’s ample time for a seller to change his mind and walk away from the sale. This makes it a futile attempt for structured settlement purchasers to try wooing sellers.
It’s a risky industry with little information or protection if anything goes wrong – Nothing could be more distant from the truth. In fact, the structured settlements purchasing industry is among the most well regulated ones. There are several state and federal laws that govern every transfer of structured settlement. Whenever a structured settlement purchase or transfer is proposed, it is reviewed in two separate tracks – by a local court, and the IRS. The transfer has to be approved from both the tracks. Also, if any sort of shady behavior is detected by the courts, the penalties are too severe to be even risked. A court objectively considers whether a structured settlement sale is in the best interests of an individual, and whether the purchasing company is complying with all the laws drawn out. Moreover, if the sale is not approved by the court, the company bears the costs of the failed transaction. Even if the court approves the sale, and purchasing company managed to make a profit in terms of the factoring discount at which the settlement is sold, it must maintain its papers all the while, as any non compliance detected by the IRS can lead to penalties as much as 40% of the factoring discount amount.