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June 04, 2011

Truth or BS? Factoring Company Says They "Help You Receive FULL Value"

by John Darer CLU ChFC CSSC RSP

From time to time you may see claims on the websites of factoring companies that they can "help you receive full value" for your structured settlement payments. Is there any truth to this or is it just misleading marketing hype?

The United States Internal Revenue Code at IRC 5891(c)(3)(A) defines the term structured settlement factoring transaction as "a transfer of structured settlement payment rights (including portions of structured settlement payments) made for consideration by means of sale, assignment, pledge, or other form of encumbrance or alienation for consideration".

The Internal Revenue Code at IRC 5891(c)(4) also defines a "factoring discount" as an amount equal to the excess of— (A) the aggregate undiscounted amount of structured settlement payments being acquired in the structured settlement factoring transaction, over (B) the total amount actually paid by the acquirer to the person from whom such structured settlement payments are acquired.  (emphasis ours).

Thus if one applies the definitions of an Act passed by the both houses of Congress of the UnIted States Victims of Terrorism Tax Relief Act of 2001(JCX-93-01) and then signed unto law by a United States President on January 23, 2002, factoring company claims of "helping people get full value" are pure bunk.  (emphasis ours)

You will NEVER EVER EVER get full value if you sell your structured settlement payment rights no matter what the misleading marketing hype says.

The best any factoring company can possibly do is to get you the best price for the discounted value of your future structured settlement payments.

They can't even rationally claim that they get you "full value" for the discounted value because the discounted value is a moving target. One factoring company offering to buy your structured settlement payment rights could have an effective discount rate (after all expenses and charges) of over 20% ,while another factoring company could have one that is less than 10%.

Pay no attention to the misdirection created by the marketing hype you see. If you have to sell structured settlement payment rights because you have exhusted other alternatives, do yourself a favor and shop around.  Do not take the first offer.

The National Association of Settlement Purchasers is encouraged to dissuade its members from using the "full value " claim. The structured settllement watchdog similarly encourages those professional associations that accept sponsorships from factoring companies to make a similar effort.

Posted at 09:29 AM in Factoring Company Bad Business Practices, False Advertising Re Creating, Buying or Selling Structured Settlements, IRC 5891 Structured Settlement Factoring Transaction, Misinformation about Structured Settlement Factoring, Structured Settlement Factoring, Structured Settlement Law, Structured Settlement Transfers, Structured Settlement Watchdog®, The "Shriek" of the Week |

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Guide to Structured Settlements 2023

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  • Treasury Funded Structured Settlements
    Treasury Funded Structured Settlements are a settlement option for the most conservative using the OTHER permissible qualified funding asset under IRC 130(d), United States Treasury Bonds in addition to, or instead of, structured settlement annuities. Treasury Funded Structured Settlements can also be used to fund installment sales, also known as structured sales and other non qualified structured settlements.
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    Use the Taxable Equivalent Yield chart to help compare the Internal Rate of Return (IRR) of a structured settlement to other alternative or complementary investments. Need help with the chart? Call 4structures.com® LLC at 888-325-8640
  • Structured Settlement Payments | Types of Structured Settlements
    Ways You Can Structure Your Settlement Payments. With a structured settlement you can have more than one type of payment in a single contract. Different types of structured settlement payments can be customized and combined to meet your needs on a stand-alone basis, or in conjunction with other financial products. Diversify your structured settlement, if you wish, by funding with more than one annuity issuer, with treasury funded structured settlements, index linked structured settlement payments and market based structured .
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    Structured attorney fees is a financial strategy that offers a unique way to defer taxes for lawyers and law firms. Lawyers CAN structure their legal fees even if the plaintiff doesn't structure their settlement. There are multiple ways to structure your attorney fees, such as the an index linked structured settlement where payments are adjusted based on upside changes in the S&P 500 with no downside and a cap of 5%. Trial Lawyers may also use a special deferred pay/deferred compensation arrangement, if market based returns returns are desired with no cap. Plan NOW for year end! Put structured attorney fee expert John Darer® on your settlement planning team.
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  • What Are Structured Settlement Annuities?
    Structured settlement annuities are annuities that can provide one or more customized annuity payment streams in a single contract. Read about structured settlement annuities here.
  • History of Structured Settlements
    Tracing the roots of structured settlements history from 1918, when Congress exempted damages for personal injury or sickness from income tax, to the establishment of structured settlements as a core personal injury settlement planning tool to the present day.
  • What Are Market Based Structured Settlements?
    Market based structured settlements are an alternative or supplementary structured settlement solution for the plaintiff, attorney or law firm that: 1. Can afford to take some market risk 2. Have discretionary settlement dollars. Claimants and attorneys alike may find that market-based structured settlements provide the opportunity to receive tax-free income, or tax-deferred income, while enjoying growth potential.
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Qualified Settlement Funds

  • What is a Qualified Settlement Fund?
    Qualified Settlement Funds | What You Need to Know
  • Firmwide Qualified Settlement Funds Debunked
    Firmwide qualified settlement funds have been heavily promoted to trial lawyers, but have been debunked in a detailed analysis in a July 2022 legal opinion a tax partner at the law firm of Faegre Drinker Biddle & Reath, LLP. Trial lawyers and firms who have established Firmwide QSFs or coinsidering establishing a Firmwide QSF should read the analysis as part of their evaluation.

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  • New York Insurance Advertising law requires the full name of the Insurer to be listed along with the city and state of the principal office. Stating that you represent these fine companies using Insurance company logos without the preceding information are also illegal
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