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.