- "Secondary Market Annuities" ARE NOT annuities. They are structured settlement payment rights as defined at IRC 5891(c)(2), which are being misrepresented as annuities. It is quite remarkable that Robert Bloink, a professor of tax in the Graduate Program of international Tax and Financial Services at San Diego's Thomas Jefferson School of Law and served as senior attorney at the IRS Office of Chief Counsel missed this, despite demonstrating in the article that they have some knowledge of IRC 5891.
- Structured settlements are by definition "settlements", the result of a negotiated compromise or so-called "meeting of the minds" [ Contracts 101 professors?] A defendant IS NOT found liable. In fact many settlement documents expressly state that the Defendant is not admitting liability.
- Settlement agreements are between parties to a lawsuit not with the Court. Note that a minor's or infant's settlement, or wrongful death case may require judicial approval of the settlement.
"The court approval process is necessary because, while the plaintiff has received the right to income under the annuity, the defendant technically owns the annuity contract. Through this process, the parties enter into an assignment agreement that is presented to the court, which will approve or deny the transfer based on whether it is in the transferring plaintiff’s best interests".
- The Defendant "technically" (or actually) does not own the annuity contract, the qualified assignment company does, in most cases.
- The assignment agreement entered into as part of a structured settlement factoring transaction is not the same as a qualified assignment used at the time the structured settlement is created in the first place, to resolve a lawsuit or dispute.
Is a plaintiff still a "plaintiff", or a "payee" or "payment recipient", years after a legal case is settled and the action has been withdrawn or discontinued with prejudice?
"A secondary market annuity is often able to provide the client with a higher-than-average interest rate because the selling plaintiff typically must sell his income rights at a discount. The interest paid out under the contract, however, is governed by the original contract terms, which may provide for a rate that is much higher than today’s market averages"
- The annuity that is purchased under the structured settlement remains in place with the same owner, usually the qualified assignment company.
- Some sellers only sell a portion of their structured settlement payment rights.
- The effective interest rate to the investor in structured settlement payment rights is as good as a calculation on a software program called T-Value and how much the originator can get away with and still achieve judicial approval of the structured settlement transfer.
- Questions of whether statutory protections apply to investors in structured settlement payment rights in the event of insolvency oif the obligor or annuity issuer.
- Exposure to fraud risk that does not exist when one buys a regulated insurance product.
- Risk that a deal could unwind if the structured settlement transfer was later deemed to have not complied with a structured settlement transfer act. Could that leave and investor in structured settlement payment rights holding the bag? Read up on the Cathy Brenston v Settlement Funding case in Illinois and my blog posts about forum shopping. That may be just the tip of the iceberg despite what "cheerleading" certain "secondary market annuity" players may give.
- Buying serviced paper means a reliance on a go-between instead of directly with the annuity issuer.
- Structured settlement payment rights acquired in the secondary market are highly illiquid, while most regular annuities have liquidity features. Even the original structured settlement recipient has more liquidity than an investor.