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Allstate Structured Settlement Annuity...Why Get Shafted if You Have One?

by John Darer® CLU ChFC MSSC CeFT ® RSP CLTC

If you have an Allstate structured settlement annuity and have liquidity needs that cannot be met from any other source, make your first call to Allstate's Advanced Funding Exchange Notice (AFEN) unit.

The Advanced Funding Exchange Notice (AFEN)  is a liquidity option riderthat may benefit Allstate structured settlement annuitants in a time of need, who are willing to comply with IRC 5891 and obtain a qualified order. With sources of funding drying up for many factoring companies , Allstate's fixed discount rate may NOW be more competitive than the discount rate offered by factoring companies and cash now pushers.  Download sample AFEN_rider

I received a call from a reader from Virginia, who was offered $36,000 for 180 monthly payments of  $750 per month, starting 3/2/2009. This equates to an effective discount rate of almost 25%, from Seneca One. Lucky for him he happened to call. Once I learned he had an Allstate structured annuity I explained to him about the Advance Funding Exchange Notice and suggested that he contact Allstate. He was both thankful for the information and puzzled as to why he hadn't heard about AFEN from anyone else. Does Seneca One have an obligation to tell him that he had the AFEN opportunity at possibly half the cost? Apparently not.

Ironically, as we previously reported, many structured settlement industry brethren have, in the past, repeatedly lambasted Allstate for notifying its annuitants about the Advanced Funding Exchange Notice that comes with every Allstate structured settlement contract. Some of the ill opined advisers even wanted Allstate thrown out of NSSTA. You all know who you are. A brief primer...

Important Update on the Allstate Advanced Funding Exchange Notice (AFEN)  2/22/2008

What do my industry brethren say now?

What responsibility do settlement planners and settlement consultants have to inform Allstate structured settlement annuitants of the Advanced Funding Exchange Notice now that they have successfully bullied Allstate into stop sending the notices?  Consider that in the instant case the Allstate annuitant was so close to being a victim of opportunistic capitalism from the Seneca One factoring company.

 

 

 

 

Sell Structured Settlement Alternative for IRA Holders

Is there an alternative to selling your structured settlement? If you have an IRA, or rollover IRA, the answer is yes, IRC 72(t)

IRC 72(t) provides that amounts distributed from a traditional IRA or Roth IRA before an individual reaches age 59 1/2 are classified as premature distributions. To the extent such distributions are taxable as income, they are also subject to an additonal tax equal to 10% of the amount of the distribution.

A. Disability exception may apply to tort victims

IRC 72(t)(2)(A)(iii) provides for an exception where the participant is diabled within the meaning of IRC 72(m)(7) which defines disabled as  "an individual shall be considered disabled if taxpayer is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-coninued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require"

Suppose you are in a predicament and cannot meet the onerous definition of disability to qualify for the above exception, you may have another option.

B. Substantially equal exception

To qualify for another exception to the 10% penalty, the withdrawal must be part of a series of "substantially equal periodic payments" determined by the IRA participant's life expectancy or the joint life expectancy of the participant and a designated beneficiary (typically a spouse). There are generally 3 permissible methods of receiving such payments, all of which result in a different sum of money to be paid to you (life expectancy, amortization and annuity are 3 methods set forth in Revenue Ruling 2002-62-see link below). With each method you must pay taxes on the withdrawal, but you will not have to pay the 10% "excise tax" due to a premature distribution.

Once a 72(t) is created to pay out an income stream, it must continue until the age of 59 1/2 OR for a period of 5 years, whichever is longer. For example, if you start a 72(t) payout at age 57 then it must continue to age 62. On the other hand a 72(t) payout that starts at age 51 must continue to age 59 1/2. Once the 72(t) has stopped you may withdraw additional amounts from the IRA.

1. A 72(t) payout does not require Court approval like a structured settlement factoring transaction does. Compare this to the 2 months or more that it typically to do a structured settlement factoring transaction due to the Court approval process.
2. It may be that the net amount you receive after taxes on the 72(t) IRA distribution is better then the net you receive from a pennies pm the dollar structured settlement factoring transaction. Do the math, or have someone do the math for you.

CAUTION: 72(t) rules must be followed carefully to avoid premature distribution penalties

Revenue Ruling 2002-62 Download Rev Ruling 2002-62