by Structured Settlement Watchdog
It's so disappointing when so-called experts providing independent professional advice, don't articulate their business properly. How can any consumer feel confident in such independent professional advice when you consider the following, from an adviser in a state that permits a fee of up to $1,500 to be paid by the purchaser of structured settlement payment rights?
Let's examine a series of statements from a solicitation by a so-called structured settlement attorney based in California:
A. "If you are receiving a settlement over time and are in need of a lump-sum payment that is possible. That is what is referred to as selling your annuity in the secondary market".
Structured Settlement Watchdog Commentary: This is a case of SNAFU. No structured settlement annuitant owns the structured settlement annuity that funds the obligation to make payments to them. The structured settlement annuitant or structured settlement payee cannot sell the annuity since they do not own the annuity. What they can sell, if the transaction complies with relevant state and federal law, are structured settlement payment rights.
B. "Most of the time you agreed to take a larger settlement over time, but what you may or may not know is that the original cash offer or a portion of it was used to purchased annuity that you are receiving in payments. These payment streams have a present-day discounted value in the secondary market. The IRS has come up with a number that it feels a dollar today is worth in say 10 years, and vice a versa. That number is then used to calculate what your payments are worth. This allows the purchaser to cover their costs in making the transfer happen.
Structured Settlement Watchdog Commentary: Actually, that's not a proper articulation. It's unlikely that any structured settlement factoring company would do a deal for present value by simply the applying Applicable Federal Rate. The Applicable Federal Rate does NOT allow the purchaser to cover their costs and account for their profit margin!
According to the IRS Excise Tax on Factored Structured Settlement Payments Audit Technique Guide 3/2019 rev. p4
"The transferee – that is, the factoring company – is required to make a series of disclosures designed to highlight the value of transferred payments and to contrast that value with the net amount that a payee stands to receive in exchange for the transferred payments. In most states, the transferee is required to disclose the discounted present value of the transferred payments, as determined by using the “Applicable Federal Rate” most recently published by the Internal Revenue Service for purposes of valuing annuities.
C. "The payment stream when setup was set up with a probable rate of 2 % return, and now your payment is being purchased at a minimum of 10 % return. Each transfer is unique so do quote exact numbers is impossible, but what you can expect to be to lose a large portion of the “face” value of your payments".
Structured Settlement Watchdog Commentary: Tritely inarticulate balderdash. Where do I start?
1. "...probable 2% return, and now your payment is being purchased at a minimum 10% return". Aren't we speaking about discounted present value? Ergo, the latter reference is an effective discount rate?
2. Where does the random "probable 2% return" come from? If an annuitant is in their late 20s and has a structured settlement established when they were a child, that could have had a considerably higher Internal Rate of Return. Consider that in 2002, the 10 year United States Treasury ranged from 5.04% in January to 4.03% in December. the 20 Year Treasury yield ranged from 5.43 in January 2002 to 5.63% in December 2002. See How Structured Settlements Compare to Alternative Investments
D. "Structured settlement has to be underwritten & approved by a court. The underwriter is responsible for making sure that the payments can be sold and transferred without liens or liabilities. The court is responsible to ensure the seller has the right to sell the payments, and that it is in the best interest of the person receiving the payments to sell".
Structured Settlement Watchdog Commentary:
1. No structured settlement is underwritten by a court.
2. No structured settlements have to be underwritten by a court
3. Courts are not underwriters
4. Some structured settlements have to be approved by a court, such as where the settlement is on behalf of a minor, an incompetent, or the matter is subject to probate.
5. A structured settlement factoring transaction (i.e. IRC 5891(c)(A)" transfer of structured settlement payment rights") must be approved by a Court and all requirements to comply with State Structured Settlement Protection Acts, to avoid a 40% Excise tax imposed under Federal law (see Iimposition of Excuse Tax IRC 5891(a)).
How about having some pride in the profession?
What is Independent Professional Advice in connection with Structured Settlement Transfers?