by Structured Settlement Watchdog
One of the leading structured settlement brokers of all time claims that structured settlement annuities can be sold to factoring
companies. Now that would be a neat party trick, since not a shred of it is true.
Here's what the mistaken broker (as of March 15, 2023)
Can structured settlmeent annuities be sold?
"Yes. Factoring companies, which also buy lottery winnings, casino jackpots and other annuity-based payouts, use television and print advertising to reach individuals with structured settlements, offering to buy the settlement annuities at deeply discounted rates and paying the individuals a lump sum. (These lump sums are fully taxable, unlike annuity payments.)"
Structured settlement annuities cannot be sold. Individuals with structured settlements do not own the annuities that fund their structured settlements. They cannot sell what they do not own. Structured settlement annuities are generally owned by qualified asssignment companies or non qualified assignment. In the less common so-called buy and hold cases, the buying and the holding is by the Defendant or insurance company.
It would be a neat party trick
Says the broker, "Settlement buyouts require court approval. If the buyout is in the "best interest" of the injured party, the court approves the sale. California SB510, signed into law in 2009, gives the courts explicit guidelines to decide whether a buyout is appropriate. Some of these guidelines include a review of the injured party's current and future financial needs, whether the party has received independent legal and financial advice concerning the buyout and if the "discount rate" proposed by the factoring company is in keeping with current market rates".
What California SB510 actually says
"SB 510, Corbett. Structured settlements: payment transfers.
Existing law provides that no direct or indirect transfer of
structured settlement payment rights is effective unless the transfer
has been approved in advance in a final court order based on certain
written court findings". Source: Legislative Counsel's Digest
What IRC 5891 Says
I.R.C. § 5891(a) Imposition Of Tax —
There is hereby imposed on any person who acquires directly or indirectly structured settlement payment rights in a structured settlement factoring transaction a tax equal to 40 percent of the factoring discount as determined under subsection (c)(4) with respect to such factoring transaction.
I.R.C. § 5891(c)(3)(A) In General —
The term “structured settlement factoring transaction” means 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. Source: Internal Revenue Code of 1986, as amended
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