by John Darer CLU ChFC MSSC CeFT RSP CLTC
Structured settlement swaps
Some structured settlement buyers are encouraging structured settlement swaps. Structured settlement swaps are a term to describe hustling people to sell their long term structured settlements for pennies on the dollar and then suggesting that the poor annuitant used their fractionated "wealth" to, among other things, factored structured settlement payments from other people who've also sold their structured settlement payments for pennies on the dollar.
Don't fall for this questionable strategy!
Keep these points in mind if you encounter a structured settlement factoring intermediary, financial adviser or "settlement planner" coming at you with this approach.
1. Misdirection concerning the rate of return of your structured settlement
The structured settlement payment buyers may try to unsettle people with long term structured settlements established in the 1980s or 1990s, by speaking of low interest rates. In my opinion it's a misdirection scam. Here's why.
The rate of return on your structured settlement is the Internal Rate of Return using the cost when the structured settlement was established.
If you have a structured settlement established in the 1980s from a large highly rated insurer, you are getting a safe rate of return on on the original investment that may be better than the average rate of return in the S&P500 for the last 15 years. On
5, 1987 the 30 year Treasury was paying a 9.96% yield. On September 3, 1990 it was 8.92%. Much is made of stock market returns for the last 3 years. However the sales pitch may not take into account tolerance or lack of tolerance for the inherent volatility due to real human emotion that comes with investing in volatile markets. Consider the following statistics compiled by Putnam investments:
Missed 10 best days 4.31%
Missed 20 best days 0.88%
Missed 30 best days -1.68%
Missed 40 best days -4.26%
2. Swapping a Stable Value 1980s/1990s Tax-Free Structured Settlement for Taxable Factored Structured Settlement Payments Doesn't Make Sense
If you are receiving payments from a structured settlement that arose from a personal physical injury or wrongful death, the periodic payments are income tax free. While the sale of structured settlement payment rights would not be taxable, interest on the proceeds from a factored structured settlement investment would be taxable
3. Structured settlements are straight forward. Factored Structured Settlements Are Not. The wrong vendor can be financially lethal
Despite often being falsely marketed as annuities...
- There have been legal cases where investors in factored structured settlement payments have lost all their money in such investments.
- At the time of publication, there are ongoing legal cases in Pennsylvania, Maryland, New York, Virginia and Arizona where the money of investors in factored structured settlement payment rights may be in jeopardy and investors may have incurred legal expenses that have eroded the value of their investment with no end in sight.
- Be wary of exotic investments such as purported advances of athlete contracts or agents of an or celebrity packaged as structured settlements or annuities.
In conclusion, you would be wise to heed a warning of sorts from the 1980s " Never Mind The Bollocks!"