WHAT IS A STRUCTURED SETTLEMENT?
A structured settlement is a type of legal settlement that is paid out according to a periodic payment schedule instead of a single lump sum payment. Structured settlements are usually the result of, to mention a few, personal injury, wrongful death, or medical malpractice lawsuits. After a settlement is accepted by the plaintiff and approved by a judge, the defendant's insurance company will ensure the claimant receives the payments by issuing the payments itself or hiring a third-party qualified assignment company to do so in its place.
The classic example of structured settlement comes from class action lawsuits brought against pharmaceutical companies by the parents of children who suffered congenital deformities because of a medication. The purpose of structured settlements in those cases was to ensure a long-term income to help parents manage the cost of caring for their children who have serious disabilities. Nowadays, structured settlements are also pursued by insurance companies who want to avoid breaking the bank when paying several large lump sum settlements.
If you are the payee of a structured settlement, you can sell your payment rights to a structured settlement factoring company. The legal name for this is a "structured settlement factoring transaction," but it is more commonly known as selling a structured settlement.
You will receive a smaller lump sum now, and transfers your rights to future payments—or portions of future payments—to the company. The company will then replace you in the books of the insurance company or the qualified assignment company and receive all or part of the structured settlement payments.
WHEN SHOULD I SELL A STRUCTURED SETTLEMENT?
There are many reasons why a person would sell a structured settlement. Often, they are short on cash for paying living costs or college tuition, among other expenses. Sometimes, they are simply tired of receiving a smaller amount every month or every year instead of a larger amount they can use freely.
Before deciding to sell a structured settlement, you should consider the reasons you received a structured settlement in the first place. If you are a person with a long-term disability, you should strongly consider keeping the settlement as-is because the payment stream will ensure a steady income for several years. However, if you have a separate (and sufficient) source of income and weighty reasons for needing the cash, selling the structured settlement may be a good idea.
HOW DO I SELL A STRUCTURED SETTLEMENT?
Since structured settlements are awarded in courts of law according to a strict legal framework, selling the rights to structured settlement payments is a slightly complicated and lengthy process. Below we go over the steps you should take when selling your settlement.
Talk to Your Attorney
Only a few states (Ohio, North Carolina, Alaska, Louisiana, Delaware, Maryland, Minnesota, and Maine) require payees to get "independent legal advice" when selling a structured settlement, but it is still a good idea to talk to an attorney. Your first call should be to the lawyer who worked with you on the case that got you the settlement in the first place. In some cases, the settlement prohibits transferring the payment rights, so you should know this before wasting your time (and money) on a process that will only be denied. Your attorney should also be able to counsel you as to whether selling the rights is a good idea. They may even refer you to reputable structured settlement companies they are already aware of. As you undergo the rest of the process, consult your attorney and don't leave questions unasked.
Find a Structured Settlement Company
You can find many structured settlement companies online or through your settlement attorney. They all do the same thing, more or less. With most companies, you will have the option of selling all your future annuity payments, some of them, or a portion of each payment. The real question is how much they are willing to charge you. In exchange for receiving a lump sum payment now, you are accepting a much lower amount than the total sum you would get if you waited to receive all your scheduled payments. The reduction is due to the factoring discount rate, which is, simply, the amount the structured settlement company charges you for giving you the lump sum, comparable to the interest rate on a loan. When choosing a company to sell your structured settlement payment rights, don't be afraid to shop around. There is no standard discount rate, so companies will offer different amounts. Here is another time you should consult with your attorney, who can tell you whether the terms of the sale are fair or not.
Go to Court
Once you receive a satisfactory offer from a structured settlement company, it's time to file a legal petition to transfer the structured settlement payment rights. Sales agreements must be approved by a state judge. In order to file the petition, you will need to round up documents pertaining to your settlement, like the Mutual Release and Settlement Agreement, which details the resolution of the case that led to the settlement and stipulates the terms of the settlement, and the Annuity Policy, which is the document you received from the defendant's insurance company specifying the payment schedule and annuity amounts.
To make a decision, the judge in your case will consider all elements of the original settlement, as well as your reasons for selling the rights, the discount rate of the sale agreement, the company's reputation, your age and mental health as well as the welfare of any dependents you may have. The terms of the sale must meet strict legal requirements. It is the judge's job to make sure your best interests are protected, and they have the right to refuse the sale agreement to this end. Adults with guardians, such as disabled adults or the elderly, will be subject to more scrutiny, because it is understood they are more vulnerable to predatory relatives or unscrupulous companies. Likewise, minors are not allowed to sell their structured settlements, unless the parents have a compelling argument for why the sale is necessary.
Once the sale agreement is approved by the court, you may need to hire a notary to notarize the documents and make the sale final. Once the sale is final, the terms are set in stone and cannot be altered.
Wait for the Money
The entire process of selling your structured settlement can take between 60 and 90 days, but you should get the money rather quickly after the sale agreement is approved by the judge. Most companies will give you the option of receiving a check, a wire transfer, or a direct deposit to your bank account. Once you receive the money, it's yours, but consult with a tax specialist to see if there are any tax consequences to receiving the lump sum.
If you're ready to sell your structured settlement, check out our Top 10 Structured Settlement companies!