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Structured Settlement Annuity Definition

With all these fancy sounding terms being bandied about, such as: Structured Settlement, and Structured Settlement Annuities, I think it is a good time for a Structured Settlement Annuity Definition. After all, it is not just industry insiders that need to know what all of these terms mean. Lives are affected by any kind of settlement, so it is a good idea to move forward with “eyes open”.

Structured settlement annuities are also referred to as “Secondary Market Annuities”. These would include Lottery Payments. What this amounts to are Cash-Flows that are being offered for sale by one person, and bought by an investor. This type of transaction  is conducted between an attorney and a broker.

As an investor of a Secondary Market Annuity, you would review offers, and take your pick.  This type of investment instrument is a method to gain a higher yield in the low rate situation of today. This can be attributed to the fact that the seller of a cash-flow instrument  is offering to sell their future payments at a discounted rate.  A Primary Market Annuity is one that is sold by a business to a consumer.

Some Background Discussion

After the dust has cleared, and an injured party has gotten to the point of deciding whether they would like to receive a structured settlement or a lump sum of cash, it boils down to one main point: Do you want to receive a steady income stream into the future? For people who have been injured to the point that they cannot work, this may be the best option. As far as the IRS is concerned, they support structured settlements, and treat them as tax free awards.

Things change, and nobody can predict what their future holds. It may become necessary for the claimant to sell their settlement, cash flow, in order to get a lump sum of cash now, when they have an immediate need. What they would do is contact a factoring firm, such as Einstein Structured Settlements, who will make an offer to buy the future-income.

Keep in mind that this future-income may include: yearly increases, lump sums, deferral-periods, or there may even be a contingency upon the lifespan of the seller. Still, what it amounts to is a fixed cash-flow series that are being offered for sale to the broker. A discount rate is applied to those future-payments, and made available as an investment to other brokers.

The person selling their cash-flow must follow strict guidelines laid out by the courts. Permission must be applied for with the court that ordered the original settlement to have the terms changed. What they are doing is filing a Petition to have all rights to future payments transferred to the buyer of the settlement.

This is a critical point that bears mentioning. If the court process is not followed precisely when making this transfer from one individual to another, there could be IRS ramifications, such as a Penalty Tax.

Einstein Structured Settlements has the team to meticulously follow IRS Guidelines. I hope that this Structured Settlement Annuity Definition has helped expand your knowledge base.