You may have received structured settlement payments through personal injury or workers’ compensation claims. You may be wondering if you should try to sell your settlement payments in exchange for a lump sum of cash. Be aware, however, that despite the claims of advertisers, the selling your structured settlement may not always be possible – and even if it is possible, it may not be an economically wise decision. There are some benefits to selling structured settlements, but also some hidden costs of which you should be aware.
Tip #1: Make a Wise Settlement Decision from the Beginning
If you have the option, it is always best to make a decision about receiving structured settlement payments from the start. You may, from the beginning, choose to press for a lump sum payment vs. periodic payments. This is not just black and white either – you may negotiate for a combination agreement. You may want to get a smaller lump sum plus periodic payments, or decide that you will need a lump sum at a future date. You may want to consult with a tax adviser and see what arrangement makes the most sense from a tax perspective. If you are in this stage of the settlement, remember: now is your best time to decide. Should you decide to sell your structured settlement at a future date, you will be losing a percentage of your money to companies that buy those structured settlement payments.
Tip #2: Watch Out for the Tax Man
Although you may be considering selling your structured settlement, it is important to consider that it was probably constructured from the beginning to provide you with significant tax advantages. As a result, you may be in for an unpleasant surprise if you decide to receive a lump sum payment. Check with a competent tax adviser to see what the ramifications are in your situation.
Tip #3: Beware of Hidden Restrictions on Selling Structured Settlements
Many people do not realize that federal regulations can limit and restrict the sale of structured settlements. In addition, approximately 60% of the states have some laws on the books which restrict the sale of structured settlements. Find out which laws apply to your situation. You may have to obtain court approval for the sale, and the process of transferring settlement payments to a buyer may be highly regulated by your state. Also, if your structured settlement was issued by an insurance company, watch out for hidden clauses. They may state that payments cannot be sold to another party.
Tip #4: Don’t Take the First Offer You Get
This seems like common sense, but many people attempting to sell structured settlements are excited by the prospect of receiving a huge lump sum of cash. But it pays to shop around. Even if your first offer seems excellent, get quotes from at least 2-3 other buyers of structured settlements to see if the first offer can be topped. Do your research and make sure you are dealing with a reputable buyer of structured settlements. If one buyer’s offer is way better than the others, be alert – if it seems too good to be true, it just might be.
Tip #5: Get a Good Lawyer
When dealing with such a large amount of money, consulting with a lawyer can pay for itself many times over. A lawyer experienced in dealing with settlements can tell you if your buyer’s offer is reasonable, as well as if the terms of the purchase agreement are right for your situation. He or she can also protect your rights, in case any of the parties in the transaction are not cooperating or sending payments according to the agreed contract.