Is Selling Your Structured Settlement Safe and Legal?

Structured settlements are financial arrangements that provide periodic payments to a person who has won a lawsuit, often related to personal injury claims. These settlements can provide a reliable stream of income over time. However, circumstances sometimes change, and individuals may find themselves in need of a lump sum of money. This is where selling a structured settlement comes into play. Here’s an in-depth look into the safety and legality of selling structured settlements.

Understanding Structured Settlements

Structured settlements are designed to offer long-term financial security by distributing payments over a set period. They have tax advantages and prevent reckless spending by providing a stable income. However, the fixed nature of these payments can be inconvenient when large sums of money are needed for unexpected expenses, such as medical emergencies or significant investments.

The Legality of Selling Structured Settlements

Federal and State Regulations

1. Federal Laws: The sale of structured settlement payments is federally regulated under the Internal Revenue Code. The code ensures that tax-free status is preserved even when the settlement is sold.

2. State Laws: Many states have enacted specific statutes, known as Structured Settlement Protection Acts (SSPAs), to regulate the sale of structured settlements. These laws require court approval to sell the settlement, ensuring that the transaction is in the best interest of the seller.

3. Court Approval: Securing court approval is a critical step. A judge assesses the seller’s situation, ensuring that they understand the transaction and that selling the settlement is necessary and beneficial.

Is Selling Your Structured Settlement Safe?

Choosing the Right Buyer

1. Reputable Buyers: Safety largely depends on choosing a reputable purchaser. Look for companies with strong Better Business Bureau ratings and positive client reviews.

2. Transparency: A legitimate buyer will offer transparency in the transaction, explaining the process, fees, and implications involved.

3. No Pressure: Trustworthy companies don't pressure clients into making swift decisions. They allow sellers to thoroughly consider the options before proceeding.

The Selling Process

1. Evaluation: Initially, an offer is made based on the present value of future payments. It is crucial to understand the discount rate being applied, as this affects the lump sum received.

2. Documentation: The seller must provide documentation of the structured settlement terms. Buyers assist in compiling necessary paperwork for the court.

3. Court Hearing: A judge reviews the request, focusing on the reason for the sale and ensuring it doesn’t undermine the seller’s financial future.

4. Final Approval and Payment: Once approved, the transaction is finalized, and the payment is disbursed to the seller as a lump sum.

Risks and Considerations

Financial Implications

• Discounted Value: The lump sum received is always less than the total value of future payments due to present value considerations.
• Loss of Tax Benefits: While generally tax-free, selling might affect the tax status if not done according to IRS guidelines.

Future Financial Security

Before selling, consider the long-term impacts on financial security. Carefully evaluate whether the immediate need for cash outweighs the potential future income loss.

Conclusion

Selling a structured settlement can be a safe and legal process if handled correctly, following federal and state regulations, and ensuring court involvement. By choosing reputable buyers and understanding the financial implications, one can achieve a balanced solution to immediate financial needs. Always consult with financial advisors or legal counsel to ensure that the decision aligns with your best interests.