What we call Secondary Market Annuities are both Structured Settlements and lottery payments primarily. They represent one of the best ways to capture higher yields in a safe money investment. Lottery payments are typically awarded as lump sums or annuities, and when people with annuity lottery winning wish to sell for lump sums, they become available to you.
Structured Settlements originate as a result of a court case whereby an individual wins an award and elects to take their payments over time. These payment streams typically include guaranteed monthly payments and/or guaranteed lump sums designed to accommodate the payee’s life circumstances in the future. There may be lump sums originally earmarked for education, house purchase, or other needs.
Sometimes, certain Structured Settlements also include life contingent payment streams. This would be a situation where the payee is to receive a guaranteed payment of $xx per month for 20 years, and $xx per month as long as they live.’ If the payee is selling the ‘as long as they live’ portion, it’s what is known as life contingent, and we insure your economic interest as the new payee in that payment stream with life insurance on the selling payee’s life payable to you if the original payee dies.
Why People Sell Structured Settlement Annuities
Quite simple, people’s circumstances change. When individuals with Structured Settlement Annuities seek to sell their future payment streams for cash today, they approach a financing company who applies a discount to the future payment streams and offers a lump sum to the payee.
When a seller and the financing company have an agreement, the company commences its underwriting of a specific case. They investigate the credit of the seller, any alimony, bankruptcy, or other liens, and a file with the court that originally awarded the payee the settlement to amend the court order. This is to comply with the provisions of Federal laws contained in the 2001 bill HR2884 and IRS Code Chapter 55, section 5891, relating to a transfer subject to a Qualified Order.
As a case is researched and proofed, it is marketed to select firms. We are unique as we buy these payments directly into our Business Trust when they become available. Other vendors of SMA’s market on a “Best Efforts” basis and have no control over the process, quality, or even the existence, of the payments.
As our Business Trust is the named buyer, this trust name is entered into the various documentation and court order relating to the transfer. Some of these documents are public record, so using the Trust acts as an important confidentiality buffer and represents a key element of why our process is superior to other transfer methods.
Once a case is approved in court, and all the documents relating to the transfer of payment rights are compiled, the documents are sent to our counsel for review. As we market cases in both a pre-order and in stock manner, we may be extending capital to purchase a case if it is not reserved prior to this point.
Our counsel reviews all documents to ensure everything is in order. We provide a full and complete closing book and only after doing so are your purchase funds required within 48 hours.
Prior to closing, the closing book consisting of your payment stream, the transfer and assignment agreements, the court order and an acknowledgment from the annuity issuer all documenting the transfer, is compiled and sent to you. You’ll have 48 hours to complete the transaction by wiring funds to close the case.
Secondary Market Annuities and Taxes
The taxation of income from factored Structured Settlements is up to the taxpayer and their tax advisor, and depends if the Settlement is held in a qualified IRA or not. Federal law and IRS guidelines outline how, in a properly structured transaction, a court order shows a buyer as the assignee of the payments by means of qualified order. This is the court process we follow at AST.
While under current IRS regulations you as the new assignee of a factored structured settlement case will not received a 1099 for the income you receive, this does not mean it’s tax-free. Please refer to the following IRS rules for guidance and consult your tax advisor for specific questions.
In the case of lottery payments, state and federal taxes are withheld from the payments from the state lottery commission, and you will file annual tax returns that would include a request for refund for the taxes withheld on the portion of your payment stream that was return of principal.
We’ll outline a few common Q&A questions below.
What Is A Secondary Market Income Annuity?
A Secondary Market Income Annuity (SMIA) is the resale of an existing annuity income stream, either from an Immediate Annuity, a Factored Structured Settlement, or a Lottery Prize Payout contract. The pre-defined income stream and specific terms of the offering is sold for a lump sum payment and thereby transferred from the current recipient of the income to the Buyer.
Is This Investment Right For Me?
If you are looking for an investment that can provide above average returns for the fixed income portion of a balanced portfolio and are in a financial position to hold an illiquid investment with a specific income/return structure, you should consider an SMIA.
What Are The Benefits Of SMIA’s?
SMIAs guarantee you a payment stream over a specific period of time, at a fixed rate of return. This investment is generally considered to be a good vehicle for “safe money” savings. Annuity Straight Talk only offers SMIAs from those insurance companies that are highly rated by Standard & Poor’s for claims paying ability, making the Secondary Market Income Annuities we offer one of the safest forms of fixed term purchases available today.
Yields on Secondary Market Annuities are higher simple because the seller of the payment stream is willing to sell at a discount for cash today. You benefit from that discount and get a higher yield on the cash flow as when compared to comparable annuity products available in the open markets.
What Is The Yield On A Secondary Market Annuity?
Yields on Secondary Market Annuities vary and are generally related to the length of deferral. For example, an offer with a 10 year deferral period would have a higher interest rate than an immediate income offer. A long term lump sum offer will have a higher long term, compounding yield.
Secondary Market Annuities simply costs less to purchase the same income stream.
Can I Transfer Or Sell These Payments Later On?
We can facilitate the re-sale of payments you own due to our unique procedures, but the transfer rate at the time you sell wil lbe market based. There is no early surrender option or liquidity option, so it’s best to consider SMAs as generally not liquid or marketable.
Who Makes The Payments to Me?
SMIA payments are made to our payment servicing partner, ASG. The Asset Servicing Group is a nationally recognized payment servicer providing millions of dollars of monthly policy service on thousands of policies. ASG at no time has any ownership or control of your funds, they merely act as a recipient lockbox and forward you payment as you direct, to you, you heirs, or a new owner if you re-sell the payments. Payment servicing carries a nominal cost that varies with each case and is shown in our SMA Buyers Guide.
Why Work With Annuity Straight Talk?
Each transaction we handle is subject to a rigorous review by an attorney. Our due diligence and unique procedure protects each individual buyer to the fullest. Our attention to each case sets us apart from everyone else in the industry in protecting you, the customer. Our transaction process has been designed to protect the Buyer.
In addition, all costs of the transaction are built into the price- other than the account servicing costs above, there are NO hidden fees, monitoring costs, account fees, or ancillary charges. In the case of Life Contingent annuities, the purchase price INCLUDES life insurance coverage for the entire payment cycle, AND Gap insurance covering the first two years of the contract. This is all factored into the purchase price and handled prior to closing by our team, and designed to protect your interests.
What Is A Typical Term And Purchase Amount?
The present value of a Secondary Market Income Annuity is generally between $50,000 and $500,000 but can be higher or lower. Terms can range from 1 to 35 years but typically are 5 to 20 years.
Why Are SMA Rates Higher?
The rate of return on a SMIA is typically higher than the rate available on annuities newly purchased directly from insurance companies today because an SMIA has been previously owned and has attributes, such as payment term and payment amounts, that cannot be changed.
Additionally, an SMIA is transferred for the present value of future income payments. The present value is determined by what the Annuitant, or the Seller, will accept and what a Buyer will pay.
Can I Purchase An SMIA With My IRA?
Yes, most Secondary Market Annuities can be purchase with IRA money. A self directed IRA is required and we can assist you setting up a self directed IRA with a custodian familiar with the Secondary Market Annuity marketplace.
It’s important to note that Self Directed IRA’s do have nominal fees- our Self Direct IRA provider charges $50 to set up an account and $130 per year.