Secondary Market Annuities At A Glance

  • Secondary Market Annuities FAQ

    Review the panels to the left for answers to the most commonly asked questions on Secondary Market Annuities and Structured Settlement Annuities.

    We work with investors nationwide seeking their unique combination of Safety, Profitability, Flexibility, and Longevity. Like any financial product, Secondary Market Annuities have their pros and cons and we hope this section will help guide your selection process.

  • What is a Structured Settlement Annuity or Secondary Market Annuity?

    We use the term “Secondary Market Annuities” to encompass both a Structured Settlement Annuity and a secondary market lottery payment stream. For our purposes we primarily deal with Structured Settlements.

    A structured settlement is a payment stream paying an injured party an income for a defined period.  We call it a Secondary Market Annuity because it is an income stream – an annuity – that is purchased on the secondary market.  That means that as a buyer, you are not the original injured party, however you do become the assignee of the payments  under the original awarded settlement.  You become the assignee of an existing structured settlement case.

    Secondary Market Annuities are not to be confused with regular annuities such as variable annuities or index annuities that are being sold on a secondary market basis.  In the case of variable annuities with a death benefit that are sold by the original owner/beneficiary, these transactions have recently come under pressure from insurance companies.

    We personally believe it is right to question these transactions, and have detailed our thoughts Here.

  • Yield of Secondary Market Annuities

    Secondary Market Annuities  are future cash flow streams available for  purchase at a yield higher than comparable safe investments because of the following summarized reasons:

    1. The seller is selling at a discount
    2. The seller must have a court approve their sale and the court process sometimes takes 30 to 60 days
    3. There is a chance that the transactions are not approved in court (about one in 20).  Note, there is no cost to you other than lost time when a case is not approved.
    4. These transactions are generally long-term and not liquid
    5. Supply is limited and some available cash flows are “lumpy” and therefore are not suitable for all investors

    The yield available to investors is much higher than comparable fixed annuities, period certain immediate annuities, CD’s, Treasuries, and even tax-free Muni bonds.

  • Are Secondary Market Annuities Too Good To Be True?

    There are several reasons these contracts are available at a yield that is higher than currently available in the open market.

    Discounted Purchase Price:

    The first reason is that these cash flows are being purchased from individuals at a discount. The individual selling the annuity is willing to accept a discount rate in order to get cash today. You are able to purchase that future cash flow and the rate of return is higher than traditional annuities because of the discount that the seller is willing to take.

    These cash flows originate in a settlement – generally a workplace injury or legal dispute. The paying party (usually an insurance company ) fully funds the obligation when the settlement is made. At a later date, the original recipient may decide they need cash now instead of future payments.

    That’s where this secondary market transaction starts, when the original payee seeks to sell their future cash flow.

    Court Approval

    Once a buyer is committed to buying the cash flows that a seller wishes to sell, the seller must have a court of competent jurisdiction rule that selling is in their best interests.  It’s important to note that the court order approving a sale does nothing to verify the existence of the payments- it’s simply one of several steps in the transfer. The court process that each of these cash flows must go through to approve the sale merely insures that selling is in the Seller’s best interest.

    Il-Liquid:

    Once a transaction is approved in court, you as the buyer are generally not able to resell or liquidate the cash flows. It is a fixed term.

    For all the reasons above,  Structured Settlement Annuities  can be somewhat more time consuming to purchase.  The yield is higher as a result.  It’s not too good to be true- you simply need to understand WHY it’s good and be willing to go through the process with us to achieve your goals.

  • Legal Review of Secondary Market Annuities

    Legal review of a structured settlement annuity transaction is a thorough and time-consuming process.  For each case, counsel is retained to review the following documents to insure that your payment stream is absolute, guaranteed, and legally documented and binding.

    1. Transaction Summary & Information Page
    2. Order Form
    3. Irrevocable Assignment and Payment Servicing Agreement
    4. Underwriting Certificate & Guidelines
    5. RPSA & T-Value
    6. Settlement Agreement, Qualified Assignment, and/or Annuity or Benefits Letter
    7. Assignments to Transfer Agreement and Testamentary Agreement
    8. Insurance acknowledgment or Stipulation
    9. Notice of Assignment Package – with Proofs of Service
    10. Court Order (and any prior Court Orders)
    11. Disclosures Statement and Transfer Agreement
    12. Searches
    13. Credit Documents
    14. Appendix

     

  • Purchase Process of Secondary Market Annuities

    A structured settlement is a payment stream being paid to the winning party in a court case or settlement.  People’s circumstances change, however, and some wish to sell their future payments for a lump sum.

    Origination:

    A seller and an intermediary come together and the intermediary investigates the credit of the seller, any alimony, bankruptcy, or other liens.

    Sale To Trust

    When we find payment streams of quality, we buy them in the name of our Business Trust and commit capital to the purchase.  The Trust is the named buyer, and we market these cases on a “Pre Order” basis.

    Court Approval

    When a case is proofed up, they file with a court of competent jurisdiction to approve the sale and to amend the underlying settlement.  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.

    Reservation:

    While our Business Trust is the named buyer from the start, we buy each case with the intent to re-sell it.  If you reserve a case on a “Pre-Order”  basis, you should be aware that about  1 in 20 cases do not make it to closing, generally due to court approval timelines or seller issues.

    In Stock inventory is fully closed, funded/ complete and can be transferred to you in as little as 24 hours.

    Funding:

    In either Pre Order or In Stock situations, no funding from the investor is required until all documentation, legal review, and acknowledgements are in place.  We supply you with a complete and finalized closing book for review and funding is then requested within 48 hours.

    Legal Review:

    As the named buyer of every case, and with our guarantee behind our work, we have a deeply vested interest in making sure each case is processed fully and properly.  Our legal team reviews all the documents relating to the transfer of payment rights to ensure everything is in order, and only after doing so is a complete closing book sent to you for review.

    Funding is 48 hours after your receipt of the closing book.

    Post-Closing Guarantee:

    As an additional measure to ensure the completeness of our transfer process, we contact the annuity issuer 90 days after the closing of the transfer to reconfirm that the records of the annuity issuer reflect the correct titling, payment amounts, and payment address.

    If any issues are discovered that may affect the payment, we will resolve those issues. If for any reason the issues with the insurance carrier cannot be resolved, we will repurchase the payment stream from the purchaser.

    Results of this additional step will be supplied to the purchaser when obtained and will indicate that a case is fully closed and complete.

  • Safety of Secondary Market Annuities

    There are a variety of reasons that Structured Settlement Annuities  are extremely safe.  These are detailed here and summarized below

    Safety Factor #1

    An  insurance company paying a structured settlement would be held in contempt of court for failing to make payments according to the terms of a structured settlement.

    Safety Factor #2

    Each state has an insurance guaranty fund that covers the guarantees of insurance policies and annuities for insolvent insurance companies who can’t make payments.

    By using the secondary market, you are in business in  different states, which affords you the total protection of all states involved rather than simply the limits offered in your current state of residency.

    Safety Factor #3:

    The three key items that ensure legal safety are:

    1. Benefits letter from the issuer to the payee, which establishes that the Payee has the payments to sell,
    2. Court order changing the payee to you or an entity that benefits you,
    3. Acknowledgement letter or stipulation agreement after the court hearing from the Issuer naming you or your entity as the new payee of the specific payment stream you purchased.
    4. Legal Review by specialized counsel that verifies all transfer documentation, seller credit and background info, and issuing company payments.

    Safety Factor #4:

    Because a typical case involves multiple Secondary Market Annuities, purchasing contracts in the secondary market virtually assures that you will place assets in several companies with no sacrifice to average yield or overall performance.  You will spread your risk among many carriers, all generally highly rated, and achieve high yield diversification.

     

  • Secondary Market Annuities And IRA's

    Structured Settlement Annuities  can be purchased using qualified funds, such as an IRA or a 401(k).to purchase a structured settlement with qualified funds, you would open a ‘Self directed IRA’

    A self-directed IRA allows you to purchase nearly any kind of investment you want.  You simply direct the IRA custodian to send payment for the purchase to the attorney trust account prior to closing.  Upon closing, the funds are released to the seller, and the income stream will be paid to your self-directed IRA account.

    Income earned by your self-directed IRA continues to be tax-deferred until you withdraw funds from that account.  At that point, it is subject to taxation.  You may also be subject to required minimum distribution (RMD) regulations, so it’s important to plan your purchase of secondary annuities to coincide with the required minimum distributions.

    Using a self-directed IRA, you can direct the IRA custodian to purchase any type of investment you want, subject to certain limitations.  These limitations include the purchase of life insurance, and certain collectibles.

    Therefore, because life contingent structured settlements include life insurance as a component of the investment, life contingent structured settlements can be challenging to purchase with qualified funds.   Please give us a call to discuss your situation.

  • 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 seller can transfer payments to a new payee 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 factored lottery cases, taxes are withheld by the state lottery commission for state and federal taxes, and you will file for a refund for the taxes withheld on that portion of your payment which is return of capital (basis).

  • Secondary Market Annuities for Income

    Structured Settlement Annuities  are perfect for generating retirement income.  These are very safe income streams, paid by highly rated carriers, and are available to you at a yield higher than comparable safe investments.

    There are a wide range of payment streams available in the secondary marketplace.  These range from immediate income, to long-term deferred lump sum.  Selecting the right structured settlement income stream for your needs is a process easily accomplished by defining your goals up front.

    Then, working with us, we select appropriate structured settlements as they become available, and reserve them in your name.

    Generally, it takes several structured settlements to compile the investors desired income stream.  Having multiple cases is actually a benefit, in that you spread your retirement income risk out among multiple carriers in multiple states.

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.

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