What is factoring?
Factoring is the term used to describe a transaction wherein an individual with rights to receive future periodic payments (often in the form of a structured settlement annuity) accepts a lump sum amount in lieu of the scheduled future payments. This lump sum is generally substantially less than the amount the individual would have received had they continued to collect the scheduled payments.
We make every effort to make the transaction as easy as possible.
How do I factor my payments?
We make every effort to make the transaction as easy as possible. First, you must be sure that you meet all of the requirements of IRC § 5891. Once it has been determined that you meet those requirements you will follow a standard process. Contact us to find out if you meet these requirements and discuss whether there are any alternatives to selling your future payments.
What is IRC §5891?
IRC §5891 is a section of the Internal Revenue Code that was added in 2002 in an effort to protect settlement recipients. This section discourages the inappropriate purchase of future annuity payments by imposing a punitive 40% tax on the buyer if the buyer does not follow the prescribed process which includes obtaining court approval. To get court approval, the transaction must be in the best interest of the annuitant taking the needs of any dependents into account.
Do I have to factor all of my payments?
No. You may sell all or a portion of your future payments. Many “factoring companies” may try to convince you to sell all of your payments or even more than is necessary for your circumstances. Contact us to discuss the appropriate amount of payments to factor for your situation.
What is a good discount rate?
Ideally, you could sell your right to future payments dollar for dollar. Unfortunately companies who are willing to purchase future payments have to pay bills too. While there is no magic bullet answer to this question, we can offer some guidance. Normally the discount rate you receive is heavily dependent on time. Whether you are selling payments with a long deferral period or are receiving immediate payments determines, to a large extent, what discount rate we can offer. Contact us to discuss the discount rate we can provide you.
Should I factor my payments?
In general the answer is, “No.” You should not factor your payments if you have any other means of meeting your needs. Factoring your payments could potentially have negative implications. Aside from receiving a discounted lump sum for your payments, you could also be disqualified from essential government entitlement programs. Additionally, you may spend money that will be needed for future living, medical or other expenses. However, many people get into a bind or have a good reason to sell their payments. We can help you make the decision of which payments to factor, if any.
Will this transaction have any tax implications?
If your settlement was derived from a claim that alleged personal physical injury or sickness then any payments received on that basis are excluded from taxation pursuant to IRC § 104(a)(2). This extends to any money received in exchange for future payments. Therefore, entering into this transaction will not trigger a taxable event.
Will this impact my government benefits?
This depends on the nature of your benefits. Some government assistance programs are means tested, which means they are needs based. These programs have asset and income limitations which may be exceeded when you receive your lump sum payment. These programs include Supplemental Security Income (SSI), Medicaid, Qualifying Medicare Beneficiary (QMB) and food stamps. It is important to carefully weigh how you will be able to replace these resources in the event you become ineligible to receive them. Benefits such as Medicare, Social Security Disability Income, Social Security Retirement and Social Security Survivor Benefits are not means tested and will, thus, not be adversely affected by a factoring transaction. Call us and we can discus how it may effect your benefits.
How will selling these payments affect my future income?
If the primary motive for structuring your settlement was to provide future income for living expenses, you will need to consider how that income will be replaced if you decide to factor your payments. If you are employed or have the ability to replace the guaranteed fixed income offered by the annuity, your future cash flows should be minimally affected.
Are there alternatives to factoring?
Sometimes, but it really depends on your circumstances. We can evaluate your situation and may make an alternate suggestion based on the resources available to you. Let us help you make the choice that’s right for you.
What determines how much Bentzen Financial gets paid?
Structured settlement factoring transactions involve a number of interested parties. The client wants the best deal available, investors want a reasonable profit on the capital they provide and Bentzen Financial must cover operating costs and earn a living. BF must balance the needs of all parties while facilitating the factoring transaction. The market for these exchanges ultimately determines how much each party will receive.