Before You Call
Before You Call: Questions You Should be Prepared to Answer
Because transactions on the secondary market are subject to court approval as mandated by IRC §5891, there are stipulations placed on who can sell their future payments and why they can choose to do so. The following is a list of questions you should be prepared to answer before agreeing to sell future payments, and brief explanations of each:
Why do you feel it’s necessary to transfer your right to future payments?
You need a legitimate reason to sell your payments because a judge is mandated to determine that a financial need exists. Structured settlement annuities receive favorable tax treatment because they are designed to ease the burden of injury victims and their dependents. Because these annuities often pay on a monthly basis and can generally not be accelerated or pledged as collateral, they provide long term income to individuals who may otherwise have a need for government assistance.
Selling your right to future payments should be your last resort, especially if you rely on the annuity for income or support for your dependents.
Are there any reasonable alternatives to selling your right to future payments?
Selling your right to future payments should be your last resort, especially if you rely on the annuity for income or support for your dependents. If you have any other resources that would allow you to accomplish your goals without placing an unreasonable hardship on you, you should consider making use of those before attempting to sell your payments.
Do you have another source of income which will serve to replace your guaranteed payments?
If you were badly injured and have ongoing medical expenses or are otherwise not capable of earning a living, it may be difficult to gain court approval of the transfer of future payments for a lump sum. In the absence of earnings capacity the court may consider it likely that you will be forced to turn to government assistance without the assurance of your future annuity payments.
If you have dependents, how will they benefit or suffer from the sale of your rights to future payments?
The law governing the transfer of payment rights charges the court with assessing whether or not the transfer is in the best interest of the annuitant, taking into account the welfare and support of their dependents. If you are considering transferring your rights you must demonstrate that it will not negatively impact your dependents.
Do you currently owe any back child support or alimony?
If you owe back child support or alimony and are successful in selling your payments you may be required to forego your stated objective and fulfill your court ordered responsibility to your ex-spouse and/or children.
Do you receive needs-based government assistance for which you will be rendered ineligible upon receipt of funds from the sale of your future payments?
If your settlement plan was designed to preserve your eligibility for government entitlement programs, you may trigger ineligibility when you receive your lump sum. You should evaluate whether or not you have a need for programs such as Medicaid, Qualified Medicare Beneficiary, Supplemental Security Income, etc. before making the decision to transfer your rights for a lump sum payment. However, some of these programs may allow for an asset for qualifying asset conversion within a certain period of time. For example, you may be able to receive your lump sum and quickly purchase a home, which may be excluded from countable assets in means testing for certain programs. Rules vary from state to state. Contact us if you would like our help investigating the rule in your state.