Many times lawsuits are settled by providing the plaintiff a stream of payments over a period of time or at designated periods in the future. Although, there is great care taken in determining the ideal stream of income to support the annuitant in the future, sometimes the finances of the annuitant change and they need to receive some of their money early. The process for receiving the cash early is through what is called a structured settlement transfer. The annuity itself cannot be accelerated, however the annuitant could choose to sell their right to the future payments to a third-party and the third part will pay them cash for those future payments. The next series of blogs will deal with the documents that need to be executed in order for the annuitant to sell their payments. Under state and federal statutes the process is refined so that each company that buys structured settlement payments must follow rather uniform guidelines. One of the first documents an annuitant will receive from a structured settlement company is a disclosure.
What are the different parts of a Disclosure?
The disclosure statement is designed to fully disclose the terms of the transfer agreed to with a representative from the purchasing company. The company purchasing the payments is required to send this document to each annuitant so that terms of the transaction can be confirmed and verified against what was verbally promised. Moreover, the disclosure also provides some additional details that you may or may not have been provided over the phone. Certain states have added some additional language to the original federal statute which would make the statement slightly longer, however most disclosure statements encompass the same paragraphs. Below I will break the disclosure into three parts for ease of explaining each part.
At the top of the disclosure, as shown below, you will see the state for the transfer along with the name of the annuitant. Next you will find to whom is buying the payments, the amounts and dates of each payment and finally the aggregate of the payments being sold.
Structured Settlement Disclosure statement part 1
The second section shows the discounted present value of the payments as determined by the applicable federal rate. This is a published rate for valuing annuities; however it does not assume open market demand. Paragraph (D) shows the amount that was promised to you from the structured settlement representative. If this number is different from what was promised, you need to be concerned. Remember one of the main reasons for the disclosure is to memorialize the verbal agreement to sell the structured settlement payments. Paragraph (E) represents any costs that you will need to pay to get the transaction completed. In completing these transactions there are significant legal and administrative costs, which some companies choose to pass on to the annuitant .
Structured Settlement Disclosure statement part 2
Finally, in the last section, paragraph (F) shows the net amount after cost that will be paid upon the completion of the transaction. Paragraph (G) shows what is called the quotient, which essentially means based upon the APR, what percentage of the APR you are actually receiving. Finally, in Paragraph (H), the amount of any penalty you will be charged for breach of the transfer agreement.
Structured Settlement Disclosure statement part 2
It is critical that this document match the terms that were provided to you by the representative for the structured settlement company, because in the end you will more than likely receive what is in this document rather than what was told to you. In the next part of this blog we will dive into the transfer agreement and show you how the disclosure statement will coincide with the transfer agreement. If you would like to learn more about the process to sell structured settlement payments, contact Mainstreet Funding for the best price and service.
