The US election is over, President Obama remains in the White House and we have the impending “fiscal cliff” looming over the US economy. With short term and long term issues at hand the economy is holding on nervously as evidenced by the 400+ drop in the stock market.
The term “fiscal cliff” was first coined by Ben Bernanke, chairman of the U.S. Federal Reserve, he described that "a massive fiscal cliff of large spending cuts and tax increases" would take place on January 1, 2013*1 It is the hope that our government, and the two parties, will find a solution and come to a temporary agreement on some of the tax and spending measures and provide a near term and long term solution and avoid what may be a recession for 2013.
The effects of our current economy and the near zero interest rate levels held by the federal reserve is having a direct impact on the rates provided by major financial institutions, money market accounts, savings accounts and more specifically the structured settlement industry.
The premiums for the placement of structured settlement annuities have decreased steadily since 2008. In 2011 the structured settlement annuity marketplace saw an estimated level of production at $4.97 billion - contrast that to an estimated high of $6.2 billion in 2008.*2
If there is a silver lining to the low interest rate levels it’s that sellers of as well as sellers of investment annuities are benefiting from all time lows in discount levels. The discount rates on structured settlements range from 8% to 20%. The timing and the size of the payments being sold ultimately decide the discount rate applied.
As we near the end of 2012, the cliffhanger of an election over, and as the folks on the D.C. beltway work on fiscal solutions it remains to be seen where our economy will head in 2013.
You may recall an 81 year old resident of Rhode Island winning the third largest Powerball lottery in the history of the game. That winning would have paid out $336.4 million in the form of 30 annuity payments paid over 29 years. The winner elected not to take the annuity and instead chose a lump sum of $210 million.
Not only was Ms. White the winner, the State of Rhode Island also experienced an increase to its general fund. The state fund received $22.8 million more than the previous year.
Ms. White set up a trust, pleasantly named the Rainbow Sherbert Trust, for which the lump sum will go into.
While Ms. White opted to accept the lump sum amount, lottery winners and holders of annuity, and structured settlement policies may also opt for a lump sum through the secondary market. Contact Rescue Capital for more information.
The New York trial court denied a proposed sale of structured settlement payment rights in July basing the decision primarily on the grounds the sale of the annuity was not in the best interest of the annuitant.
The New York structured settlement protection act prohibits the transfer of structured settlement payment rights unless the transfer has been authorized by a court of competent jurisdiction. The courts must find, among other requirements, the transfer is in the best interest of the payee, the payee’s dependents, and whether the discount rate used to purchase the annuity is fair and reasonable.
In The Matter Of The Petition Of J.G. Wentworth Originations, LLC (Pretto) the courts did not feel the annuitant had exhausted all of her means to raise money for her education prior to deciding to pursue a sale with JG Wentworth. The Court said, “However admirable Pretto's intention to obtain a degree… the taking of such a deep discount on her settlement funds is a questionable means of attaining her goal.”
The annuitant, Pretto, may have found interest rate much lower than the 19.11% proposed by J.G. Wentworth. In addition, the 19.11% discount rate was found by the courts to not be “fair and reasonable within the meaning of the SSPA…”
There are many ways to pay for college; deciding to sell an annuity or structured settlement annuity should not be the first option in order to finance an education.
CNN Money has released their latest report on America’s Best Places to Live their rankings are based on cities that have a large availability of job opportunities, schools that provide high quality of education, and safe neighborhoods.
These are qualities that many holders of investment annuities and structured settlement annuities seek when deciding to sell all or a portion of their annuities. “Sellers want a lump sum of money that will enable them to move out of a current living situation that is not optimal for their families and to purchase a home or rent in an area that is more suited for them” says John Zepeda, Vice President of Rescue Capital.
The use of funds is a factor that the courts take into account when reviewing an application for the sale of a structured settlement.
When a Judge reviews the application for a transfer, an approval will be based on many factors, one being that the structured settlement payment right being sold is fair and reasonable and in the best interest of the payee, the individual selling the annuity, taking into account the welfare and support of his or her dependents, if there are any.
Relocation for a better opportunity is one of the reasons why selling an annuity is often approved by a Judge.