How Can Attorneys Protect Clients with Annuities from Factoring Companies?

HomeTrusts and Asset ManagementHow Can Attorneys Protect Clients with Annuities from Factoring Companies?

Past settlement recipients who elected to receive all or a portion of their settlement funds via a structured settlement annuity might be tempted to sell their annuity payments to factoring companies (more commonly known as “cash now” companies). These companies often purchase annuity payments for pennies on the dollar, leaving your past clients in a financial lurch.

One of the concerns we hear from personal injury attorneys about using annuities for their clients is that clients may be tempted to sell the monthly payments scheduled to be received over several years for a lump sum. 

In other words, attorneys are often worried about their clients watching late-night TV, seeing commercials from cash now companies, and taking the bait to the client’s own financial detriment.

What is a Factoring Company?

“Cash now” or factoring companies buy all or a portion of future settlement annuity payments for a lump sum of cash. And while there are extenuating circumstances in which these transactions can help a client, most factoring companies attract past settlement recipients by promising cash immediately.

The offers from factoring companies often end up being pennies on the dollar, with a high discount rate. 

While the lump sum may seem like a significant amount of money to the client, the clients typically end up receiving only a fraction of the value of the originally scheduled payments. 

Further, too often after receiving a lump sum, the clients squander the funds and no longer have the financial safety net annuity payments are meant to provide.

How Trusts Can Protect and Preserve a Client’s Settlement Fund

In situations where there is a concern about a client potentially selling their future structured settlement annuity payments to a cash now company, we often use a settlement trust as a vehicle to protect the client from making a poor decision.

Here’s how we plan for these cases: Instead of the structured settlement annuity paying directly to the client, the payments are made to a settlement protection trust. The trustee of the trust then passes through those payments to the client. 

With the trust in place, if a client sees a cash now ad and calls that factoring company to sell their annuity, the client must get the approval of the trustee in order to sell the future payments. Because these transactions are rarely in the client’s best interest, the Trustee of the settlement protection trust is able to refuse the proposed cash now deal. The Trustee is able to protect the client from cash now offers.

Trusts provide an easy way to protect clients from selling their annuities. Locally, we can draft and establish settlement protection trusts for our clients. For clients located across the country, we have relationships with trust companies where we can help the client set up a trust with the trust company as the trustee. It’s a smooth and easy process — and there are minimal fees to the client.

Here at Amicus Settlement Planners, we want to help protect your clients from cash now companies. Give us a call if you like the idea of a structured annuity for a client, but you’re worried about them selling those payments. We can talk you through the settlement protection trust option or we can discuss other options. Ultimately, our goal is to protect your clients from the cash now companies so that they don’t end up selling their annuity for pennies on the dollar.

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