selling settlementSelling a structured settlement, a state lottery or some other annuity is the answer for a payee who cannot wait for the arranged periodic payments, whether they are monthly or annual payouts.  Sometimes, the payouts may not begin for a period of months, or the payouts may not provide a sufficient amount to meet current monthly obligations.  Perhaps cash is needed right now for an unforeseen emergency.

For whatever reason the decision is made to convert a structured settlement to a lump-sum payment, it may be perfectly justified and there is little that stands in the way of making the conversion.

The general elements of an annuity sale must be understood.  Also, the “little that stands in the way” needs to be understood and almost all of the obstacles have means to overcome them.


The Little That Stands in the Way

When the structured settlement was first issued, there was mutual agreement to the settlement payout terms.  A contract was created and signed by both parties.  The contract, however, may not be binding relative to the ability to sell the annuity for a lump-sum payment.  The settlement agreement will need to be carefully reviewed.

The payout of a lump sum rather than letting the annuity proceed with its structured settlement payouts as contracted will not amount to the full value of the annuity.  The annuity will be sold at a discounted rate.  For example, if the total value of an annuity were $1 million with monthly payments of $5,000 for 200 months, the annuity would sell for a quoted discounted rate of some value, say 10 percent.  The lump sum payment would be $900,000, if no monthly payments had yet issued.  This sum may have taxable considerations.

Since the structured settlement is a legal contract, the request for selling the annuity for a lump-sum payment must have the approval of the court, but the typical duration from the request to final payout can be as little as 30 days.

Even if the contract stipulates that the annuity cannot be sold, it is within the court’s purview to determine if the need for the annuity sale is justified.  Under most circumstances, the judge will waive the original contract, allowing the sale.


You Do Have Options

There are two extenuating conditions that will affect the court’s decision.  First, if the annuity owner is in bankruptcy proceedings and the case has not yet been discharged, this condition must be clearly stipulated in the sale request.  The judge may still approve the sale, however, there may be additional fees associated with the sale.

Second, if the structured settlement is owned by a minor, the child is not legally capable of deciding to change the structured settlement.

During the process of application, review and the court’s judgment, the requestor is under no obligation to proceed if there is a wish to back out to maintain the structured settlement as is.  If the process concludes with a sale, no rights of the requestor are forfeited during the process.  The requestor is under the full protection of the court’s decision to sell the annuity and the court order includes the demand for payment by the funding company.


Do What Makes Sense for You

Finally, it is not necessary to sell the entire annuity.  A partial sale can be transacted, leaving the balance of the annuity to proceed with its structured payout as originally determined, less the amount sold as a lump sum.

There is no obligation for anyone with a structured settlement to change the payout conditions of the annuity, but there are unforeseeable conditions that sometimes require a change to the settlement to obtain a lump-sum payment.  Knowing this is possible offers relief and peace of mind.

About Robert Farrington

Robert Farrington has written 77 articles on this site..

Robert Farrington is the founder and editor of The College Investor, a personal finance site dedicated to young adult and college student finances.

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