If the payee of a structured settlement is in need of a large sum of immediate cash, the payee may be under the impression that only the entire settlement amount can be sold as a lump-sum. That would result in having an additional sum of cash not needed. The payee may fear the temptation of spending the added cash and may be unsettled about the loss of future payments.
Or, the payee may be under the impression that the settlement contract forbids the sale of the annuity for a lump-sum payment. The contract may even say so in so many words, but this should not deter questions and pursuit of all the possibilities before being resigned to a schedule of monthly or annual payouts in the structured settlement amount.
The fact is, it is a worthwhile endeavor to find out all of the possibilities from keeping the settlement as is to a complete sale of the annuity as a lump-sum payout. There are also a couple of options in between.
Options for Modifying a Structured Settlement
The first option, to keep the structured settlement as is, requires no further action on the part of the payee.
As an extreme alternate option, it is possible that the entire remaining settlement amount could be sold as a lump-sum payment. However, since the original settlement is a legal contract, only the court can change the aspects of the contract to allow the option of a sale. It is possible that the court would rule favorably to sell the structured settlement even if the language of the original contract strictly forbids it; it will be the decision of the judge to overturn the contract based on the payee’s justification for needing the sale.
It must be understood, however, that the option to sell the settlement payments in a lump sum will not yield the entire value of the settlement. There will be a discount rate applied to the total annuity value and this rate will be deducted from the whole. The payee will receive the difference. Depending on the negotiated sale, the discount rate will be several percentage points to be paid to the funder of the sale.
For example, if a structured settlement value was originally $1 million with payouts of $5,000 monthly for 200 months, and 20 months have already been paid out, the total annuity value is now $900,000. If the total annuity were sold with a discount rate of 8 percent, the lump-sum payout would be $828,000.
But these are not the only two options available. If, as was noted at first, the payee does not want to sell the entire settlement in a single lump-sum, there are a couple of options to still entertain a sale.
The first of these, and the most common, is to sell only a portion of the settlement in a lump-sum and retain the balance as the original structured settlement of periodic payouts. Using the same example as above, with a remaining annuity value of $900,000, the payee may only need $100,000 in immediate cash, but would like to keep the remainder in the original structured annuity.
If approved by the court, the annuity would be reduced by a lump-sum sale of $100,000 plus eight percent, $8,000. The annuity value would then be $792,000 to be paid out by the original settlement agreement of $5,000 per month.
A secondary, and later option, would be to sell another portion of the annuity in a lump sum by the same means as the previous sale.
The payee of a structured settlement has these options available to meet unforeseen circumstances and still have the benefit of the original annuity.