As a lottery winner or recipient of an annuity settlement, you are probably tempted to sell your payments for one lump sum, and there are certainly many companies prepared to buy them from you. Companies such as JG Wentworth, Stone Street Capital, Peach Tree Financial, or Secure Horizon Settlements have operators standing by.
However, do you know what you are doing in these negotiations? Most people are not financial experts and could get less than maximum value for selling their annuity payment for a lump sum if they do not negotiate the best deal for themselves.
This article will introduce you to the key concepts and advice you need to make the most profit from selling your annuity.
KNOW THE DEAL
When you are selling your lottery, or other annuity, do not be caught up on the immediate amount of money you are set to receive from the transaction. Often, the first bid is the lowest offer you will get, and is used to test your prowess in the transaction.
Instead, the figures you want to look at in this type of transaction are the DISCOUNT RATE, and the TERM. When you sell your lottery annuity or settlement annuity, the companies who broker these deals are usually not the end party, but only a middle man who is dealing with an investor.
Most investors purchasing annuities are institutions, such as insurance companies or pension plans. They are interested in purchasing long term, safe deals at competitive rates of return compared with other investments they might make (these other options are called the MARKET).
Therefore, the number of years it takes for your deal to mature, and the percent interest that your investor will make, which are called the TERM and the DISCOUNT RATE, are the most important figures for you to negotiate. Do not just negotiate the number of dollars you get. (Trust me, when you get the best rate, it means the most dollars to you, and it makes you sound like you are a sophisticated seller).
UNDERSTAND THE MARKET
First, you must understand two things: 1) the party on the other side of the table is evaluating your lump sum annuity payment deal in terms of a DISCOUNT RATE over a TERM, and 2) the other party is comparing your annuity with the rest of the MARKET.
After that, it is imperative that you find out what is a fair rate for your annuity in comparison to other rates. This raises a third category of information for you to understand: 3) what should you demand?
The most common rates used by finance professionals are the t-bill, mortgage interest rates, and the average rates for deals like yours. Whether you are a lottery winner selling a lottery annuity for maximum value, or a plaintiff selling a legal settlement for maximum value, the investor on the other side of the deal is looking at a) the company who is paying you (is it the California Lottery, a big company like Ford, or a small corporation backed by insurance?) b) the financial rating of the party ultimately backing your annuity, and c) the risk of your deal compared to its other options (for example, purchasing bonds from the federal government).
If your deal is relatively low risk and offers slightly higher rates of return than, say, federal bonds, the investors are more likely to go with you so they maximize their own profit and everyone wins.
GET GOOD COUNSEL
Most annuity buyers will want you to get independent counsel, and better yet, are willing to pay for you to do so. This means, you get a qualified attorney dedicated to negotiating the best deal for you, and you don’t have to pay anything for it.
Why would they do this? To assure that you will not later back out of the deal saying you were taken advantage of or didn’t understand. These investors cherish peace of mind most of all, and another perk of doing a lump sump annuity sale with them, is that they do want you to be advised by your own attorney.
While it is critical for you to understand all of the above points from at least an elementary level, it is even more important for you to find a representative who understands both transactional law and finance, who can calculate the rates, do the research for you, and make the appropriate responses to the back and forth offers you may get from several companies competing for you to sell your annuity payments in one lump sum for maximum profit to you.
With knowledge of the above terms and transactional factors, hopefully you will be in a much better position to maximize your lump sum annuity sale today.
Michael Patrick Rooney, Esq. is a San Francisco Bay Area California attorney who holds a J.D./MBA and is experienced in financial transactional law, including how to maximize profit from selling lottery structured settlement payments for a lump sum, and business litigation.