Purchasing Recycled Annuities

August 6, 2014 12:07 p.m.

Independent Professional Adviser Counsels on Purchasing Recycled Annuities

Recycled annuities function in the tertiary financial market; which is highly unregulated.  The tertiary market is a perfect example of the "Free Market System" which is a system that operates mainly on private transactions.  Firms are largely free to make their own production distribution (insurance products) and pricing decisions, and individuals depend largely on themselves for economic security.


By the time a structured settlement payment stream reaches the tertiary market, chances are you've lost the "specialized state guaranty funds" backing, unless you can meet the 60 day requirement [IRC Section 130(d)] that maintains the annuity as a qualified funding asset, thereby protecting the "annuity" from being taxed upon your purchase.


Usually the court process in California is anywhere from 1-3 months.  It just so happens that California is one of the safest, if not the safest state in which to purchase a structured settlement payment stream.


California Insurance Code 10134-10139.5, the State's Structured Settlement Protection Act, has a section (10139.4) that imposes up-to $2,500 per violation on any person who engages, has engaged or proposes to engage in harming anyone in the transfer process, or unfair competition.


In addition to $2,500 per violation, if the transferee makes any kind of mistake in the process they get to have the default punishment of incurring all liabilities and/or costs by order of the court.


Everyone is very motivated to get the contract and ALL closing documents correct and legal, to avoid exorbitant costs, and possibly losing their employment and business license for frivolous or fraudulent mistakes and/or omissions in the state of California.


This makes your potential high yield investment more solid, and attractive because chances are you are entering into a legal and correct tertiary market contract.


You can still do your due diligence, or hire someone to mitigate the documents for you, like a financial adviser, but you still run the risk of meeting the time frame of sixty days.


The wording isn't exactly like that in 10139.4.  Instead, the section refers the reader to a section in the California Business and Professions Code where it states the above information about the $2,500 per violation.


Your best bet is to consult with a professional that's been in the business for years, especially a California-based professional that has operated nation wide.