Information about Secondary Market Annuities- high yield, safe annuities
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Quick Summary
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Summary of Secondary Market Annuities:
- Secondary Market Annuities (SMA) are existing and in-force payment streams backed by annuities, available at a discounted price & higher yield than comparable fixed term annuities.
- Purchasers acquire the right to receive these future payments in a court ordered and state- regulated transfer procedure.
- SMA payments offer a higher yield and lower price because sellers need cash today, and they sell future payments at a discount.
- SMA payments are guaranteed, period certain, and will pay exactly as scheduled to the purchaser or their heirs.
- SMA payments have no volatility, no market exposure, no fluctuation in value, and no complicated terms or contracts.
How To Choose:
- Quick Close / In Stock cases are fully approved, ready to close
- Coming Soon cases are still in the court approval process, and typically close within 30 days
- Inventory is priced as of a projected close date- the final price will change slightly based on actual close date.
- Cash or IRA funds are accepted- Use GoldStar Trust as the self directed IRA custodian to purchase with qualified funds
- Cases can be split to suit individual needs, see “Split Cases” tab on this page and call for details
How to Buy:
- Hold a case for 48 Hours to take it ‘Off-Market’
- Reserve a case by sending in a purchase order with purchaser details (name/address etc)
- If using qualified funds, open a Self Directed IRA with GoldStar and rollover/ transfer sufficient funds.
- Closing book is sent by Docusign for review and electronic signature. For IRA’s, the purchaser signs a Direction of Investment to complete the purchase.
- Closing book contains the contractual assignments from seller, to intermediary, and then to purchaser, along with the final court order, carrier stipulation agreement or acknowledgement letter, amortization schedule, and payment servicing agreement.
Closing and Funding Process:
- No pre-purchase buyer deposits are required.
- Transactions are funded only after the purchaser has received and reviewed the complete closing book.
- Once purchaser reviews and e-signs the Absolute Assignment of Cash Flow and Payment Servicing Agreement, the purchase price is sent to the dedicated escrow account, and the case is closed.
- Closings are safe, quick and efficient through the use of a dedicated, third party escrow account and electronic signatures.
Receiving Income and Cash Flows:
- Income payments are received into a payment servicing account specific to each case and under the sole control of the purchaser.
- The payment servicer is GoldStar Trust Company, a federally regulated bank and trust company based in Texas.
- GoldStar receives payment from carrier and sends payments by ACH or check on to the purchaser, their IRA if applicable, or to their heirs or assigns.
- Payment servicing allows for easy beneficiary designation, anonymity, and transferability to purchaser’s heirs, assigns, or estate.
]How to Choose & Buy
Frequent Questions
Taxes on SMAs
Secondary Market Annuities are tax free awards to the original annuitant, per IRS regulations. As tax free income streams to the original annuitant, the annuity issuers making the payments do not issue 1099’s to the recipients or to subsequent assignees. That said, while you will not receive a 1099 for the income you receive, this does not mean it’s tax-free.
Federal law and IRS guidelines outline how, in a properly structured transaction, a court order shows the new purchaser as the assignee of an existing payment stream by means of qualified order. This is the court process we follow on all cases. Each state has its own transfer statutes but they are designed to comply with IRS Section 5891 rules and these are what we follow on all transactions.
Secondary Market Annuity Taxation:
The taxation of income from these assigned structured settlement payments is determined by the taxpayer and their tax adviser. Please note, if the Secondary Market Annuity is in an IRA then all IRA distributions will be taxed when they are taken, so the rest of this page does not apply.
But for Secondary Market Annuities acquired with non-qualified funds, annuity income is considered ordinary income. Typically, the income vs principal is calculated using either an exclusion ratio to determine (exclude) from income that amount of each payment that is return of principal, or by using the amortization schedule.
How To Calculate Using The Exclusion Ratio:
The exclusion ratio works like this: say you paid $100,000 and will receive $200,000 over 100 payments of $2000 each. Exactly 50% of each payment would be income, and 50% is return of principal. Consult your adviser, but generally, this income is “ordinary income” for IRS purposes.
The exclusion ratio therefore is 50%- 1/2 of each payment is taxable income. This Article explains it well, but consult your tax adviser for specific questions.
Alternative Methods:
To be fair, there may be alternative ways to reflect the principal and interest in your payment stream by using an amortization schedule, which can be downloaded from the inventory page and will be provided with your closing book.
This method treats the payment stream in the same manner you would treat a loan or other receivable, where you are the lender, and recognizes interest income predominately in early years, and principal in latter years. This may or may not be beneficial for you.
At this time, it’s our understanding you can use either the amortization method, or the exclusion ratio method, to calculate your taxes. But be sure to consult your own tax adviser.
Summary Of Taxes And Secondary Market Annuities:
So even though will not be receiving a 1099 for the payments from the carriers based on current tax law, what happens in the future to tax law is anyone’s guess. Some now use an amortization schedule to allocate principal and interest, while others use the exclusion ratio.
SecondaryMarketAnnuity.Net and Annuity Straight Talk, LLC do not offer tax advice, and this page is for general information only, so please be sure to consult your own tax adviser for more info.
Self Directed IRAs
Click for Video To buy Secondary Market Annuities with qualified funds, a self-directed IRA is required. We have worked with many SDIRA custodians, however we only recommend GoldStar Trust. They offer the best service, the lowest price, and the fastest execution, and thus there is no reason to look elsewhere. Click Here for our guide to IRAs and Secondary Market Annuities. 
THERE ARE FOUR STEPS IN AN SMA/IRA TRANSACTION:
- Open the Gold Star IRA Account– Complete and sign the application and pay account opening fee
- Account establishment fee of $65 annual/$25 opening can be paid by credit card.
- Input “Annuity Straight Talk” on Page 8, the wholesale rep form. This authorizes us to communicate with, but not direct, Gold Star regarding your SMA purchase.
- Fund the Gold Star IRA- Page 5 , IRA Transfer, or page 6, Rollover Certification
- Depending on the current custodian and the investments held, transfer may take 2 days or 4 weeks.
- Typically, we wait until the SMA is court approved, then initiate transfer of funds to Gold Star.
- Buy the SMA- Direction of Investment form, page 7
- The best practice is to send in a signed DOI form when opening the account, but leave the investment amount blank until the closing book is priced and prepared. After you approve the transaction, GoldStar will fill in the final investment price from the closing book after you approve
- Approve Closing Book
- Review the closing book prior to funding
- Once reviewed and approved by client, Gold Star signs the Absolute Assignment and the Servicing Agreement as custodian, and funds the purchase of the SMA
- Closed/Funded/Complete
Split Cases
We are able to easily accommodate splits or portions of cases.
Lump Sum Splits
Lump sum cases may be split to suit the purchaser. For example, one lump sum of $250,000 on 1/1/2030 may be split for a purchaser who only wants to purchase $150,000 of that future payment, or split to fit an available investment amount, such as the balance of an IRA or a specific desired purchase price.
Income Splits
Income streams may also be split or tailored to suit your needs. For example, 240 monthly payments of $1000 may be split into 240 payments of $500 to one customer and $500 to another customer.
We can also accommodate a split such that a buyer takes the first 120 payments of $1000, and another buyer takes the deferred 120 payments of $1000. This is especially useful where a buyer purchases a portion of a case with an IRA and buys the other portion with non qualified funds.
Not all splits can be accommodated, so please call or email to inquire about a split to suit your needs.
Amortization Calculator
- Load an available cash flow by selecting the case code from the drop-down menu & click Solve.
- To adjust closing date, enter the new date in the “starting” investment field, and click Solve.
- Click ‘Schedule’ to see amortization, and click ‘PDF’ to download. Note, some browsers may block PDF popup.
Interest Rate Calculator:
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Understand Rates on Secondary Market Annuities
An SMA investment price is the Present Value cost of the specific Future Value payments shown, at the Discount Rate shown, and Priced On the date shown.
The Basics of Time Value of Money
The basic premise is that a dollar today is worth more than a dollar tomorrow. How much more? Well that depends on your discount rate. Thus, there are three key terms to understand the concept of “Time Value of Money” and of discounted cash flow (DCF) math.
Future Value- FV is one or more payments, at specific dates in the future. With Secondary Market Annuities, it’s the specific payment description, for example, “120 monthly payments of $1000 starting on 1/1/2020 until 12/1/2029” or “One lump sum of $100,000 on 12/1/2030” This is the Future Value(s) you receive
Discount Rate- this is the rate at which a Future Value decays, or is discounted. in the most basic sense, $100 one year from now is worth $95 today, at a 5% discount rate. For our purposes with Secondary Market Annuities, the Discount Rate, is the same as the Effective Rate, and is also the same as the Internal Rate of Return, or the Annual Percentage Yield. This rate is clearly shown on the inventory page.
Present Value- PV is the value today (or on a specific date) of the specific Future Value(s) of the payment stream, discounted to that purchase date at the Discount Rate shown. In our case, Present Value is also the Purchase Price or investment cost, and the day we use to calculate that PV is the ‘Priced On’ date shown on the inventory.
Every Future Value needs to be discounted using the Discount Rate, back to today, using the compounding period specified, to arrive at today’s Present Value for that specific payment.
Thus, every piece of information you need to verify the mathematics is shown on our inventory page, and so…
An SMA investment price is the Present Value cost of the specific Future Value payments shown, at the Discount Rate shown, and Priced On the date shown.
There’s no mystery to it at all, but unfortunately people accustomed to complex annuities with hidden fees and charges just don’t believe that what you see is, in fact, what you get.
All this can be verified using a good discounted cash flow annuity calculator. Use ours above or click HERE for an MS excel example amortization schedule and XIRR calculation.
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About Payment Servicing
All the secondary market annuities we sell utilize a professional servicing company to handle the payment stream. This is a policy used by the leaders of the SMA industry, and follows precisely the procedures used by institutional clients and securitization portfolios of Structured Settlement Annuities. We have adopted the same procedures as a matter of good business policy. This page details how payment servicing works with SMA’s.
WHAT ARE THE BENEFITS OF PAYMENT SERVICING?
Payment servicing is common in banking, credit card processing, securities, mortgage servicing, property management, IRA administration, investment management, consumer finance, auto finance… in short, nearly every transaction in the financial landscape involves a form of payment servicing.
The benefits of payment servicing are as follows:
- Easy account administration for address & bank account changes
- Easy administration for heirs/successors/beneficiaries of payments
- Human interface for account issues
- ACH transfers and direct deposit–incredibly, many insurance carriers will NOT accommodate ACH deposits!
- Easy transferability of payments to new owners, beneficiaries, or heirs.
One of the key benefits of servicing is the last mentioned: transferability. It is a simple process for a purchaser to re-transfer a payment stream that is properly serviced. No involvement from the seller, factor, or agent is required; since the purchaser holds all rights to the cash flow, they simply notify the servicer of a transfer.
OUR PREFERRED PAYMENT SERVICER:
We have entered into a long term relationship with GoldStar Trust Company to perform payment servicing, account management, and policy service for our agents and clients. GoldStar is the trust only branch of a $4B (assets) bank and is a market leader in self directed IRA administration as well. Their regulatory and compliance structure and market leading position in IRA and bond administration makes them a trusted and stable partenr in our process.
GoldStar’s servicing platform ensures you always have a human interface to deal with any changes in your circumstances such as changing address or switching bank accounts. Whatever your needs, GoldStar will handle them directly with the carrier and you. The setup costs for this service are paid by the DCF Exchange and your payment servicing agreement is included in each case Closing Book.
WHO IS GOLDSTAR?
GoldStar Trust Company is the trust-only branch of a $4B Texas bank. The Trust company is one of the nation’s leading Self-Directed IRA custodians and is known for its fantastic customer service and attention to detail. GoldStar serves as Paying Agent and Trustee for issuers of Church Bonds and Municipal Bonds in 38 states, and handles over 30,000 customer IRA accounts. As a regulated custodian for billions of dollars of client assets, their expansion into payment servicing for Secondary Market Annuities is a natural extension of their capabilities..
PAYMENT SERVICING FEE SCHEDULE:
- Set Up Fees, paid by us
- Periodic Fees, deducted from each payment received
- $5 per distribution for monthly payment accounts
- $25 per lump sum payment, deducted when the distribution is made
Considering the benefits, the payment servicing fees are nominal, and far less than IRA or other custodian service providers. When you consider the liquidity options alone, servicing is a bargain!
PAYMENT SERVICING SUMMARY:
Payment servicing offers benefits of liquidity, anonymity, and flexibility. Reassigning, gifting, or direct depositing an SMA payment stream can be difficult without a servicing arrangement. Utilizing the best in class servicer, we offer you this additional flexibility on every case.
Inventory- Table View
Additional Secondary Market Annuities Case Studies and Sales
Additional Scenarios and Closed Cases: Immediate Income
Jump start retirement with yields that more than double currently available rates for immediate income products.
- Met Life : Income beginning in June of 2012 at $781 monthly and adjusted for inflation at 3% annually. Payments continue until May 2035 where the final installment equals $1497. Then income jumps to $2372 monthly adjusted for inflation at 3% annually and continues for five more years until the final monthly payment of $2670 in may of 2040. This creates an excellent source of inflation adjusted retirement income that returns an aggregate cash flow of $455,463. SOLD
- Allstate Life: Income beginning in June of 2012 at $299 monthly and are adjusted for inflation at 3% annually. Payments continue until May 2035 where the final installment equals $574. Then income jumps to $2372 monthly adjusted for inflation at 3% annually and continues for three years and nine months until the final monthly payment of $2592 in February 2039. This creates an excellent source of inflation adjusted retirement income that returns an aggregate cash flow of $228,021. SOLD
- Symetra Life: Income beginning in September 2013 at $586 monthly that adjusts by 3% annually for inflation. Payments continue for nine years and four months with the final payment growing to $765. Aggregate cash flow over eleven years equals $74,575.SOLD
Deferred Income Secondary Market Annuities
These will produce greater future income than any guaranteed product available in the primary market.
- TransAmerica : Deferred income payments beginning in February 2016 that continue for 14 years until January 2030. Monthly payments start at $3215 and adjust 3% annually for inflation until the final installment of $4721. This produces an aggregate cash flow of over $659,000. Nothing in the primary market will come even close. *Additional details apply so please call for more information* SOLD
- Symetra: Future monthly income beginning in Sept. 2019 at $500 per month and continuing for 260 months until April of 2041. This is an extremely efficient way to fund a future retirement income supplement. SOLD
- Genworth: One lump sum payment of $80,000 in January 2019. Two years later, monthly income payments begin at $2000 for 37 months with an additional $150,000 lump sum payment in January 2024. After that, monthly payments increase to $2500 and continue for six years and eleven months. Aggregate income equals $511,500 over 19 years. This offers a solid level of recurring income with two big lump sum payments that offer lots of liquidity to enable future planning opportunities along the way. SOLD
- Future monthly income payments of $1330 beginning in October 2028 and continuing for twelve years and four months. Aggregate cash flow comes to more than $196,000. SOLD
Deferred Growth Single Lump Sum
These offer great options to combat longevity risk or give a major boost to income when you need it most.
- MetLife: An initial investment of pays back one future lump sum of $400,000 in 26 years. Set aside assets now to ensure a big chunk of cash will be available down the road. SOLD
- John Hancock: One future lump sum of $250,000 in 16 years. This would provide an excellent level of cash reserves in retirement with both a great return on your money and the return of your money. SOLD
Deferred Growth Multiple Lump Sums
Same deal here- secure guaranteed lumps sums in the future to counter inflation or longevity risk.
- MetLife: Investment pays two future lump sums, the first for $50,000 in eight years and the second eight years later for $125,000. Total aggregate cash flow equals $175,000. SOLD
- Prudential: Three future lump sums. $60,000 in 2024, $30,000 in 2027 and $15,000 in 2030. Aggregate return equals $105,000 SOLD
- MetLife: Five future lumps sum payments. $8000 in 2014, $12,500 in 2019, $27,500 in 2024, $45,000 in 2029 and a final payment of $65,500 in 2034 for an aggregate cash flow of $158,500. SOLD
These represent just a small sample of available secondary market annuity contracts and are meant to show the variety you might find. Over time, products will come available that are likely to meet your situation or objectives perfectly.
If you are interested in any of these offers don’t hesitate to call as these secondary market annuity contracts are available on a first come first served basis.
Call now for more information about Secondary Market Annuities.
About Secondary Market Annuities And Taxes
Many customers inquire about Secondary Market Annuities and taxes. The original underlying Structured Settlement is a tax free award to the original annuitant. Because of this, annuity carriers do not issue 1099′s to the recipients or to subsequent assignees.
Now before you jump for joy, read on….
Federal law and IRS guidelines per IRS 5891 outline how, in a properly structured transaction, a buyer becomes the assignee of an existing payment stream by means of qualified order. The Buyer of a Secondary Market Annuity in a properly structured transaction as we do here at Annuity Straight Talk holds the contractual right to the payments.
So while under current IRS regulations buyers will not received a 1099 for the income they receive, this does not mean it’s tax-free.
Secondary Market Annuities Taxation:
Even though the original payee does not receive a 1099, subsequent investors do have a cost basis in the payments and a gain, and therefore are responsible for income taxes.
The taxation of income from Secondary Market Annuities held in non-qualified accounts is up to the taxpayer and their tax adviser to declare. Generally annuities are considered ordinary income and the ratio of income to principal is calculated using an exclusion ratio to determine (exclude) from income that amount of each payment that is return of principal. Refer to the following IRS rules for guidance and consult your tax adviser for specific questions.
How To Calculate The Exclusion Ratio:
Obviously, investors have a basis in an SMA investment, and a gain on that investment. The typical way to calculate the gain is to utilize an exclusion ratio for determining the principal and interest component of each payment.
Let’s look at an example of an exclusion ratio. Assume the investor paid $100,000 and will receive $200,000 over 100 payments of $2000 each. The exclusion ratio is 50%- Exactly 50% of each payment would be income, and 50% is return of principal. Consult your adviser, but generally, this income is “ordinary income” for IRS purposes.
Alternative Methods:
There are other ways to reflect a payment stream where you use an amortization schedule, and one will be provided with your purchase on any Secondary Market Annuity.
This method however treats the SMA like a loan (and you are the lender) and recognizes interest income predominately in early years, and principal in latter years. This may not be beneficial for you.
At this time, it’s our understanding you can use either the amortization method, or the exclusion ratio method, to calculate your taxes. But be sure to consult your own tax adviser.
Secondary Market Annuities and Amortization Schedules:
The software we use in the SMA industry is called T-Val and is used for calculating present value and discounted notes, as well as amortization tables for loans. With each SMA purchase, you will receive an amortization schedule produced by TVal that shows the principal and interest portion of each payment under the amortization method.
You can also refer our site for a discounted cash flow calculator.
The exclusion ratio is more intuitive than the amortization table. Feel free to view this article for more information on the exclusion ratio, in plain English and not tax-speak!
Other Tax Considerations:
In the case of factored lottery cases, taxes are withheld by the state lottery commission for state and federal taxes, and you will file for an applicable state and federal refund for the taxes withheld on that portion of your payment which is return of capital (basis).
Secondary Market Annuities & Taxes Summary:
So even though investors do not receive a 1099 for the payments from the carriers based on current tax law, what happens in the future to tax law is anyone’s guess. Some may use an amortization schedule to calculate gains, and others use the exclusion ratio.
We at Annuity Straight Talk LLC do not offer tax advice, and this page is for general information only, so please be sure to consult your own tax adviser for more info.
Frequently Asked Questions About Secondary Market Annuities
Frequently Asked Questions About Secondary Market Annuities
Secondary Market Annuities come from structured settlements, which originate as a result of a court case whereby an individual wins an award and elects to take their payments over time. These payment streams typically include guaranteed monthly payments and/or guaranteed lump sums designed to accommodate the payee’s life circumstances in the future.
Why People Sell Structured Settlement Annuities
Quite simply, people’s circumstances change. When individuals with Structured Settlement Annuities seek to sell their future payment streams for cash today, they approach a financing company who applies a discount to the future payment streams and offers a lump sum to the payee. When individuals sell their right to receive payments under a structured settlement, a Secondary Market Annuity is created. They represent one of the best ways to capture higher yields in a safe money investment.
When a seller and the financing company have an agreement, the company commences its underwriting of a specific case. They investigate the credit of the seller, any alimony, bankruptcy, or other liens, and a file with the court that originally awarded the payee the settlement to amend the court order. This is to comply with the provisions of Federal laws contained in the 2001 bill HR2884 and IRS Code Chapter 55, section 5891, relating to a transfer subject to a Qualified Order.
As a case is researched and proofed, it is marketed to select firms. We are unique as we work with franchisesfor.sale, a wholesale vendor who buys these payments directly into a business trust when they become available. Other vendors of SMA’s market on a “Best Efforts” basis and have no control over the process, quality, or even the existence, of the payments.
With the DCF Exchange inventory, a business trust is the named buyer, and this trust name is entered into the various documentation and court order relating to the transfer. Some of these documents are public record, so using the trust acts as an important confidentiality buffer and represents a key element of why our process is superior to other transfer methods.
Once a case is approved in court, and all the documents relating to the transfer of payment rights are compiled, the documents are sent to counsel for review. As we market cases in both a pre-order and in stock manner, capital may be extended by the wholesaler to purchase a case if it is not reserved prior to this point.
The legal counsel reviews all documents to ensure everything is in order. Once reviewed, we provide a full and complete closing book and only after doing so are your purchase funds required within 48 hours.
Prior to closing, the closing book consisting of your payment stream, the transfer and assignment agreements, the court order and an acknowledgment from the annuity issuer all documenting the transfer, is compiled and sent to you. You’ll have 48 hours to complete the transaction by wiring funds to close the case.
Secondary Market Annuities and Taxes
The taxation of income from factored Structured Settlements is up to the taxpayer and their tax advisor, and depends if the Settlement is held in a qualified IRA or not. Federal law and IRS guidelines outline how, in a properly structured transaction, a court order shows a buyer as the assignee of the payments by means of qualified order. This is the court process we follow at AST.
While under current IRS regulations you as the new assignee of a factored structured settlement case will not received a 1099 for the income you receive, this does not mean it’s tax-free. Please refer to the following IRS rules for guidance and consult your tax advisor for specific questions.
In the case of lottery payments, state and federal taxes are withheld from the payments from the state lottery commission, and you will file annual tax returns that would include a request for refund for the taxes withheld on the portion of your payment stream that was return of principal.
We’ll outline a few common Q&A questions below.
What Is A Secondary Market Income Annuity?
A Secondary Market Income Annuity (SMIA) is the resale of an existing annuity income stream, either from an Immediate Annuity, a Factored Structured Settlement, or a Lottery Prize Payout contract. The pre-defined income stream and specific terms of the offering is sold for a lump sum payment and thereby transferred from the current recipient of the income to the Buyer.
Is This Investment Right For Me?
If you are looking for an investment that can provide above average returns for the fixed income portion of a balanced portfolio and are in a financial position to hold an illiquid investment with a specific income/return structure, you should consider Secondary Market Annuities.
What Are The Benefits Of Secondary Market Annuities?
SMIAs guarantee you a payment stream over a specific period of time, at a fixed rate of return. This investment is generally considered to be a good vehicle for “safe money” savings. Annuity Straight Talk only offers SMIAs from those insurance companies that are highly rated by Standard & Poor’s for claims paying ability, making the Secondary Market Income Annuities we offer one of the safest forms of fixed term purchases available today.
Yields on Secondary Market Annuities are higher simple because the seller of the payment stream is willing to sell at a discount for cash today. You benefit from that discount and get a higher yield on the cash flow as when compared to comparable annuity products available in the open markets.
What Is The Yield On A Secondary Market Annuity?
Yields on Secondary Market Annuities vary and are generally related to the length of deferral. For example, an offer with a 10 year deferral period would have a higher interest rate than an immediate income offer. A long term lump sum offer will have a higher long term, compounding yield.
Secondary Market Annuities simply costs less to purchase the same income stream.
Can I Transfer Or Sell These Payments Later On?
We can facilitate the re-sale of payments you own due to the unique procedures we follow, but the transfer rate at the time you sell will be market based. There is no early surrender option or liquidity option, so it’s best to consider Secondary Market Annuities as generally not liquid or marketable.
Who Makes The Payments to Me?
SMIA payments are made to the payment servicing partner, ASG, who makes the payment to you. We utilize a payment servicer to facilitate liquidity and to provide you with quick close, in stock inventory. The Asset Servicing Group is a nationally recognized payment servicer providing millions of dollars of monthly policy service on thousands of policies. ASG at no time has any ownership or control of your funds, they merely act as a recipient lockbox and forward you payment as you direct, to you, you heirs, or a new owner if you re-sell the payments. Payment servicing carries a nominal cost that varies with each case and is shown in our SMA Buyers Guide.
Why Work With Annuity Straight Talk?
Each transaction we handle is subject to a rigorous review by an attorney. The due diligence and unique procedure followed protects each individual buyer to the fullest. Attention to each case sets us apart from everyone else in the industry in protecting you, the customer. The transaction process has been designed to protect the Buyer.
In addition, all costs of the transaction are built into the price- other than the account servicing costs above, there are NO hidden fees, monitoring costs, account fees, or ancillary charges. In the case of Life Contingent annuities, the purchase price INCLUDES life insurance coverage for the entire payment cycle, AND Gap insurance covering the first two years of the contract. This is all factored into the purchase price and handled prior to closing by our team, and designed to protect your interests.
What Is A Typical Term And Purchase Amount?
The present value of a Secondary Market Income Annuity is generally between $50,000 and $500,000 but can be higher or lower. Terms can range from 1 to 35 years but typically are 5 to 20 years.
Why Are SMA Rates Higher?
The rate of return on a SMIA is typically higher than the rate available on annuities newly purchased directly from insurance companies today because an SMIA has been previously owned and has attributes, such as payment term and payment amounts, that cannot be changed.
Additionally, an SMIA is transferred for the present value of future income payments. The present value is determined by what the Annuitant, or the Seller, will accept and what a Buyer will pay.
Can I Purchase Secondary Market Annuities With My IRA?
Yes, most Secondary Market Annuities can be purchase with IRA money. A self directed IRA is required and we can assist you setting up a self directed IRA with a custodian familiar with the Secondary Market Annuity marketplace.
It’s important to note that Self Directed IRA’s do have nominal fees- we have three preferred IRA custodians, please contact us for more details.
Are All SMA Payments Serviced?
Yes, all payments we deal with are serviced, through ASG, (www.theasg.net) Asg is a market leading payment servicer servicing thousands of policies in the life settlement and SMA space. All our cases are serviced by ASG for 3 good reasons
- ASG is a top quality servicer- in about 30% of cases from other companies and brokers you will have payment servicing thrust on you at the 11th hour without warning, from lower quality companies, which is far worse.
- As the IRS requirements of code sec 5891 (which deals with the transfer of structured settlements) are rigid, insurance carriers will only adhere to the assignee named in the court order, and will not accommodate subsequent re-transfer. As the Business Trust is the named buyer and all cases are purchased prior to an end investor being identified- we must use a servicer to facilitate reassignment and liquidity
- Our ability to sell the payment to you means you have the ability to sell it to someone else- that is the primary benefit of servicing. Assignment to an heir, a third party, or to a trust or a child, is easy with a servicer and impossible with a direct assignment from a carrier.
In short, servicing costs are nominal and largely borne by our company with the account setup, so it’s generally not material on the yield. As to risk, we took all measures possible to align with the best in class. In sum, the benefits of servicing far outweigh the nominal cost and slight hassle of an extra step in the process.
New Secondary Market Annuities Custom Order Policies
We have some exciting news and a great new policy to share with you about Secondary Market Annuities that should make it a lot easier to find that payment stream that is “Just Right.”
To better handle the excessive demand for cases, we now keep a time stamped internal list detailing the types of payment streams sought, as a standing custom order prioritization list.
Our purchasing manager screens hundreds of deals a week and is constantly buying for inventory, but when a case comes in that matches a standing order, we automatically hold and notify you about that case.
The ’48 hr hold’ locks up a case for you, and gives you time to consider a payment stream while keeping the other wolves at bay…
There’s no obligation to buy a case that you put in a ‘custom order’ or a 48 hr hold on. Instead, this system simply lets us and our great back-office team go to work automatically matching wants and needs, and saves you from needing to sit on the inventory page hitting ‘refresh’ all day long waiting for the right payment to come up.
Here’s what you need to do:
- Call or email us with your parameters.
- Please be as specific as possible.
- Let us do the rest of the work
Can It Be That Easy?
It really is that easy, and here are a few sample parameters to get you thinking:
- $1500/ month for 240 months starting 2021
- $250,000 lump sum payout in 2025
- $1000 to $1500/ month for 30 years with 3% COLA
The better guidelines you can give us helps us get what you need fast. And our prioritization queue is time stamped so the sooner you get your parameters in to me, the sooner we can match to your needs.
Within the first week of using this system internally, we placed over $1M of immediate income cases with 4 clients who’d been waiting for months. It’s working beautifully.
Get started now- give us a call with your custom order parameters
Secondary Market Annuities in the Wall Street Journal
In a 2010 article titled “Another Can’t-Miss Deal That Can Miss Spectacularly” the Wall Street Journal’s Jason Zweig took a look at Secondary Market Annuities.
The entire tone of the article is typical of the Journal’s view of annuities in general. That is, they are rather derogatory.
The article does make some good points. But what I take issue with is that Mr Zweig’s tone paints a bleak negative picture around Secondary Market Annuities based on one thing that for many of our buyers is in fact a primary benefit.
Primarily, he jumps on the liquidity of Secondary Market Annuities.
Certainly SMAs are not liquid, but that is exactly the benefit many buyers are looking for… stable, solid yield over a long period of time. For many people, liquidity is irrelevant, what with their other assets and needs. But the chance to get off the Wall Street roller coaster is a rare blessing.
It seems with many other investments, it is ‘Buy one liquid asset, get 2 heaping measures of volatility as a free added bonus’. Secondary Market Annuities are a refreshing, “what you see is what you get” fire-and forget missile that never misses the target.
Throughout our process we make it quite clear these are not liquid investments, so I hardly see this as reason to avoid the market overall. If liquidity is what you need, by all means do not buy. But if a guaranteed outcome is what you are after, then you are in the right spot.
(Incidentally, while it is true that direct to investor court ordered assignments would make re-assignment impractical or impossible, the procedure we follow at Annuity Straight Talk through our wholesale firm DCF Exchange DOES allow for reassignment. So while there is not a ready liquid tertiary market to sell your payments instantly, they now can easily be re-sold if needed. Furthermore, the ‘fugu’ that Mr Hamlin is well know for referring to is far more likely to crop up in this type of direct to investor assignment than in our more sanitized process.)
Zweig’s second ominous warning addresses a prior party claim to a payment stream. While it’s certainly possible this sort of thing could happen, it’s exactly the scenario we, and our third party counsel at DCF Exchange, and outside counsel from our suppliers, look for in every transaction.
A good comparison could be this, to paraphrase Zweig’s words from the article. “An ominous risk when buying a car is that your car could be seized from you by a re-po man from a pawn shop where the prior owner took a loan and never repaid the money.”
This could definitely be you… if you bought a used car, and didn’t get a title from the seller… and just gave them cash for the keys….
So, to Zweig’s scenario…Is it possible? Definitely.
Is it likely? No way.
Are you stupid enough to not do your due diligence when making a big investment? I sure hope not!
Jim Terlizzi, who is quoted towards the end the article and who buys hundreds of millions of dollars of settlements annually for DRB Financial Solutions, is absolutely correct in illustrating the importance of jurisdictional review of the payments stream, and confirmation of court ordered reassignment. Not surprisingly, that is exactly what we do in our SMA transaction process.
Overall, Mr Zweig’s article is something many people read when digging for info on Secondary Market Annuities, and it makes a few good points. But what irks me is that the only legitimate negative he illustrates– liquidity- is in fact a conditional negative. It might not be bad for many readers, but he seems to paint the whole market with this broad brush, then he carries on with the story with scary, but not very realistic, information.
Of course, you can read the article here.
Your comments welcome,
Nathaniel M. Pulsifer
Pop Up For Great Secondary Market Annuities Deals
Ground Hog day is here once again – this has to be the strangest quasi-holiday of of the year. I really have no idea how the shadow of a rodent became a meteorological force…
But one thing that is popping up over and over again are our Secondary Market Annuities – Rates on all assets globally continue to contract, and we’re doing our best to keep delivering value to you even though we’re squeezed tight.
This week, take a special look at Deferred Income and Lump Sum cases- we have great quick- close, in stock deals and are offering a special, limited time incentive – call for details!
Here is a sample:
And remember, don’t drive angry Phil!
Reading The Secondary Market Annuity Inventory Page
Reading the Secondary Market Annuities inventory page- watch this quick video to make sure you don’t; miss any details about our inventory.
Click Here for the Secondary Market Annuities inventory page
Sometimes people miss a few key details on the SMA inventory page- watch this brief video to make sure you’re getting all the right info.
What Are Secondary Market Annuities?
This is the quick summary of Secondary Market Annuities
In today’s yield starved world, investors have precious few options for when it comes to quality investments that offer a decent yield. That’s why Secondary Market Annuities are so compelling.
In this brief video, I’ll give you a full introduction to Secondary Market Annuities so you can understand completely, before making a purchase decision.
Using IRAs and Other Qualified Funds With Secondary Market Annuities
It’s easy to use IRAs, 401k, or other qualified accounts to buy Secondary Market Annuities.
Click Here for more info on using IRAs to buy Secondary Market Annuities
There are three self directed IRA custodians we work with. Provident, IRA Services, and Gold Start Trust all have familiarity with the asset class. However, Gold Star Trust is head and shoulders above the other two in terms of speed, service, and low cost. They are doing a great job for us and we recommend all advisors use them. Their paperwork will be shown in the video demo.
Darryl Strawberry’s Payments- It’s Hard to Compete With Crazy
As a follow on to last week’s high drama regarding the Darryl Strawberry payments up for auction, an astute reader sent me the following article (quoted below) this morning. The article was published just after the auction sale yesterday in Chicago.
The winning bidder agreed to pay $1,300,000 for this payment stream- more than twice what I thought made sense.
Wow- basically, this bidder bought an unsecured general obligation of the baseball team, for a yield of a hair over 5%…
Hopefully the buyer has some inside knowledge of the transaction to make this make sense…. because I sure don’t see the logic!
We deal in guaranteed payment streams here at Annuity Straight Talk so while most people are focused on the star value of baseball player, we were focused on the underlying credit quality to determine the bid. How safe are the Mets? That’s the rub.
Probably they will be fine, but the deferred compensation agreement underlying this deal made it quite clear that there was no guarantee, no set-aside funds, and no ‘asset’ there…. just a promise to pay in the future. That demanded a far higher rate of return than 5.1% for the credit risk.
Here’s the illustration:
Darryl Strawberry Payment- Winning Bid
Here’s the article from ESPN as well-
Mets pay winning bidder OF’s checks
The Internal Revenue Service on Tuesday auctioned off the money owed to Darryl Strawberry from the New York Mets contract he signed in 1985.
A man, who did not want to be identified, agreed to pay $1.3 million to receive a check from the Mets of $8,891.82 a month for the next 18½ years. Assuming a realistic timeline for the court to approve the sale, the value of the deferred payments will equal close to $2 million.
USA TODAY SportsMets money owed to Darryl Strawberry that was seized by the IRS as payment for back taxes was won at auction Tuesday.
Strawberry was forced to give a portion of the deferred money from the contract to his ex-wife, Charisse, as part of their divorce settlement in 2006, but the payments were never made.
In 2010, Charisse filed for Chapter 7 bankruptcy protection and, as part of the proceedings, asked for what was owed. But in September, a judge in the Northern District of Florida ruled that the annuity was the property of the IRS, not Charisse, because Darryl still had not settled his tax debt owed for 1989, 1990, 2003 and 2004.
A person in the room at Tuesday’s auction in Fairview Heights, Illinois, said that the IRS momentarily held up the auction as Charisse tried to file an injunction to halt the sale, which required a minimum bid of $550,000.
Anuj Kumar, an investor from Austin, Texas, said he usually invests in stocks and bonds, but the unique nature of the property was intriguing enough to fly in for. Due to mail-in bids, bidding started at more than $900,000, Kumar said, which was close to the number he was looking for. Kumar said there were roughly 25 people in the room, but the winning bidder showed the most interest all along.
“You could tell he wanted it no matter what,” Kumar said.
Given the present value of the deferred money on the $1.3 million sale price, the rate of return for the winning bidder is about 5 percent.
The total value of the contract, which covered his 1985 through 1990 seasons, was $7.1 million, but nearly 40 percent of his $1.8 million team option in 1990 ($700,000) was deferred and put into an annuity with a 5.1 percent interest rate.
From 1987 to 1990, Strawberry failed to pay $542,572 in taxes, according to court documents. As of November 2013, Strawberry owed at least $80,000 from his tax liability from missed payments in 2003 and 2004.
The Mets famously bought out the final year of Bobby Bonilla’s contract in January 2000 and deferred the $5.9 million deal into 25 payments of $1,193,248.20 that began in 2011 and end in 2035. By deferring, Bonilla turned the $5.9 million into $29.8 million after negotiating an 8 percent interest rate on the deferral.
The Perils Of Not Paying Taxes- Darryl Strawberry’s Payments
$8892/ Month for 20 years, for only $550,000??? A 21% effective rate of return!!??
Not so fast…
There are only two certainties in life, death and taxes. And when you don’t pay your taxes, the IRS gets even, and then gets what is coming to them.
Darryl Strawberry, the famous New York Mets baseball player, forgot to pay his taxes for several years. Like many sports players, part of his compensation package was deferred. While not exactly an annuity, he did have a 30 year payment stream from the Mets that paid out long after he left the game.
ESPN Link and Forbes Link
Unfortunately, he didn’t keep up with his taxes, and the payment stream was seized by the IRS. It is available for sale and is such an interesting opportunity, that we are putting it out to our members and readers to see if there is interest.
I was only made aware of this yesterday, and did a little research as fast as I could.
The details are taking shape minute by minute, but here’s what I know as of Friday, January 9.
- A federal court has seized the payment stream and is offering it for auction on January 20
- the sale will be confirmed by a court order
- The available payment stream is $8891.82 per month for 226 months, starting immediately and ending December 1 of 2033
- To bid, we will need to submit certified funds of 20% of the bid amount.
- The minimum bid is $550,000, however I suspect the payment stream to sell for somewhat more than this amount.
- The buyer can be an IRA, a trust, or one or more individuals. Like other discounted cash flows, it would be considered taxable income, the exact tax treatment is between the buyer and their tax counsel.
- A beneficiary can be designated, and upon death of the buyer, the remaining payments would go to the designated beneficiary.
Now here is a larger list of things I don’t know yet.
- The purchase price. This is to be determined at a sealed bid auction on January 20.
- The rate of return on investment. This is determined by the purchase price, which is unknown.
- The strength of the court order.
- The true nature of the payor: Is at the New York Mets, or is it an underlying annuity? That is an open item. Let’s hope there is actually an annuity… not a general obligation of the Mets.
- The IRS auctioneer has stated that the IRS will not impose withholding taxes on the New York Mets, for this payment stream, however that has not yet been confirmed in writing by both parties.
- What the New York Mets will do with a new payee- they have been silent on the auction and there is no stipulation agreement that I am aware of yet.
- My guess is that they will be bidding as well, if only to clear their books of a future payment liability.
- Likewise, I am as yet unaware of any other claims to the payment stream, or challenges to the court order or the IRS seizure. Caveat emptor.
Why do I want to jump in to this?
Frankly, it would make a heckuva good press release when it’s all done.
While this is not a payment stream we will buy directly in the business trust, I would be willing to manage the transaction directly, to work through the legal and due diligence issues quickly, if I have a solid buyer(s).
I’d need to line up a solid buyer(s) this weekend, and my fee would be a nominal buyer’s premium such as you find in most auctions.
Your investment and yield, therefore, is determined by you as we hustle through discovery next week and determine what to bid.
This is a fascinating case because it’s very high profile. Owning Darryll Strawberry’s annuity is definitely unique.
But there are risks to the payment that you don’t find in normal secondary market annuity transactions. If this is a general obligation of the New York Mets, and not an annuity backed payment stream, then risks are much higher. I reserve the right to be wrong on this, and hope I am.
There are a lot of things that I don’t know yet, but it would be fun to figure out. It’s Friday afternoon, and there are really only five business days available to do all the due diligence.
If anyone wants to take a stab at it, give me a call. I’ll bring you up to speed on what I know as quick as possible.
Let’s Play Ball!
Nathaniel M. Pulsifer
*****
Update, as of January 14th, 2015
We had a very strong response to the email a few days ago about this payment stream, and dug in over the weekend and Monday with one investor in particular who had the stomach to handle the deal.
Our counsel assisted greatly and determined that the IRS seizure of Darryl’s payment *should* create a free and clear right to receive payments upon confirmation by the court. The draft court order appears to be favorable and there were only a few loose ends to clarify in writing with the Mets counsel. This, of course, given limited time to review and get up to speed.
The various parties to the case, including bankruptcy trustee, ex wife, and Darryl, appeared to be in line and we felt reasonably confident there were no boogeymen or skeletons in the closet that would rear their head to make a claim and throw the whole mess back into litigation after the auction.
It was certainly not a deal I would have felt representing to people as ‘safe’ in any way, however.
The bad news is that with this deal, in a best case scenario, is that you’d buy exactly what they represented- an un-secured general creditor obligation of the Mets ball club.
No underlying annuity, no set-aside trust account, no guarantees…
Being in the business of guarantees, and particularly, guarantees from highly rated carriers, we at AST and our prospective investor decided to take a pass on this deal. Even though we had expressions of interest for the deal 3 or 4 times over, it just would not be worth the risk.
It was fun to look, but wondering if next month’s check would be coming in for 20 years, from a baseball team, did not sound like fun…
There’s still time to bid if you really want to take a chance… Just need a cashier’s check in Chicago on Tuesday the 20th, for $110,000, and then we can figure out how much it’s worth to you at the auction…
I’d love to be there to see what it ends up trading for.
Calculating Effective Rate in Secondary Market Annuities
Investors often have confusion about the rate of return used in annuities in general and in Secondary Market Annuities in particular. So to clarify a few terms, we’ll walk through Nominal and Effective rate and the concept of Net Present Value and Discounted Cash Flow.
Please note, all our SMA cases are shown with an effective rate. You should also refer to this page about Secondary Market Annuity Rates
Effective Rate:
Effective rate, Internal Rate of Return, and Annual Percentage Yield are three terms to describe the same thing for these cases. The effective rate is the yield of the series of cash flows, including the investment (negative) and payments (Positive).
You can calculate this using the XIRR function in MS excel or HP handheld calculators, and we use a program called T-Value.
Nominal Rate
Nominal interest rate is also defined as a stated interest rate. This interest works according to simple interest and does not take into account the compounding periods. So for example, if you have a mortgage with a 4% rate, 4% is the nominal rate, but the actual Effective Rate (Yield) to the mortgage lender will be different, because of the compounding period of the loan.
Nominal Rate Vs Effective Rate
Effective interest rate, or APY, is a more accurate reflection of the yield of an investment as it includes the compounding periods during a payment plan. It more accurately can be used to compare two investments with different compounding periods like week, month, year etc.
Often times, the stated or nominal interest rate is less than the effective rate. However, the effective rate depicts the true picture of financial payments because it includes the compounding period.
Interest Rate and Time
As shown in the example below, interest rate is only meaningful in the context of time and the compounding period. Most often, when people say an interest rate it’s with the assumed context of “per year.”
An annual interest rate is also called the nominal interest rate, or Annual Percentage Rate (APR)
There are other compounding periods available however- common options are month, week, or day.
The yield of an investment with compounding other than annual will be different than the nominal rate. This is the Effective Interest Rate, or Annual Percentage Yield (APY).
Time Value of Money Example
Discounted cash flows involve the concept of Time Value of Money- a dollar tomorrow is worth less than a dollar today. How much less? That requires the ‘Discount Rate’ to calculate, and discount rate and effective rate are synonymous for these investments.
$100 in 1 year at a 10% discount rate will cost $90.91 today. A $90.91 investment today at a 10% Effective rate with annual compounding will yield $100 in 1 year. The annual compounding is critical- the nominal and effective rate are both 10% in this example, with annual compounding.
But if monthly compounding is used, the investment is the same $90.91, the Effective (APY) is the same 10%, but the Nominal rate, or APR, is 9.56%
The Effective Interest rate is also equivalent to the Internal Rate of Return, or IRR. To calculate in MS Excel, use the formula XIRR=((payments),(dates),0). This formula calculates the discount rate, or effective rate, or a given series of payments on definite dates. XNPV may also be used to solve for the purchase price of a series of payments on definite dates at a known discount rate.
Please note, all our SMA cases are shown with an effective rate. You should also refer to this page about Secondary Market Annuity Rates where you can download example illustrations in Excel an see a video of how these payments are calculated.
What’s With The Secondary Market Annuity Rates?
I’ve fielded several emails and calls recently from investors confused about the rates shown on our inventory of Secondary Market Annuities. Secondary Market Annuity rates all too often leave investors and advisors alike confused because unlike most other types of annuities, SMA rates are actually quite simple. Chances are good you are over-thinking the problem!
What Is The “Best Annuity Rate’?
There is no one ‘best’ rate because that is an opinionated term, but in many other types of annuities you have a wide range of rates to contend with and you should calculate mortgage payment to prevent trouble in the future. Index annuities have a ‘rollup’ rate and a “crediting rate”, and immediate annuities aoften show a ‘payout rate.
But Secondary Market Annuity rates are simple- an SMA simply has an effective rate. Effective rate is the true measure of investment performance, and it is equivalent to an Internal Rate of Return or Annual Percentage Yield (APY). This is a true, mathematical calculation.
Now, on certain immediate income cases we also display a ‘payout rate’ which is designed to simply give a comparison to immediate annuities. Payout rate is nothing more than the annual income over the investment amount- eg, invest $100,000 and receive $1000/ mo, and you have $12,000 per year or a 12% payout rate. As I said, this is only shown on immediate income cases as a comparison to immediate annuities, which are quoted in payout rates.
So now lets dispel some of the confusion with a walk-through of effective rate.
About Effective Rate In The Secondary Market Annuity:
Effective rate, Internal Rate of Return, and Annual Percentage Yield (APY) are three terms to describe the same thing for these cases. The effective rate is the yield of the series of cash flows, including the investment (negative) and payments (Positive).
You can calculate this using the XIRR function in MS excel or HP handheld calculators, and we use a program called T-Value. You can read on or, pause a few minutes and watch a video of me using Tval to calculate price.
(To go full screen, click the square in the bottom right corner of the video)
Effective Rate in Secondary Market Annuities
Effective rate also takes into consideration the return of principal with each payment. For example, with Secondary Market Annuities, if you have 100 equal monthly payments, a portion of each payment is principal and a portion is interest. When you receive principal back with payment #1, the next compounding period has less of a base of principal to work with, therefore payment #2 has slightly less interest and slightly more principal. This is how an amortizing mortgage works also.
Nominal Rate:
Nominal interest rate is also defined as a stated interest rate, Annual Percentage Rate, and APR. This rate does not reflect the true yield on the investment or loan because it does not take into account the compounding periods.
For example, your mortgage might have a 4% nominal Annual Percentage Rate. However as you pay down the principal, more money is returned to the lender, thus their Annual Percentage Yield or Effective Rate, is higher than the 4% Nominal Rate.
Nominal Rate Vs Effective Rate
Most likely you have seen APR and APY disclosures on mortgage loans and credit card offers. Often times, the APR, or nominal interest rate is less than the effective rate. However, the Effective Rate depicts the true picture of financial payments because it includes the compounding period and any return of principal.
Effective Rate is the true measure of the yield of an investment.
Here’s a further explanation of Calculating Effective Rate in Secondary Market Annuities
Interest Rate and Time
As shown in the example below, interest rate is only meaningful in the context of time and the compounding period. Most often, when people say an interest rate it’s with the assumed context of “per year.”
But there are other compounding periods available – common options are month, week, or day.
It’s important to note that the Effective Yield to you as an investor in Secondary Market Annuities in a case with compounding other than annual will be different than the nominal rate.
Time Value of Money Example
Discounted cash flows involve the concept of Time Value of Money- a dollar tomorrow is worth less than a dollar today. How much less? That requires the ‘Discount Rate’ to calculate, and discount rate and effective rate are synonymous for these investments.
Here’s a simple example:
$100 in 1 year at a 10% discount rate will cost $90.91 today.
A $90.91 investment today at a 10% Effective rate with annual compounding will yield $100 in 1 year. The annual compounding is critical- the nominal and effective rate are both 10% in this example.
But if monthly compounding is used, the same investment of $90.91 results in $100 in 1 year, and the same Effective Rate (APY) of 10%, but a Nominal Rate (APR) of 9.56%. The payments are the same, but the rates are different because of the compounding period.
Now lets look at a slightly different example:
You borrow $98,770.17 with a 10 year amortizing mortgage with a 4% nominal interest rate and monthly compounding. You make 120 monthly payments of exactly $1000/ month. Your total payments are $120,000.
The nominal rate on the mortgage is 4%, but the lender’s Effective Rate or APY 4.074%.
This type of payment stream is just like an SMA, but you are the one receiving the payments. Your Effective Rate is 4.074%, your investment is $98,770.17, and you have 120 monthly payments of $1000.
Calculating Effective Rate For Yourself
The Effective Interest rate is also equivalent to the Internal Rate of Return, or IRR. To calculate in MS Excel, use the formula XIRR=((payments),(dates),0). This formula calculates the discount rate, or effective rate, for a given series of payments on definite dates. XNPV may also be used to solve for the purchase price of a series of payments on definite dates at a known discount rate.
Click Here for an Excel sheet of the example above. Now, because of slight variations in the timing of amortization credits, TVal and Excel end up with slightly different values and XIRR may vary by a few thousandth’s of a point. The SMA industry and the lending industry all use TVal in their calculations.
Finally, we have (at great expense) a web based discounted cash flow calculator on this site you can use to verify any payment shown on the inventory page. Just Click Here to use the web based Discounted Cash Flow calculator.
Are Secondary Market Annuities Safe?
Many prospective investors ask, “Are Secondary Market Annuities Safe”
In fact, the annuities that back the payment streams an investor purchases when buying Secondary Market Annuities are among the safest assets available anywhere.
It’s useful to remember where Secondary Market Annuities come from. Secondary Market Annuities originally come from Structured Settlements. These are payment streams issued to injured parties in compensation for injuries or other claims. These awards are negotiated by the parties, usually in a court case or out of court settlement. The winners of these settlements have legal counsel who have a duty to look out for their client’s interests, and consequently, when they opt for a Structured Settlement they are opting for the safety and well- being of the clients over a long period of time.
The annuity companies that offer Structured Settlement Annuities are the strongest in the industry- Met Life, New York Life, John Hancock, Genworth, Allstate, Symetra, Berkshire Hathaway… these are generally AAA rated carriers and in the business of conservatively managing risk and paying claims safely and on time.
Almost by definition, with Structured Settlement Annuities you are dealing with the best of the best right from the start.
But in addition, it’s helpful to know that it’s mostly big institutions in the space, and not as much an individual investor’s game. You’re in luck and have an opportunity to get at an asset class few know about!
Institutional buyers of Structured Settlement Annuities:
For decades, payment streams backed by Structured Settlement Annuities have been aggregated and securitized and sold to institutional investors. JG Wentworth, the largest player in the industry, sells nearly $600,000,000 ($600M) worth of asset backed notes each year. The assets are, of course, diverse pools of Structured Settlement Annuity backed payment streams.
These asset backed securities routinely trade at yields just over the 30 year Treasury – they are A rated payments and are snapped up by long term institutional investors.
When reading the securities offering documentation and credit reports of JG Wentworth’s notes (contact us if you want a copy), the analysts identify risk in two main areas:
- Transfer Risk
- Carrier Risk
For #2, first, Carrier risk is largely mitigated by the sheer size and quality of the carriers that operate in the Structured Settlement annuity space. We’re dealing with the best of the best- Met Life, NY Life, Prudential… we’re generally not dealing with smaller insurance companies.
And as to #1, Transfer risk refers to the legal procedure transferring a payment stream from seller to you as buyer. Luckily for you, we follow a rigid and state mandated procedure that ensure transfers are complete, legally reviewed, and court approved, each time.
Here are a few more key points.
Structured Settlement Transfer Process:
The transfer process making you a new payee under an existing payment stream is also very safe. There is a relatively uniform process adopted in 49 states that requires notifications, disclosures, and procedures to be followed. While the majority of the documentation is contractual, there is one step in the process where a court with jurisdiction over the original settlement also needs to rule that the transfer is in the seller’s interest.
While the court order is one key piece among several that properly document a transfer of payment rights, it actually does nothing to verify the payments. An investor’s name in the court order simply exposes the investor in a public manner. The process we use through our firm DCF Exchange protects investor confidentiality.
There are a variety of additional reasons that Structured Settlement Annuities are extremely safe. These are summarized below
Safety Factor #1
An insurance company paying a structured settlement is a party to the court ordered transfer process. The payment remains in force throughout the transfer process regardless of who receives the checks. Just because the payee changes as a result of a court- ordered transfer does not change the underlying payment stream or give the carrier any right to stop making payments.
Safety Factor #2:
There are five key items that document a case transfer and ensure legal safety of payments to you:
- Benefits letter from the issuer to the payee, which establishes that the Payee has the payments to sell,
- Court order changing the payee name to you or an entity that benefits you, such as our Business Trust
- Acknowledgement letter or stipulation agreement after the court hearing from the Issuer naming you or an entity that benefits you as the new payee of the specific payment stream you purchased.
- Legal Review reviewing all documents, notices, filings, UCC statements and procedures in each case and every jurisdiction the case is subject to.
- Absolute Assignment of the cash flows assigning the payments to you forevermore.
Safety Factor #3:
Because a typical client of ours purchases multiple Secondary Market Annuities, purchasing contracts in the secondary market virtually assures that you will place assets in several companies with no sacrifice to average yield or overall performance. You will spread your risk among many carriers, all generally highly rated, and achieve high yield diversification.
Secondary Market Annuities are extremely safe investments. Sign up to the right to view our live inventory and get started today!
Life Contingent Secondary Market Annuities- Part 5
Previously, (Part 4) I detailed a Life Contingent Secondary Market Annuities transaction, but I didn’t have time to talk about a key component…
We talked about Jane selling a life contingent payment stream that doesn’t start for 15 years, and lasts for an additional 20 years. The costs of doing this transaction really ate into the amount that Jane got, but ultimately, it was a fair deal for all parties. The biggest cost to the transaction was the life insurance on Jane’s life.
What is the life insurance on Jane for?
A life contingent secondary market annuity is really like a callable bond. A callable bond can be prepaid by the issuing company at any time. So if you own this bond, and the issuer decides to prepay, you get your principal back plus any interest accrued. You have a safe investment, but you don’t necessarily know how long the term will last.
Life insurance on Jane serves the same purpose to protect your investment in case it’s “Called”. But in this case, being called means Jane passing away.
If Jane dies at any time in the 35 year term, you hold an irrevocable collateral assignment on that prepaid term life insurance policy. With a face amount of $150,000, if Jane dies just before you start to get your monthly checks from MetLife, you would get the full amount of the $150,000.
If Jane dies after 10 years of payments are made to you, the life insurance policy still pays out $150,000, but because you have already received 10 years of payments, your balance of principal due to you is lower. The actual amount owed to you vs what is due to Jane’s heirs is tied to the amortization schedule of a case and is calculated as of the date of death.
Now because you have a good agent who explained all of this beforehand, you understand all of this before you got into the deal. The interest rate was great, and if Jane passed away, you got your money back and could reinvest it in something else.
And you are confident going in that all the paperwork was done right, and that the collateral assignment, mortality verification service, the use of the life insurance, and division of life insurance proceeds was all documented, signed by Jane, the life insurance company, and by the Court. All this was set up properly at first and is irrevocable by Jane.
After closing, you can sit back, secure in the knowledge that you made a safe investment.
Conclusion:
So if you made it this far, you have an advanced level of understanding of how guaranteed Secondary Market Annuities and life contingent Secondary Market Annuities work. You understand how factoring companies play into the equation, how buyer and seller come together, and how the broker and attorney work to ensure your investment is safe at all times.
And today, you learned how in life contingent transactions your principle is never at risk from the moment of closing till the end of the payment stream.
But how did your broker get you into these two great deals in the first place? There’s a trite old saying “If you fail to plan, you are planning to fail.”
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Buying Secondary Market Annuities – Part 4
We finished up the previous post with your first SMA, where you bought a portion of Jane’s guaranteed settlement payments.
But what happens when our seller, Jane, decides to sell more payments? Read on…
Now if you remember from our story in the last three installments, (Part 1, Part 2 and Part 3) , five years ago Jane had a car accident and received a structured settlement for $1000 a month for life and guaranteed for 20 years. John, the guy who hit her in the car, was insured by Progressive, and Progressive bought an annuity from MetLife to pay Jane and close the court case. John got a giant premium increase after the accident.
Five years after the accident, Jane sold you $500 a month guaranteed for 15 years. Like clockwork, you get a check from MetLife for $500 a month, and so does Jane. Jane used the money from selling her payments to get a new car.
Five more years go by, and Jane gets married to a wealthy man. She doesn’t need the $500 a month she’s receiving, and really doesn’t need the $1000 a month for life that is due to her either. She wants to buy her new husband an expensive gift.
Jane goes back to the factoring company to sell more of her payments. She still has 10 years of guaranteed payments of $500 a month that sells in one transaction to an investor just like you in the previous example.
Then in a separate transaction, the factoring company makes her an offer for the ‘$1000 per month for life portion’ of her structured settlement.
This is what is known as a life contingent Secondary Market Annuity- MetLife will pay Jane $1000 a month for her life as long as she is alive. If she dies, the payments stop, but Jane can sell and assign this portion of her payments just as she could assign her earlier, guaranteed payments.
Jane is in good health and is now 40 years old, and the life contingent payments start when she is 55. Actuarially, she should live until 92, so she decides to sell 20 years of $1000/ month payments that start in 15 years, after her guaranteed portion runs out, and stop when she is 75. At age 75, she will probably still be alive, and the lifetime income of $1000/ month will revert back to her.
Because of the extra costs of the life contingent transaction, the factoring company offers Jane a somewhat higher discount rate but to Jane, that sounds pretty good, because it’s less than the interest rate on her credit card if she just bought a gift for her new husband. She also understands that the factoring company has to buy life insurance on her, so the deal makes sense.
Once Jane signs her sale contract, the factoring company makes available to its trusted brokers a Life contingent deal of 240 monthly payments of $1000 a month starting in 15 years. They already know Jane and have a lot of paperwork on her, so they get right to work getting a 35 year term life insurance policy written for her.
The factoring company gets a $150,000, 35 year term insurance policy on Jane. The entire premiums is prepaid and while Jane is the policy owner, the investor is the collateral assignee during the term of the investment. In this way, if Jane dies, the life insurance pays to the investor to replace their capital and accrued interest.
In addition, MetLife requires the factoring company track down Jane every year to verify that she is alive and still entitled to the payments, so they hire a company who specializes in mortality verification to track databases on Jane for 15 years of deferral, then contact her every six months and get her to sign an affidavit letter for an additional 20 years.
This mortality verification service company charges an upfront fee for the service, which the factoring company pays. Altogether, making a life contingent payment stream available, safe, and documented is not cheap for the factoring company, which is why Jane receives less net proceeds from the same.
Now let’s say you elect to buy this deferred, life contingent income stream. You get the payment at a higher rate, which reflects the added complexity, but just as with our earlier example, all parties really get a pretty fair deal, and you have more payments from MetLife that pick up when your first deal of $500/ month stops.
The only hitch with this transaction is the ‘what if’ scenario if Jane dies before you get all your payments.
Your broker really knew his business, and you understand it fully too, so we will pick that up in tomorrow’s post…. Stay tuned!
Be sure to check out the live inventory online–
Buying Secondary Market Annuities – Part 3
In the previous installment (Part 1 and Part 2) I described how a guaranteed settlement became the SMA you decide to buy.
I showed you how Jane, the original annuitant, decided to sell some of her payments, and how you got notified and grabbed it.
With either a call or our simple online reservation form faxed in, we lock up the deal for you.
What happens next?
Here’s the summary – read on for the details, Or Click Here to read where I detail the purchase process
- You execute a Purchase Order
- We deal with the following:
- We Deal With Court Hearing + Approval
- We Complete Legal Review
- We Fund the Seller
- We Prepare Complete Closing Book
- We Supply closing Book To You
Only after you have received the closing book documenting the complete transfer is it time to wire money and close the case.
That Was Easy! But Let’s Look At The Details:
Purchase Order:
After reserving the deal with the name and address info you want used on the payments, we get to work. As this is a “Pre Order” case, one of the unknowns is the exact purchase price and date of closing, so initially that date is estimated to close in two months. We use a discounted cash flow modeling software to calculate your expected purchase price.
Over the coming weeks, my team (at DCF Exchange, our wholesale company) works with the factoring company to make sure all the documents are complete. Also, in this example story, MetLife should split Jane’s annuity and pay 180 monthly payments of $500 to you, and $500 to Jane.
Depending on the state, it may take 30 to 60 days to get a court date.
Court Date:
Often, we need to wait 30 to 60 days for a court hearing on pre-order cases. Remember, you still have no risk and no money down on this purchase.
Because Jane won her settlement in the court hearing, the factoring company needs to go back to a court with jurisdiction over this case to change the terms of that settlement. The annuity is already in place and the payments are being made, so the changes simply clerical – Jane wants to split off $500 and sell it to you, and keep $500 for herself.
The court wants to be sure that Jane won’t end up on public support or welfare, and they also have a duty to ensure that Jane is not getting a bad deal and selling too low. If the factoring company is too aggressive trying to steal the payments from Jane, courts can and do deny cases. The industry, the courts, uniform state regulations, and competition help regulate and protect Jane from egregious rates.
But this is a fair and simple case, and it sails thru court and is approved. Rarely are cases not approved, but it occasionally happens.
But once we have court approval, we will speak and I’ll let you know closing is coming up.
Legal Review:
Once the case is approved in court and the complete file is sent to us (at DCF Exchange, our wholesale company) for review. Legal review verifies all the work done by the factoring company to ensure everything is complete and that no one has any claim to the payments other than Jane.
The attorney reviews a laundry list of items that are all laid out in our Buyers Guide. And only after the review will the attorney put together a letter outlining everything they reviewed and recommend that we go ahead and fund the case.
The way you see it, it doesn’t make any sense to buy a house without buying title insurance. And likewise, it would be crazy to buy a structured settlement from a factoring company directly without getting an attorney to review the paperwork on your behalf.
Because you work with a great broker, this review is included in your purchase price and you don’t have to find the attorney who understands this business to do the review for you.
Case Funding:
After the attorney reviews the case and issues their recommendation, a complete closing book documenting the transfer of the payments is prepared and sent to you. This book is sent to you for review, and requires just two signatures and a wire of the final purchase price. You now have this case at a 5% effective rate of return, for an investment of $63,692, and have a 15 year income stream of $500 per month.
Now, if you remember from the prior installment, Jane had her eye on a new Lexus and was looking forward to receiving $53,000. The difference between your purchase price and Jane’s sale price is the cost of the transaction.
After the factoring company’s costs and sale price, the net margin allows for factoring company profit and pays a broker commission on the sale. In the end, all parties get a fair deal.
Closing Book:
The closing book you got to see before sending a dime to buy this case consolidates the key documents evidencing you as the irrevocable new assignee of the payments- these documents are:
1) Annuity Benefits letter showing payments
2) Court Order assigning you the payments
3) Stipulation or Acknowledgement Letter from issuer showing you as new payee
4) Amortization table of the exact payment stream
5) Legal Review
6) Irrevocable Assignment of Cash Flow
It’s important to note that there are no costs to you other than your purchase price and a minimal servicing cost, and there are no cost to Jane other than the money that she received. From start to finish, you knew exactly the payments and the discount rate you were getting, and only the final purchase price was determined on the day of closing.
Along the way, you had all the information and updates on the case, and it was great to have independent legal counsel review the case for you at no additional cost to you. That extra level of security made all the difference.
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In this 3 part story we see the entirety of a typical guaranteed Secondary Market Annuity transaction.
If you’re ready to see what we have available for you, simply click to see our inventory.
From Guaranteed Payment To Secondary Market Annuity- Part 2
In episode 1, I outlined how our friend Jane won a guaranteed Structured Settlement, and what happens when she decided sell some of her payments. Today we’ll look at how her Structured Settlement payments become YOUR payments.
Let’s pick up where we left off yesterday. Jane decided to sell half of her payments that she won as a structured settlement in a court case. She decided to sell 15 years payments of $500 a month to a factoring company…
The factoring company gets to work. Factoring is a cutthroat business, and is primarily about marketing. The word “structured settlement” is one of the most expensive words to advertise for in Google. It can cost advertisers over $100 to get a single click from an ad trying to attract sellers like Jane.
Once the great salesperson at the factoring company gets Jane to sign a contract to sell her payments, they really have to start spending some money on top of the thousands of dollars they spent to acquire her as a customer in the first place.
Factoring companies have to prove that no one is entitled to Jane’s payments except Jane, and then they have to appeal to the court that awarded Jane the payment, and allow her to change the terms of her payment to split off $500 to sell to a new investor.
In the end, a factoring company may spend $5000 on Jane’s case alone, and work with attorneys around the country to make sure Jane has no bankruptcy, alimony, child support, creditor claims, or any other issues that would lay claim to her payments.
As they are doing credit checks on Jane, and getting a court date scheduled, factoring companies tell their list of trusted advisers and investors about this case. They call me and say they have a nice immediate income case of $500/ month available from Met life coming soon.
Because you and I have talked and I know what you are looking for based on your buyer profile (more on that in another e-mail soon… ) or because your attentive broker told me what his clients were looking for, right away I know this is the case for you. Before I even load the deal into my web based database, I give you or your broker a call and follow up with an email outlining the payments.
The case made available to you is 180 monthly payments of $500 each, at a discount rate of 4.5%. The purchase price to you is just over $63,000 and is exactly what you were looking for.
You’ve been looking around too. Your money is in a CD earning a pitiful 1.2%. And you priced a 15 year period certain annuity, but it would cost about $77,699.03 for this exact same income stream.
Right away you can see the value here and realize this is “The One.” You make a quick decision to buy Jane’s 180 monthly payments of $500 each, starting today and ending 15 years from now, issued by MetLife.
***
Now you can see how this guaranteed settlement awarded to Jane becomes a payment stream you decide to buy.
In the next installment, I’ll walk you through the steps of the purchase process that make it irrevocably yours… Stay tuned!
If you want to check out our available inventory right now, simply click here.
Give us a call so we can assist you locating the right deals for you.
Structured Settlement Annuities- How Secondary Market Annuities Are Made
This is part 1 of a 3 part story on how Secondary Market Annuities come to be.
The term Secondary market annuity can mean a structured settlement, lottery payment, or an existing annuity. What these transactions all have in common is that an individual who owns future payments wants cash today, and you want to use your cash today to secure a future payment stream.
Because the seller is willing to sell at a discount, you can get a great deal.
The most common transaction is a guaranteed structured settlement, which we will explore here in a little example story. In the next e-mails, I will talk about the other types of deals, but for now let’s stick with a guaranteed structured settlement
Structured settlements are found primarily in the legal system when an individual wins an award, and elects to take their monetary compensation over time instead of as a lump sum.
Let’s use the story of a typical car accident as an example….
John Smith hits Jane Doe in a car accident, and the case goes to court.
John Smith loses in court, and Jane wins. Money is offered to Jane, either a lump sum, or a structured settlement making payments over her lifetime. Instead of taking the lump sum, Jane, who can’t go to work because of her injuries, elects a structured settlement.
Jane’s court ordered settlement reads “Jane Doe shall receive $1000 per month for life, with 20 years guaranteed.”
Now Jane doesn’t want John or Progressive, his auto insurance company, to be paying her, and the court doesn’t want this either. Progressive just wants to close the case and raise John’s premiums.
To put closure on the case, Progressive purchases an annuity from a major life insurance carrier to pay Jane $1000 per month for life, with 20 years guaranteed. Let’s assume they purchase the annuity from MetLife.
Progressive Insurance is the owner, MetLife is the issuer, and Jane is the payee of this annuity contract. Jane can call up MetLife any time and they will tell her that she is entitled to $1000 a month for life, with 20 years guaranteed starting on the date the case was closed.
If MetLife goes out of business, and also the State Guarantee funds that guarantee Met and the other carriers operating in that state go out of business too, (Ummm Not very likely!) Jane can go back on Progressive and demand that they make good on the money owed to her under the court settlement.
Now back to our story…. John and Jane can finally put this accident behind them. Progressive has a continuing liability to Jane, but they have shifted that onto Met Life, albeit for a pound of flesh. Met Life sticks it to Progressive and gets a big chunk of premium to invest, and adds Jane to their long list of happy customers.
End of Story? Not yet….
Now five years goes by, and Jane needs money for a new car. She can’t get a loan as she doesn’t work, so she decides to sell some of her payments for a lump sum.
Met Life can not buy Jane’s contract out because it would be a conflict of interest. So instead, she enters into a contract with a factoring company- and you may have heard ads for companies like JG Wentworth on TV that specialize in this business- and sells $500 a month for 15 years.
Jane accepts the factoring company’s offer at an 8% discount rate, and looks forward to receiving a little over $53,000 once the case is settled. She has her eye on a new Lexus.
Jane has just created a secondary market annuity contract available for you to purchase…
Next, we’ll pick up with Jane and see how her MetLife payment becomes your MetLife payment….
For now, see our inventory live, right here…
Secondary Market Annuity Rates
We had a reader complain the other day about rates on Secondary Market Annuities and his perception of a lack of liquidity on the payment stream. Bryan replied and thought it would be a good response to publish here.
Here is the response:
Dear XX:
Thanks for getting in touch and sharing your thoughts on our business process.
We do have slightly lower rates than many competitors and for good reason. First, all or our deals are owned by us prior to a final transfer to the new buyer. That requires capital which comes at a cost. As a result we do not experience the fallout that others do at the expense of our clients. Our clients are never asked to place money in an attorney trust account for what sometimes amounts to several weeks at a time. We hold client money for less than 24 hours before a deal closes completely.
Second, our transfers are not illiquid. We transfer payments rights to our buyers via an assignment from a business trust. That gives our clients the ability to reassign those payments should financial circumstances change for the individual.
This process is the result of our experience in doing business with every other company who posts deals for sale. The previous process was quite often cumbersome to deal with and cost us plenty of sales with clients who simply did not like the waiting period with little or no information regarding the status of their pending transfer.
Because of all this we have a much higher cost structure and can still beat primary market fixed rates when it matters most. We no longer compare ourselves to other marketers of SMAs because there is no comparison. Our process is cleaner and easier to use with the same result people really want- Higher safe money yields.
Thanks again for giving me the opportunity to clear the air in regards to our business. Feel free to reach out any time if you’d like more information.
All my best,
Bryan
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Bryan Anderson
Annuity Straight Talk
800-438-5121
Compare Secondary Market Annuities to Primary Annuity- New Video
In this video, I compare a 20 year income stream secondary annuity to a new- issue annuity. Here’s a spoiler- the SMA saves over $17,000 for the exact same income!
To put Secondary Market Annuities to work for you, just give us a call! You can download a quick summary of Secondary Market Annuities here too
Click Here To Download The SMA Executive Summary Now.
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