EUGENE A. AHTIRSKI, ESQ.*
*NATIONALLY RECOGNIZED EXPERT, PLACEMENT ADVISOR, AND CONSULTANT IN ALL CLASSES OF SECONDARY MARKET PAYMENT STREAMS
– CORPORATE MAIN OFFICES LOCATED IN CALIFORNIA –
– NATIONWIDE ASSOCIATES THROUGHOUT 48 STATES –
Private Investor Synopsis
I. Introduction and Background – Secondary Market Income Streams:
In 2008, when large institutional investors began to suffer severe financial distress from the “un-winding” of various real estate “mortgage backed asset securitizations”, cash flow in the banking sector and financial markets all but ceased to exist. One immediate solution to the problem was to make available to “private investors”, the same low risk, high yield, commercial grade paper arising from primary market “factored”1 annuities; previously only available to large institutional investors. As a result, a new “Secondary Market Income Stream” (“SMIS”) investment market began to emerge for private investors who wished to purchase an extremely “safe and secure” class of fixed term assets not subject to market fluctuations.
The Secondary Market Income Stream “investment market” includes all of the following types of assets: (1) Secondary Market Structured Settlement Annuities; (2) Secondary Market Life Insurance Policies; Secondary Market Income Annuities (originally purchased for investment purposes, but not arising out of a “tax free” Structured Settlement); (4) Secondary Market Lotteries and Casino jackpots ; as well as (5) miscellaneous forms of Income Streams arising out of the monetization of primary market assets (such as an income streams arising out of an asset in “Trust”).
II. How a Primary Market Annuity Becomes a Secondary Market Asset for Purchase and Placement
A. Overview of How a Primary Annuity is “Factored” to Become a Secondary Market Asset:
Through a Federal and State Court approved and regulated process; a “private investor” will purchase the right to become the “final assignee” of another individual’s “vested rights to receive a future payment stream”. The majority of such payment streams stem from structured settlements, lottery winnings, and/or casino jackpots.
The security of the “investment” is based upon the fact that the “future rights” to the payment streams rights are “assigned” to the “new” investor by a “Court Order”; and the obligation to pay the “new investor” is explicitly “acknowledged” by the both the highly rated insurance carrier that originally issued the annuity; as well as by the highly rated insurance carrier that was also obligated to pay the original annuitant (often separate entities).
The future payment streams to such annuities are acquired both directly from the original annuitants of the payment stream (as described above), as well as through a network of “vendors” who “broker” the assets to factoring companies, and facilitators , such as well-known industry Experts, and Independent Financial Advisors. Ultimately, however, the “final assignee’ of the future payment stream is always the same, to wit, the “private investor”.
Finally, all “court Approved” assignments are then vetted by use of the rigorous underwriting standards to further minimize risk; all before an annuity is placed into the hands of a “final assignee”, to wit, the “private investor” purchaser.
B. “Structured Settlement” Annuities:
1. Definition of a Structured Settlement:
At its most fundamental level, a structured settlement is a settlement of a lawsuit. Typically a plaintiff in a personal injury or workers compensation case will settle his or her claim with an insurance carrier in exchange for the promise of the insurance carrier to pay to the claimant certain sums of money over a period of years. Next, in order to satisfy its promise, or obligation to the original claimant, a rated “casualty insurer” company will then purchase an annuity policy from a rated “life insurance” company. This annuity policy in turn pays out to the original claimant the money as promised by the casualty insurer in the original settlement of the lawsuit.
For example, John Doe is killed in an automobile accident. Mr. Doe’s wife sues the driver of the car that hit and killed Mr. Doe. In settlement of the action, the defendant’s insurance carrier, a “property and casualty” insurance company, agrees to pay Mrs. Doe $2,500.00 per month (“periodic payments”) “for life” (“life contingent”), with 360 of these payments guaranteed (“fixed and determinable”). And after the first 360 “guaranteed” payments are made; an additional $2,500.00 to Mrs. Doe for as long as she lives thereafter. In addition, the defendant’s insurance carrier also agrees to pay Mrs. Doe $100,000.00 every 5 years for the thirty years (“lump sum payments”), guaranteed.
Next, the defendant’s insurance carrier, who is the primary “obligor” of the settlement amount owed to Mrs. Doe, will then purchase an annuity policy from a separate “life insurance” company (the “annuity issuer”). The annuity policy, although still “owned” by the defendant’s insurance carrier, will name Mrs. Doe as a “3rd party beneficiary” and “payee” of the payments due under the annuity. Mrs. Doe thus ends up with a structured settlement annuity being paid to her by the life insurance company and guaranteed by the casualty insurer.
2. How a Structured Settlement is “Factored”:
Continuing with the above example, let’s say that Mrs. Doe’s financial need s change; and she decides that she wishes to sell a portion of her payment stream, in order to receive a “lump sum payment” to meet her financial needs. Mrs. Doe will then contact a “factoring company” and enter into a “transfer agreement” to sell a portion of her payments.
Next, the “factoring company” will be required to obtain “Court approval” of the transfer under an applicable State Structured Settlement Protection Act2 . Although the Factoring Company will bring the Court Action for the Approval, the factoring Company will NOT name itself as the “final assignee” of the “payment rights” that Mrs. Doe is selling; but instead will insert the name of the “private investor” who will be ultimately funding the transaction on behalf of the factoring company.
Thereafter, the “Court Order” will be sent to BOTH the casualty insurance carrier (the “owner/obligor”), as well as the annuity issuer insurance carrier; and each will “acknowledge” that the “private investor” is in fact entitled to receive the “rights” to the future payments sold by Mrs. Doe.
3. “Risks and Recourse” on “Factored” Structured Settlements:
Pursuant to the Federal Model Act, an excise tax of 40% will be imposed on the “factoring company” unless the “Court Order Approval” process is done correctly. As such, it is critical for all factoring companies to properly “underwrite” each and every file to insure all statutory compliance issues have been met. Once the factoring company’s attorney has underwritten the file transaction; a “closing book” will be prepared and sent to the “private investor” for the funding of the transfer.
A ‘private investor” should also have a separate expert/attorney review the closing book in order both to verify the representations made by the factoring company in the “closing book”; and to prepare a “qualified opinion letter” on behalf of the private investor regarding “proper compliance” and the amount of the “risk” associated with the funding of the underlying transfer.
If done correctly, though, the private investor is extremely well protected, as the private investor “named” in a “Court Order” that has been acknowledged by 2 separate insurance carriers. As such, should either of the carriers go into bankruptcy before the “purchased” payment stream is due to be paid, the private investor can seek recourse against the remaining solvent carrier. In the unlikely event that both insurance carriers go into bankruptcy; the private investor will usually still have recourse, as a “State Guarantee Fund” 3will step into the shoes of the bankrupt carrier(s) to honor up to 80% of the original payment stream.
Between the “minimal risk” based on the multiple avenues of recourse; “structured settlement annuities” that are properly “factored “ and “underwritten” through the “Court Approval Process” have become a multi-billion dollar industry; and since 2008 are now available to “private investors” on an “individual” annuity “purchase” basis.
C. Lottery Prize Annuities:
State lottery prizes are routinely offered to the winners as an annuitized payment. The deferred payout generally involves the payment of a prize over as much as a thirty-year period with installment payment made on an annual basis to the lottery winner. Typically, a state lottery will fulfill its obligation to make the annuitized payments by the segregation and purchase of treasury securities that correlate to the maturity dates of the installment payments due to the winner. In other
3 State Guarantee Funds are governed by the Department of Insurance of each individual State; and as a general rule exist in all states that have “Structured Settlement Protection Acts”. As such, the amount of “guarantee” may vary from state to state, but on average, “covers” between 70-80% of the original payment stream.
cases, the lottery may purchase annuities or guaranteed investment contracts issued by highly rated, nationally recognized life insurance companies such as The Prudential Insurance Company of
Like structured settlements acquiring rights to receive lottery payments are obtained either directly from a state lottery winner, by contracting with the winner to provide that winner with a lump sum of cash today, in exchange for the right to receive the future payment stream. “Lottery Assignments” are also “Court Ordered” and “acknowledged” by a particular State’s lottery Commission. The practice of acquiring “lottery rights” has been ongoing for almost two decades as well; and there is no known instance of any default ever occurring in payments under this process.
Since 2008, there has been an average over 450 annuitized lottery payments won annually. On average, the advertised amounts of the prizes exceeds $930 million per year; and approximately 30% of the prizes coming from Massachusetts, and 26.5% of the prizes come from New York.
Like structured settlement annuities, however, a separate “expert/attorney”, and/or “independent financial advisor” should always be utilized by a private investor to insure proper “underwriting” and “statutory compliance”. Unlike structured settlements, though, there is no 40% excise tax applicable to an “incorrectly” assigned lottery payment stream.
D. Other Secondary Market Products:
In addition to the purchase of structured settlement payment rights and lottery prizes,
The secondary market also includes casino jackpot winnings, non-guaranteed or life contingent structured settlements, and single premium fixed assignable annuity policies; as well as “unique” assets (such as “pensions, and trust “interests”) that can also be monetized through either a direct assignment, or by Court Order.
III. Ratings/Investment Grades of Secondary Market Assets – How to Choose an SMIS – Importance of an Expert and Financial Advisor:
A. Structured Settlement and Lottery Ratings and Risk Assessment:
For all annuity issuers, one must “verify their ability to pay the receivable”. When an individual chooses to purchase a secondary market income stream asset, one should always start with an assessment of the “risk factor” that is involved. And with the overwhelming vast majority of
products that are now offered on the Secondary Market; a “wise” investor will seek direction from both an “Industry Expert”, and an Independent Financial Advisor.
Not all products are from the highly rated insurance companies, and as the nature of the secondary market assets pertain to “future payment streams”, proper underwriting including an evaluation of possible “logistical” issues that could arise in future is critical to the security of the investment. Through the assistance of a well-educated and experienced expert and/or a financial advisor; a private investor will be directed only to properly vetted products that fall within the individual investor’s appropriate level of risk tolerance.
B. Value of an Expert and/or an Independent Financial Advisor:
A true expert and/or financial advisor will “navigate” an investor through the risks associated with either an individual payment stream or a request for the creation of a portfolio, as well as assist an investor in deciding what company or companies are “best suited” to the investor’s “risk tolerance”; including providing and/or interpreting a “credit rating” of a chosen carrier; as well as the balancing of risk between various types of secondary market investment assets. As an example, an insurance company may not be rated by Standard & Poor’s, but could be rated by Moody’s; and what does that mean to the risk assessment of the portfolio?
C. Exclusivity that an Expert and/or an Independent Financial Advisor can Provide:
A true expert and/or financial advisor will also have “access” to Court ordered transfers of fixed term annuities that are not widely known to the general public, nor are generally accessible through the internet. As such, such individuals can “open doors” to opportunities to sophisticated investors to invest in safe, fixed return annuities and superior rates of interest. Until recently this advantage was only available to institutional investors such as banks and insurance companies who could commit large sums of monies in the tens to hundreds of millions of dollars. Because of the emergence of the secondary market, and the use of skilled “navigators” within this market, the same low risk, high yield, financial products are now available to the private investor and the playing field for investments is finally leveled.
IV. How to Proceed with Investing in a Secondary Market Annuity Assignment:
A. What is Required by a Private Investor (the Next Step):
The following is important information that every investor should consider before investing in the secondary market. Because these transactions are court ordered and the judicial process will take between 30 and 90 days to complete; a “private investor” seeking purchase, and/or “track” an annuity for purchase while the annuity is in the “Court Order Process” should be prepared to do all of the following:
1. Have the funds necessary to purchase the annuity available at all times;
2. Have an “Expert/Attorney” hold a minimum of 20% of the “investment amount” on deposit in the Attorney’s Client Trust Account “escrowed” for the investment4.
3. Have an “Expert/Attorney” be prepared to review the final “Closing Book” and issue a “Qualified Opinion Letter”; once the court has approved the assignment and a confirmation from the insurance carrier has been received that the assigned payment(s) will now be paid directly to the “private investor” in lieu of the original annuitant/payee.
B. The General Risk an Investor can Anticipate in the Process:
As with any investment, risks do exist, and secondary market investment products offered are not risk free. Every investor must determine whether a “Fixed Term” and/or “Life Contingent” annuity investment meets their individual risk tolerance and investment objectives.
This synopsis was written to help shed some light on the general process of what secondary market income streams can offer a private investor with an emphasis on Structured Settlement and Lottery Prize Annuities; the “safest” class of secondary market assets. As an Attorney/Expert, also encouraging the use of a well-qualified Independent Financial Advisor, further inquiry into some of the “higher yielding” annuities, such as “Life Contingent Annuities” may well be worthwhile; all depending on an individual’s level of “risk tolerance”.
4 This is “key” especially for annuities that are NOT yet available to the “general public”, as the Attorney will need to provide the individual factoring company with the “assurance” that the annuity will be purchased by the “private investor” (subject to proper compliance and underwriting).
What cannot be disputed, however, is that the security, the history, and the abundance of this product has proven to be an extremely lucrative source of income for many publicly traded companies over the past two decades. Plus, the ability to bring this same class of investments “to the private sector” is an unparalleled financial opportunity that any sophisticated individual should absolutely seek to explore further. I look forward to assisting with any and all inquires, continued interest, and hopeful involvement.
Very truly yours,
EUGENE A. AHTIRSKI, ESQ.
NATIONALLY RECOGNIZED EXPERT, ADVISOR, AND CONSULTANT IN SECONDARY MARKET PAYMENT STREAMS
Corporate Main Offices in California with Nationwide Associates Throughout 48 States
Corporate Mailing Address – 14622 Victory Boulevard, Van Nuys, CA 91411
Direct Annuity Department Number – (818) 779-0997
Direct Annuity Department Facsimile Number – (818) 646-0320
Direct Cell Phone Number – (323) 806-0962
Nationwide Toll Free “General Information” Number – (800) 200-4384
Primary Email Address – email@example.com
CIRCULAR 230 NOTICE: IRS RULES OF PRACTICE REQUIRE US TO INFORM YOU THAT ANY ADVICE IN THIS CORRESPONDENCE CONCERNING A FEDERAL TAX ISSUE IS NOT INTENDED OR WRITTEN BY US TO BE USED, AND CANNOT BE USED BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY TAX PENALTIES IMPOSED BY THE INTERNAL REVENUE SERVICE, OR FOR PROMOTING, MARKETING OR RECOMMENDING ANY TAX RELATED MATTERS ADDRESSED HEREIN.
© 2012 (Eugene A. Ahtirski, Esq.)
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