Legal Enlightenment for Secondary Market Annuities
SMA Hub acts as an intermediary in secondary market structured settlement transactions. At no time does SMA Hub become the legal owner of any SMA.
SMA Hub intermediates transactions between an end investor and Hub Business Trust, a Nevada business trust that serves as a warehousing facility for SMAs. The purpose of the Hub Business Trust is to ensure that a constant inventory of SMAs is always available to our brokers. The Business Trust also serves to protect the anonymity of the end investor. SMA Hub receives a commission from such transactions directly from the trust.
SMA Hub thoroughly reviews every SMA that is listed on our website to ensure clean title and clear transfer. The transfer of an SMA must comply with very specific requirements, and these requirements vary from state to state. SMA Hub has the internal expertise to make sure we bring only clean and transferable SMAs to the market.
A distinction should be made between the court process and the contractual assignment in the secondary market for structured settlements. Federal law requires that a court approve any transfer of a structured settlement. But the court order alone is not sufficient to convey title. The end purchaser’s right to receive payments is actually conveyed by a contract between the seller and the end purchaser. In some cases, the seller is the original annuitant. But in many cases, the seller is an entity acting as an intermediary. In either case, it is the contractual agreement between the seller and buyer that conveys title.
Structured settlements are a creature of the Internal Revenue Code. Congress enacted section 130 of the Internal Revenue Code, which provides favorable tax treatment to personal injury settlements that are paid over time (or “structured”) rather than via a single lump sum payment. Congress was motivated by a desire to prevent personal injury plaintiffs from improvidently spending through a single lump sum settlement.
After the enactment of Code section 130, it became clear that the illiquidity of structured settlements were a burden on many structured settlement recipients. To address the issue, Congress enacted section 5891 of the Internal Revenue Code, which permits the transfer of structured settlements, so long as a court approves of the transfer in accordance with a state structured settlement transfer act.
Almost every state has enacted a structured settlement transfer act, and though each differs in detail, they all take a similar approach. To approve a transfer, the court must determine that the transfer is in the seller’s best interest, the appropriate parties have been notified of the transfer, and the seller has been fully informed of the terms and consequences of the transfer.