When an individual is awarded an annuity as a result of a lawsuit or winning of a state lottery, instead of receiving a one-time, lump sum of cash, they are given a series of payments over time. Often, these individuals either don’t want to, or can’t afford to wait the many years for their entire payout. When this occurs, they have the option of selling their future payments to someone else in exchange for a lump sum payout. The “resale” of these annuities is referred to as secondary market or pre-owned annuities, and they have become quite popular in the investment industry.
Secondary market annuities (SMAs) are often bought at a discount and offer a rate of return well above standard fixed annuities, immediate annuities, CDs, or bonds. Additionally, the payments are safe and dependable, making them extremely attractive to the savvy investor. There are several SMA types, including Factored Structured Settlements, Annuity Income Streams, Life Settlements, and Viatical Settlements. But it’s the resale of lottery winnings that is currently gaining momentum, according to Mr. Brian Horn, Executive Vice President of Somerset Wealth Strategies. And here’s why.
The process of purchasing a secondary market annuity is somewhat extensive, considering the seller is attempting to offload their court ordered annuity settlement. Before any money exchanges hands, the sale of the annuity has to be approved by a court of law, and more and more courts are refusing them. In fact, one-third of annuity transfers are not approved. When someone is awarded an annuity as a settlement after an accident, for example, the judge in the initial case felt that the money would help them recover, whether from injury or financial distress. When attempting to sell those annuity payments, it isn’t difficult to understand why a judge may deny the request, especially if they feel it isn’t in the seller’s best interest. This isn’t the case for lottery winners. The sale of annuity payments as a result of a lottery win is almost always approved, and because the payments are guaranteed by US Treasury bills, they are very safe and reliable. In the more than 20 years that this practice has been occurring, there is no record of a default in payment by any state lottery commission.
Safe, reliable, and almost always approved makes the purchase of the pre-owned annuity from lottery winnings a smart choice. It is not surprising that more and more sophisticated investors are asking their financial advisors about this promising product. Check out our current SMA inventory, the most extensive and respected in the industry, and contact one of our highly-qualified advisors for further assistance.