An annuity is a contract that provides
a stream of payments to a person designated as the beneficiary (recipient
of benefits). Generally, annuities are purchased through a life insurance
company.
Description
Annuities are backed by the “full faith and credit” of the
insurance company issuing them, so they are relatively safe payment
streams. That means they are basically guaranteed for as long as the
insurance company remains solvent.
Annuities are very
flexible savings vehicles. Individuals or companies can buy and use
them for a number of different purposes. Corporations, for example,
can purchase annuities as a pension fund for their employees. Insurance
companies can buy them to provide a payout for a lawsuit settlement.
Individuals can buy them as an estate planning tool-naming their children,
grandchildren, a trust, or a charity as the beneficiary. However, the
primary reason people purchase annuities is for retirement savings and
distribution.
In most cases,
an individual buys a retirement annuity with an initial lump sum payment,
then continues to make contributions over time. This is call the accumulation
phase. During the accumulation phase, earnings on the policy grow tax-deferred.
After retirement,
the individual starts drawing a payout from the policy. This is called
the distribution phase or payout phase. By waiting until retirement
to receive payouts, the individual enjoys certain tax advantages, avoids
tax penalties, and often falls into a lower tax bracket when the payments
start. Important Terms
Important
Terms
Owner:
This is the individual or party that purchased the annuity and owns
it. With most annuity policies, only the owner has the right to make
any changes to the policy itself or the payment structure. That means
only the owner can change the beneficiary of the policy or the amount
and frequency of payments.
Annuitant:
This is the individual upon whose life the annuity policy is based.
For that reason, the annuitant must be an individual person, not a group
of individuals or a company. In many cases – but not all –
the owner designates himself or herself as the annuitant. Annuities
are only done on a case-by-case basis; The
Funding Source Network reserves
the right not to offer this service.
Beneficiary:
This is the individual or party designated to receive annuity payments.
Sometimes the owner names himself as the beneficiary; other times he
or she names a spouse or child.
Construction
Receivables
Construction
receivables are accounts receivable generated by contracts on
construction projects.
Description
Construction receivables transactions differ
from normal factoring transactions in that construction projects are
billed differently. Typically, when a construction job begins, a general
contractor (GC) is in charge of the entire project, and individual portions
of the work are subcontracted out to others. For example, to construct
a new parking garage, a GC might oversee the construction and hire subcontractors
to do the cement work and electrical work.
Construction jobs are billed not with an invoice, but with a progress
billing. A progress billing is a statement that lists all work that
has been completed to date. Contractors bill their customers for one
step of the job when it is completed, then bill again when the next
step is completed. (Progress billings are not unique to the construction
industry. They are also used in the advertising and gaming industries.)
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Consumer
and Commercial Judgments
A
judgment is a court-ordered award, usually requiring individuals
or other entities to pay a sum of money. When properly filed and recorded
in the jurisdiction where the defendant has assets, a judgment becomes
a line against the individual’s property.
Description
A judgment results from a lawsuit against
an individual, business, or organization. The judgment states that the
defendant must pay the plaintiff a certain amount of money. Judgments
may be hundreds of dollars (as in small claims court) or in the millions
of dollars in a major case. Even if a large judgment is awarded to a
defendant, the defendant may have the right to appeal the decision.
The cost of the appellate process can create a financial hardship for
clients and their lawyers. Clients must have enough funds to pay their
lawyers to argue the case during the appeal process.
Several innovative funding sources have responded to this need. They
allow plaintiffs to pre-sell their civil jury verdicts for immediate
cash. The selling option gives the plaintiff the means to pay for competent
appellate counsel to vigorously defend a judgment on its merits and
remove any financial urgency to accept an unfair settlement offer.
Converting money judgments to cash has benefits for both plaintiff attorneys
and their clients. It gives plaintiffs the financial capacity to withstand
the appeals process and create the potential for obtaining fair and
more realistic settlements. With the ability to finance a judgment,
the plaintiff can obtain the best appellate representation possible.
What is unique about this type of transaction is that the purchase is
free from the risk of reversal. If the amount of the judgment is decreased,
the funding source assumes the loss.
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Inheritances
and Trust Advances
An inheritance
is created when an individual passes away and leaves an amount of money
to his or her heirs.
A trust is a property interest, typically
an account, held by one person for the benefit of another.
Description
On average, heirs wait at least nine months before receiving their inheritance.
It is quite common for individuals waiting to receive an inheritance
to need or desire an immediate advance on the amount they are expecting.
Similarly, individuals
awaiting the proceeds from a trust may desire an advance on a portion
of the funds they are waiting to gain access to.
With the assistance
of a funding source called an inheritance purchasing company, heirs
and trust beneficiaries can receive an advance on all or a portion of
their inheritance.
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Lottery
& Sweepstake Winnings (Payments)
Lottery
winnings
are payments-usually annual-paid by state lottery commissions to lottery
winners.
Description
Large lottery winnings typically are not paid out in one lump sum, but
in annual installments over 10 to 26 years. Even though the dollar amount
awarded in a lottery may be high, when winnings are “rationed”
out over time, the installment payments may be relatively small. For
example, a $1 million lottery prize out over 26 years works out to only
$38,461 a year - before taxes.
Selling future lottery payments for cash may benefit winners who want
or need an immediate lump sum payment rather than a series of smaller
payments over time.
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Prize
and Awards/Casino Winnings
Prize
and award payments are future payments or installment payments
individuals may receive when they win prizes from corporations, foundations,
sweepstakes, game shows, and casinos.
Description
Prize and award payments are similar
to lottery payments in that they are not always paid out in one lump
sum. Instead, they may be paid out over a number of years in the form
of an annuity. Even though the dollar amount of the prize may be high,
when winnings are “rationed” out over time, the installment
payments may be relatively small.
Selling future awards payments for cash may benefit prize or contest
winners who want or need an immediate lump sum payment rather than
a series of smaller payments over time.
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Royalty
Payments, License and Franchise Fees, and Commissions
A royalty
payment is a share or percentage of earnings paid to someone
who has an ownership interest in the item generating the revenue.
Description
When an individual or business creates books, software, drawings, photographs,
or other works, the creator owns the right to reproduce and market the
work. The creator of the work may transfer all or a portion of these
rights. When this happens, the creator typically receives royalty payments
as compensation. An author, for example, may receive royalty each time
a copy of the author’s book is sold. An inventor may receive a
royalty each time an article is sold under a patent.
Royalties may result from the transfer
of ownership of photographs, books, screenplays, software, and other
copyrighted or patented works. They may also arise from less obvious
sources. For example, in the oil, gas, and mineral industry, the owners
of oil or mineral-producing land receive royalties.
License and franchise fees are similar
to royalties, except that they are paid to inventors, patent-holders,
and others for the right to use a name, trademark, or other intangible
property. A t-shirt designer, for example, may have to pay license fees
in order to use that name and logo of a national baseball team. The
owner of a fast-food restaurant may have to pay franchise fees on a
regular basis to the franchise holder.
Commissions are a form of income paid to
sales representatives based on their amount of sales for a particular
time period.
Royalties,
license and franchise fees, and commissions are mentioned together in
this section because all are based on the same premise an individual
is due to receive an amount of money in the future, but the amount may
be interminable.
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Sports
Contracts
A sports
contract is an agreement between team owners and professional
athletes. The contract specifies a sign-on-bonus, if applicable, as
well as the amount the owner will pay installments in return for the
player’s commitment over a certain period of time.
The two
primary opportunities in brokering sports-related payments are:
1. Sports contracts, bonuses, and prizes
Athletes who are receiving payments or retirement benefits resulting
from a sports contract can get a lump sum of chase for some or all their
future payments. Athletes waiting to receive a periodic bonus and cash
prize for a winning performance can get cash immediately rather than
waiting 30, 60, or even 90 days for their bonuses to be paid out.
2. Other
compensation
In addition to their contracts, bonuses, and prizes, professional and
former Olympic athletes also receive payments for public appearances,
speaking engagements, and promotional/advertising opportunities. They
are frequently called on to increase brand awareness, build sales, or
entertain customers for Fortune 500 companies. This may represent an
up-and-coming opportunity related to sports contracts.
Few brokers
and funding sources specialize in sports contracts, so there is little
competition. However, few athletes are aware that cashing in contracts
is an option, and only a few select funding sources provide funding
in this area.
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