Selling Annuity Payments for Cash: What You Need to Know
Winning a lottery jackpot requires making a significant decision almost immediately. As soon as you come forward to claim your prize, you will be faced with the option to get your winnings in one swoop in the form of a cash lump sum or to collect them slowly over a period of time, usually 20 to 30 years, in the form of annuity payments. Though you will want to weigh your decision quite seriously, it will ultimately come down to what is best for you at that moment.
However, if you choose the latter option and regret it later, don’t worry—there is still a way to access that large sum of money. In this article, we will look at everything relating to selling annuity payments, including what to look for and why you should be careful when selling your future payments.
Why Sell Annuity Payments?
You may be wondering why somebody who specifically chose not to receive their winnings in a cash lump sum may want to ever sell their annuity payments in order to receive a cash lump sum. To be honest, you would be wholly justified in wondering about this. This is especially true considering that most winners are given advice and can easily research which is better—a cash lump sum or annuity payments.
However, there are actually a few possible reasons for players to want to sell their annuity. Some of the most common reasons that you could have to sell your annuity are listed below:
- Your financial situation has drastically changed—especially suddenly or unexpectedly. In some instances, you may be managing fine by living off of your annual annuity payment. However, life has been known to throw curveballs in our paths every now and again. You may suddenly have a sudden change in your financial situation that is brought on by accident, illness, or even the change in a close family member or friend’s life. This change could put a strain on you, and you may need more money than your annual annuity payment allows for.
- You have a desire to make a large purchase that you cannot afford with your annual annuity payment. It is possible that you chose annuity payments because you did not think there was anything overly expensive that you wanted to purchase. However, this decision was made as you were claiming your winnings and you were still coming to terms with your win. It is entirely possible that after realising how much you have won that you want to splurge on a few big purchases. The problem is that these purchases may be out of the reach of your annual annuity payments. In these cases, you will need more cash than your yearly amount allows.
- You have a great investment opportunity that appears. One of the other most common reasons to sell your annuity payments is when you stumble upon an excellent investment opportunity. It is important to note that this opportunity should be able to earn you more income than your current annuity. If such an occasion presents itself, you may want to sell your annuity to free up money that you can use to invest.
Can You Sell Annuity Payments?
Technically, yes, it is entirely possible to sell your remaining lottery annuity payments. This is, however, dependant on two essential factors. The first thing to consider is where you live and which lottery operator you won your jackpot from. If you are living in the United States, for instance, only 28 states allow lottery winners to sell their annuities after they have selected to receive their winnings in annual payments. If you live in a state where the selling of your annuity is not permissible, then you will have no choice but to wait upon your yearly payments.
The other factor is something that is entirely out of your control—the courts. Part of the process of selling your annuity payments is that the sale has to be presented to the courts. The judge presiding over your case will then look at the deal that you have made to sell your annuity. They will take into consideration the reason that you have stated for wanting to do so, and then decide whether the sale of your annuity is in your best interest. If they deem the deal to be all right, the sale may go ahead. If, however, they feel that the agreement will not benefit you in the long run, then they will prevent the sale from moving forward.
You may be surprised to find that the actual process of selling your annuity payments is rather simple and does not involve any overly complicated steps. In fact, there are only six steps that need to be completed before you can receive your lump-sum payment:
- Find a buying company: The first step in selling your annuity is finding somebody to buy it. There are many reputable companies in existence that purchase annuity payments from lottery winners. However, you must ensure that you select a registered and certified purchasing company that holds a licence to buy annuities. Failing to check that a company is above board could cost you in the long run—sometimes your entire fortune.
- Receive a quote: After approaching a purchasing company, the company will be responsible for drafting a quote that will tell you how much they are willing to pay you in a single cash lump sum in order to take ownership of your annuity payments. You have the choice of whether you would like to sell all your annuity payment or only some. This will, of course, affect your quote amount. It is important to remember that the quotation that you receive will never be equal to what your annuity will be worth. As with selecting to take a cash lump sum when you first win, selling your annuity for a cash lump sum comes with hefty penalties and you may receive much less than you may expect.
- Accept the quote: If you have received a quote from a purchasing company, it is vital to review the quote carefully and understand exactly what you will be receiving as well as precisely what you are giving up. Once you have done this and are still comfortable with your decision, then you can accept the quote.
- Court review for approval: After you have officially accepted the quote offered by the purchasing company, the sale of your annuity will go to court. Here, the judge will look at the quotation to determine if it is fair and look at the reasons that you want to sell your annuity. If they deem the sale is fair to you and justifiable, they will approve it and you can move on to the next step.
- Receive your money: After the sale of your annuity has been approved by the courts, things will be in the final stages and—after winding up the last of the paperwork with the required signatures—you will receive your cash lump sum paid into your bank account.
- Pay applicable taxes: The final step involved in selling your annuity is to pay any applicable taxes that should occur from you receiving a cash lump sum. This will be the last thing to do before you are able to relax and enjoy your money. For this step, it is best to hire professional help so that you know exactly how much you will need to pay over to the taxman. One thing to note is that this step may in some cases have to occur before you receive your money.
If you are thinking of selling your annuity payments, we urge you to be cautious. After all, there is probably a good reason that you opted to receive your winnings in the form of annuity payments in the first place. Also, keep in mind that most lottery winners who took the annuity option are generally very pleased with their decision due to the long-term financial security doing so provides them.
However, if you really are that eager to get your hands on a big cash lump sum, then at least you can be comforted by the fact that you can sell your annuity for some hard cash—depending, of course, on where you are located and what decision the presiding judge ultimately makes.