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.

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.

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Construction Receivables

Construction receivables are accounts receivable generated by contracts on construction projects.

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.

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.

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.

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.

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.

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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