Structured Installment Sale - Updates
By mauch | November 9, 2007
There are many things floating around the internet about the Structured Sale Annuity. Just like with anything on the internet, many of the comments and resources on the Structured Sale are not fact based and actually do a dis-service to sellers who are looking for solid ways to safely defer their capital gains taxes.
Recently a small post was found on the subject that we felt it was worth commenting on in order to provide a fair discussion.
The post thread is shown below. I hope that this helps some sellers who are considering the Structured Sale or any other tax deferral strategy.
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I did a search regarding this issue and could not find a single thread that mentioned this. I am looking for information concerning structured installments for property to reduce capital gains.
Situation for my father, age 60, single, makes 60K+ year as psychologist/teacher, and $250K+ in retirement accounts. Other property held is his current home of $350K being kept but rented to another party and commercial office property valued at $900K+. There is no other debt (current mortgages, credit cards, loans, etc).
He is purchasing a property now at $690K, putting down $350K, and getting mortgage on the rest. He owns a beach front vacant property in SC that has a base price of $60K and is appraised for $850K. If sold at or near appraised value, we’d be looking at a capital gains tax of ~$115K. Ouch!
We are looking at a reverse 1031 exchange, however it is entirely uncertain whether we can sell a beach property in the winter months within the allowed 180 window (which will end in mid-March as the current closing is in a few days). If the beach doesn’t sell, then we lose the $5000 it costs to do the paperwork for the reverse 1031 exchange as well as the capital gains advantage.
From my understanding, the ‘Structured Installment Sale’ allows the seller of a business or real estate to defer the recognition of the taxable income/gain when ultimately using all or part of the net sale proceeds to fund an annuity (issued by a highly rated insurance company) to provide a fixed stream of future income that can be tailored to meet future needs. Once the mortgage for the new house is paid off, he really doesn’t need a lot of money coming in (no other expenses, mortgages, or loans, massive travel plans, etc). Everything would eventually be willed to me upon his passing, so we’re both trying the determine ultimately what the best move may be.
Should we try to go through the reverse 1031 and take the chance that a beach property will sell in the winter, or just do a normal mortgage purchase, pay it off whenever the beach property sells, and just bite the capital gains bullet?
A lot of the websites out there seem to be shills or advertising more than being neutral and purely informative, so I wanted to ask to see what experiences some may have or advice. The reverse 1031 is iffy, but if it works out seems to be the best bet, however I like to plan for the real chance that it will not go through and prefer to be prepared.
Mike
Date Posted: Oct/24/2007 3:20 PM
Rating: 0The ‘Structured Installment Sale’ is a bad idea IMHO.
Some relatives who are in the insurance industry tried to sell my Grandmother on this as she sold her house to move to a retirement home. Luckily, the buyers did not like it when they found out my Grandmother wanted to involve this third party insurance company in the middle of the real estate transaction. The Structured Installment Sale did not happen to our relief.Don’t do it! Pay the capital gains tax on the property if he wants to sell it or do a 1031 exchange.
It would be worth enlisting the help of a good accountant to deal with the tax implications.
For example, he can exclude $250k the gain on the sale of his home as long as he meets certain criteria (basically living in it for a total of 2 years in the last 5 years). He might benefit by doing that now before he loses that.
OUR RESPONSE:
Hi Mike and “theman2″,
First off, I want to identify myself as coming from the Structured Annuity industry. I saw this post and just wanted to clear up a few mis-understandings by “theman2″ and to shed a bit more light on the subject for Mike.
Actually, the Structured Installment Sale is a good strategy for many people. And, like all other strategies (including simply paying the tax), it is not right for many people as well.
It is kind of a misguided blanket statement to say that the Structured Installment Sale is not good for everyone as “theman2″ implies. Just like with all strategies, they all cater to specific needs and goals. Many people may be better off simply paying the tax… while a good majority would be way better off by using some sort of tax deferral strategy.
No knock against “theman2″, but he gives no specific reason for advising to “Don’t do it!”. Most of the time resistance for more advanced tax deferral strategies are because of a lack of knowledge on the topic. People tend to shy away from things that they don’t understand or have never heard of.
Mike, the Structured Installment Sale may or may not be the right strategy for your father.
However, people that it may be perfect for are those:
- Who are looking for a guaranteed income stream that they do not have to worry about for retirement
- Who would like to defer capital gains tax
- To leave the possibility for future tax planning on those funds open… remember, once a seller pays the capital gains tax there is no chance to ever decrease the tax or use the funds for their benefit
- Who do not want to have to monitor the investment or the stock market
- Who want to protect that portion of income for retirementThe Structured Installment Sale is to create security, to defer tax, and leave the possibility for future tax planning on those capital gains open. For instance, lets say that in 10 years Congress comes out with a new bill that eliminates capital gains tax for certain people. If the seller simply pays the tax now, they of course have no chance to ever take advantage of any tax changes that may go in their favor.
However, if they utilize some sort of tax deferral strategy (installment sales, structured sales, charitable remainder trusts, etc.), they can take advantage of that tax law change and possible reduce their capital gains tax bill.
Of course, many sellers will not benefit from the Structured Installment Sale. Drawbacks are:
- The funds are in a fixed annuity, which of course means there is low liquidity
- The fixed guaranteed annuity earns a conservative return (between 3.5% - 5.5% depending on the specific payout terms your father would like)Regarding the comment by “theman2″ about the buyer not liking the idea of involving a third party insurance company, this is a road block that some transactions face.
The Structured Installment Sale is similar to a 1031 exchange in that they both contain a 3rd party that the funds must flow through. With a 1031 exchange, it is a qualified intermediary. These intermediaries hold the funds until a suitable property is found.
In the time the funds are held the QI actually claims much of the interest earned on the funds as their profit. Recently there has been many cases of QI’s who haphazardly invest the funds in the account and end up losing the money of the seller.
Of course, this is somewhat rare, but it has happened at an alarming rate in the last 2 years. So, be sure to find a trustworthy QI with a good reputation.
With the Structured Installment Sale, the funds are instead sent to a company called an Assignment Company. These assignment companies are partially owned by the insurance company (Allstate Life Insurance has their own… and Prudential Life Insurance has their own).
The large life insurance companies 100% back and guarantee the performance of the assignment company, which equates to extreme security that is often not found in the 1031 exchange industry.
The aspect that many people who do not understand the structured annuity industry (our company has been in the industry for over 24 years) become afraid of with the Structured Installment Sale is that the insurance companies have chosen to locate their Assignment Companies in the country of Barbados. This initially frightens people because they have heard the stories of illegal tax shelters using Barbados and other nations offshore.
In reality, Barbados and the U.S. have several tax treaties that do allow and make 100% legal certain transactions to take place. Among them are the U.S. Barbados Tax Treaty - Article 18… which specifically allows the transmission of annuity premium funds to Barbados U.S. income tax free. This does not mean that the seller is not paying taxes… it simply means that the U.S. has agreed not to tax the Assignment Company on the annuity premium funds they receive.
Of course, if the Assignment Company were located here in the states, the IRS would tax the annuity premium funds as income… reducing the sellers payout.
Once the funds reach the Assignment Company, they send them over to the annuity issuer they are associated with (either Allstate Life or Prudential Life) to purchase the fixed and 100% guaranteed annuity to pay the seller the installment payments.
These assignment companies are not new. Actually, in the Structured Settlement industry, they have been used for over 25 years and are once again… completely legal and out in the open.
Really, just like with anything, learning the facts and being educated on the subject is the best way to find out the truth.
Anyhow, I didn’t mean to write a post this long. I just noticed this post and wanted to clear up a few things.
In summary, the Structured Installment Sale may be a good option for your father. However, just like with any strategy, it is always a good idea to find out the facts first… seek advice from your CPA… and move forward from there.
People that lay out blanket statements like “just pay the tax and be done with it” are really doing a dis-service to sellers. It is like saying, “don’t try to legally lessen the amount of taxes you pay to Uncle Sam”. Kind of crazy, but many people do still have that attitude.
I hope that helped to put a different side to the story. The thing to do is to contact a reputable company who offers the Structured Installment Sale, gather facts and information on the strategy (both the bad and the good), take the facts to your CPA or Tax Attorney, and make an educated decision on the best course of action. There really is no better way to do it.
And yes, I am with a company who is a leader in the Structured Annuity industry. Our company focuses on education first and foremost. If you would like me to forward you information so you can make an informed decision on your own, feel free to contact me at 800-666-5854 or email me at:
mauch[at]structuredsalespro[dot]comIf this has helped, excellent. If not, I urge you to check out all of your options in an objective and fact based manner before you simply choose to pay the tax and be done with it.
Cheers,
Trevor Mauch
Settlement Professionals Inc.
I’m sure many sellers and advisors out there have had some of the same questions, so I hope this has helped to clear things up a bit.
So, if you are selling highly appreciated property and you are not sure what you should do… my advice is to become well educated on the strategies you are looking at, involve your CPA in the decision, and move forward on the strategy that makes the most sense for you.
Topics: Legal issues, Tax deferral talk, Structured Sale | No Comments »
Federal Capital Gains Tax Rate Update - Raising the rate…
By mauch | October 22, 2007
As most of us have known for several years now… the federal capital gains tax rate is due to raise a bit in 2011.
A good article on the topic was written recently by The Settlement Institute and reviews the rates that are due to raise… and to how much.
In addition, it reveals the little tip about when people in the 10% and 15% income tax brackets can sell their highly appreciated assets to actually PAY NO CAPITAL GAINS TAX if everything stays as is planned.
Follow the link below:
Capital gains tax rates to rise
Topics: Calculations, deferring tax, Tax deferral talk | No Comments »
Structured Sale: The state of the strategy… Aug. 2007
By mauch | August 20, 2007
It’s just over half way through the year and it is time for a quick update on the state of the Structured Sale in the marketplace so far in 2007.
The Structured Sale is still gaining in popularity and more and more sellers are beginning to inquire about the strategy.
So far, the large majority of sellers seeking out the benefits of the Structured Sale (capital gains deferral, guaranteed income stream, safety, etc.) tend to have the following characteristics.
- 50+ in age
- Selling appreciated real estate valued at about $500,000
- Have a capital gain of about $350,000
- Would like a guaranteed income to help during retirement
Of course, there are many other types of sellers who are seeking out the strategy such as active real estate investors who have found the strategy to be useful in tax planning, small business owners, owners of highly appreciated web domains, etc.
As of now, the Structured Sale can reach internal rates of return in excess of 5% with the right structuring. Keep in mind, these returns are pre-tax returns that enable the seller to earn a return on the capital gains tax funds that are in the annuity. When comparing the income stream that the Structured Sale generates versus selling for cash, paying the tax, and investing the funds elsewhere… a seller will usually need to earn an 8-11+% return to keep up with the income stream from the Structured Sale.
With real estate being a somewhat shaky investment in some areas, the Structured Sale offers the chance to exit the real estate market and earn a passive stream of guaranteed and hands off income without any headaches of managing tenants or worrying about the real estate markets.
Truly, the Structured Sale is still an extremely powerful and solid exit strategy for sellers who want a safe-secure stream of capital gains tax deferred income.
Topics: Tax deferral talk, Structured Sale | No Comments »
Structured sale legal and tax advice from Rob Wood - Read on…
By mauch | June 29, 2007
Hello…
If you are a seller of an appreciated asset I hope the sales process is going well and you are on your way to choosing the right exit strategy for you!
If you are a professional advisor such as a CPA, Financial Planner, Real Estate Professional, Attorney, etc… you are on this page because you have seen the value that the Structured Sale can bring to your practice to help your clients more effectively meet their goals.
Whichever group you belong in, you are on this page to learn more about the Structured Sale (Ensured Installment Sale) for real estate and closely held businesses. One of the biggest questions that sellers and professional advisors alike have… is the future of the Structured Sale and the tax/legal strength of the strategy.
Of course, as expert Structured Annuity Planners (over 22 years of experience!) us over here at Settlement Professionals Inc. can tell you all of the facts that you want to hear about the Structured Sale annuity. We are seen as the nations experts on the Structured Sale and our clients trust us everyday with their financial futures as stake.
However, even with all of our experience and our excellent track record, sometimes people would simply rather hear about a certain strategy from someone who has nothing at stake in you using a particular strategy. Although we specialize in the Structured Sale, we will tell you if this strategy is not right for you. Afterall, we are not doing ourselves any good if we steer our clients toward the wrong strategy. If the Structured Sale is not right for you, we’ll tell you that and also give you referrals of professionals who may be able to offer you a better solution.
With all of that said…
I’m sure that you want to hear about the Structured Sale from an unbiased source who has no stake whatsoever in whether you utilize the Structured Sale or not.
Well, The Settlement Institute (a firm aimed at educating people on appreciated asset strategies, tax issues, financial planning, and more…) has just released an in-depth interview with a top tax attorney Robert W. Wood of Wood and Porter: San Francisco.
This interview is a whopping 98 minutes long and Robert “spills the beans” on the Structured Sale on everything from the tax/legal issues, steps to complete the transaction, comparisons to other strategies, the possible future of the structured sale with the IRS, and the steps that MUST be taken in every transaction in order to make it a valid tax deferral strategy.
Anyhow, if you are looking at unbiased information on the Structured Sale strategy from one of the nation’s top tax experts, I would highly suggest that you take a listen in on this interview.
Because The Settlement Institute is a “for profit” organization, they are charging a small purchase price… but you’ll find that it is well worth it.
We are actually suggesting this audio for all of our clients because it offers a different view on the Structured Sale other than our own. Over here at SPI one of our goals is to provide our clients with all of the facts and information available so they can make a well informed decision. We feel that this audio is a must for each seller and professional advisor involved in these transactions.
To get the audio click the link below.
http://www.settlementinstitute.org/wood_structuredsale.html
As I mentioned earlier, if you are reading this page you are looking for solid information on the Structured Sale annuity strategy for capital gains deferral. The above link will give you among the best unbiased information on the Structured Sale available.
Best of luck!
As always, if you have any questions please feel free to give us a call at 800-666-5584 anytime!
Topics: Legal issues, IRS Rulings, deferring tax, Tax deferral talk, Structured Sale, Random | No Comments »
Error in a previous post about the Exit Advisors Affiliate Program - Apologies…
By mauch | June 20, 2007
Quick note:
Our company prides itself on providing accurate and cutting edge information on capital gains deferral strategies: in particular, our specialty the Structured Sale (Ensured Installment Sale).
However, a little while back I mistakenly mentioned an incorrect fact on a blog post about the Exit Advisors Affiliate Program.
In the post, I referenced that one of the annuity issuers had “looked at the program” and given their thumbs up on the training and it was possibly “better than theirs”. It has come to my attention that this statement was incorrect as a result of misinterpretation on my part.
It is a classic case of misinterpreting the conversation and rushing to get “the good news” out that I had believed to be true when the post was written.
As our company is founded on integrity, I wanted to set the record straight and retract that earlier statement as a result of my misunderstanding.
As of today, the Exit Advisors Affiliate Program has not been endorsed by an annuity issuer. Although the program has not been officially endorsed (the annuity issuers do not endorse other training programs) by the annuity issuer, we have received feedback from our Affiliates that the training and complete system is one of the best… if not the best, collection of information, training, resources, and tools specific to the Ensured Installment Sale (Structured Sale) available today.
The previous post has been corrected and does not include reference to an endorsement.
As a marketing specialist, my job is to provide the public with the most cutting edge, timely, and CORRECT information available. I apologize about the mistake and look forward to providing you with the most up to date information on the Structured Sale available anywhere!
My best,
Trevor Mauch
VP Marketing
Topics: Random | No Comments »
Professional advisors… the Exit Advisors Affiliate Program is now live!
By mauch | June 14, 2007
In case you haven’t heard yet, (our internal mailing list heard last week) our exclusive Exit Advisors Affiliate Program is now live!
After months in development, our tech team gave us the thumbs up last week to lauch the affiliate program to our long list of professional advisors waiting to get in.
In case you don’t know, the Exit Advisors Affiliate Program is a comprehensive program and network designed to enable professional advisors such as financial planners, CPA’s, attorneys, real estate professionals, life insurance agents, and all other professional advisors who deal with clients who sell appreciated assets…
… to be trained on the Ensured Installment Sale (aka Structured Sale) and offer it to their clients as an extremely powerful capital gains deferral tool.
The affiliate program contains the largest collection of multi-media training, articles, documents, audios, marketing, and more… geared specifically toward teaching professional advisors everything about the Structured Sale from start to finish.
In addition, the Exit Advisors Affiliate Program is designed to give our affiliates a much larger commission payout for these transactions and to add a viable stream of income to their existing business. We can offer our affiliates a larger share of the commissions because we have streamlined the transaction and training process to a point that cuts the learning curve in half and enables for a much smoother transaction.
If you are a CPA, financial planner, attorney, etc. that wants to learn about the Structured Sale from A to Z, you will want to take a look at our affiliate program.
As long as you have a valid life insurance license, the Exit Advisors Affiliate Program can enable you to add a significant stream of income to your bottom line.
To learn more about the program, click the link below now.
http://www.settlementinstitute.org/affiliate_join.html
P.S. - We had our first batch of affiliate memberships fill up within 48 hours! Follow the link above to join. As more affiliates join the program, we will have to increase the initial investment again so we can ensure that we are able to give each affiliate the personal attention they deserve. So, be sure to join today to lock in the current investment price.
http://www.settlementinstitute.org/affiliate_join.html
Topics: Exit Advisors Affiliate Program, deferring tax, Structured Sale | No Comments »
The Structured Sale as a Private Annuity Trust improved alternative…
By mauch | April 26, 2007
As you already know, the Private Annuity Trust or PAT is no longer a viable capital gains tax deferral tool. Why is this??
To cut to the chase… because the IRS saw through the PAT and realized that it was nothing more than a tool to allow the seller to take an asset from one pocket and put it in another. The PAT didn’t address many of the important IRS guidelines, which led to its demise. In addition, all of the “PAT experts” that sprouted up over the years that began to sell PAT packages like the next big craze.
Quick analysis of the PAT:
A PAT (Private Annuity Trust) is basically a transaction where a trust is set up to house the asset, which if it is a business or real estate, the asset is usually sold to convert the asset into cash. The cash is usually invested in an annuity to provide the seller with a stream of income over time. That is a very simplified version.
Now, there are many problems with the PAT that led to the IRS decision to shut it down. I’ll go over some of them here.
- Did not address the constructive receipt doctrine - When looking at a PAT for what it is (or was), you can easily see that if push comes to shove the seller truly could get at the funds in the trust if they really wanted to. They technically could go to the trustee (which is often a family member) and ask for “a bit more money this month”. Just having this ability triggers the constructive receipt doctrine which also triggers the realization of capital gains.
- Did not address the economic benefit doctrine - Once again, by having “access” to the funds and possible control over how the funds are handled, the PAT tramples over the economic benefit doctrine which triggers capital gains.
- Was just a trade of one asset for another - If you break down the PAT to its simplest form, you see that it is really nothing more than trading one asset for another. The seller started with an asset worth $x (property or business) and ends up with an annuity worth $x.
In contrast, the Structured Sale is a completely different animal. The Structured Sale is not an exchange in any shape or form. It is merely an installment sale where the buyer (an actual buyer… not a trust set up for the sellers benefit) simply transfers their obligation to pay to a 3rd party (backed by the annuity issuer) who in turn uses the buyers funds to purchase a fixed annuity to fund the future installment payments.
It has long been a fact that the IRS allows for installment sales and for substitution of obligors. That is all the Structured Sale is… an installment sale with a substitute obligor to make the installment payments.
The fact that the Structured Sale and PAT both use annuities is the only similarity that they share. PAT’s were a trade of an asset for an asset, while the Structured Sale is the sale of an asset by installment sale.
Of course, the Structured Sale offers the seller huge benefits such as the comfort of having their payments 100% fully backed by the large Fortune 50 annuity issuer, tax deferral, customized payment streams (truly almost anything you can think of), and more.
So… next time someone tries to say that the IRS is cracking down on “things” like the Structured Sale, be rest assured that they ARE NOT. The Structured Sale is an installment sale with a substitute obligor… and that is all it is in it’s simplest form.
If you have any questions on the Structured Sale or would like additional resources on the Structured Sale, be sure to give us a call @ 1-800-666-5584 anytime.
Topics: Private Annuity Trust, IRS Rulings, Legal issues, deferring tax, Structured Sale | 1 Comment »
What happens come tax time with the Structured Sale?
By mauch | April 13, 2007
One question we get quite a bit about the Structured Sale is, “What happens come tax time if I use the Structured Sale?” The answer to this is really much simpler than you think.
As you know, the Structured Sale is basically a sale on installment sale where the buyer pays the sellers installment payments with a guaranteed annuity. Of course, there are more moving parts than just that… but that is the essence of the transaction.
Since the Structured Sale is an “installment sale”, it is taxed accordingly. Come tax time, your CPA will use IRS form 6252 to report the income from the installment payments.
Form 6252 simply breaks down each installment payment into interest income, capital gains, and returned basis. Your CPA should be very familiar with using this form because installment sales are extremely common in today’s world. The seller simply keeps track of the payments they receive (which will be known down to the penny when the Structured Sale is instituted) and reports them to the CPA or tax preparer.
Because the Structured Sale is a capital gains tax deferral method, many people believe that preparing the taxes on the sale will be complicated like the 1031 exchange tends to be. However, people need to remember that the Structured Sale is an installment sale… not an exchange of any type. So, the Structured Sale is a much simpler process when it comes tax time.
If you are a CPA or you are thinking about performing a Structured Sale, give us a call at 1-800-666-5584 and we can answer any questions you may have. The Structured Sale is a lot less complicated than many people have made it out to be (a 1031 exchange is much more complicated and has more places the transaction can go wrong!).
Topics: deferring tax, Tax deferral talk, Structured Sale | No Comments »
Is the Structured Sale legal?? - Yes, and here’s why…
By mauch | March 16, 2007
We have spoken to several sellers and professionals advisors lately who have mistakenly lumped the Structured Sale into the category that the Private Annuity Trust now falls into…
… NO LONGER VALID BY THE IRS AS A CAPITAL GAINS TAX DEFERRAL TOOL….
Well, before this completely wrong assertion causes sellers and professional advisors to look away from the Structured Sale, I want to set the record straight.
First off…
- YES, the Structured Sale (Ensured Installment Sale) is completely legal and is supported by multiple IRS rulings and case law.
- NO, the Structured Sale is not the same as a Private Annuity Trust.
- NO, the Structured Sale is not an exchange of an asset for an annuity
No matter what you may have heard, the Structured Sale is a completely viable capital gains tax deferral tool and is being used every month by sellers all around the country (Yes, even since the October 2006 ruling).
We just wrote up a page addressing the actual IRS rulings and case law that supports the Structured Sale. In addition, explanations of why the Private Annuity Trust is no longer valid and how the Structured Sale adheres to all current IRS rulings can be found on that page. Simply click the link below to learn exactly why the Structured Sale is legal, and is not affected by recent IRS rulings that stopped the Private Annuity Trust.
Structured Sale IRS Rulings and Information
If the new page does not address your questions or concerns, please feel free to give us a call at 1-800-666-5584.
Talk to you next time…
Topics: IRS Rulings, Legal issues, deferring tax, Structured Sale | 2 Comments »
So, what is this “3rd party assignment company” for a structured sale?
By mauch | March 9, 2007
So, just what is the 3rd party assignment company and why do we need them?
The 3rd party assignment company (from here on 3rd party) for a structured sale (Ensured Installment Sale) is really what makes the whole thing tick. Basically, the 3rd party is what turns a traditional installment sale into a structured sale. Here’s a simplified process flow showing where the 3rd party fits in.
- Buyer sends funds to escrow
- Escrow distributes funds designated to structured sale to the 3rd party
- 3rd party purchases annuity from the annuity issuer.
- Annuity issuer sends guaranteed payments to seller
The key to the 3rd party is that it is based “offshore” in Barbados. Now… don’t let this scare you. I know the term “offshore” has been used to describe some less than honest circumstances; however, the “offshore” 3rd party is guaranteed by a Fortune 100 life insurance company such as Allstate or Prudential. Allstate’s 3rd party assignment company is called the Allstate International Assigments Ltd (they just changed the name from Nabco). Prudential’s 3rd party is called Pruco. Both of these 3rd parties are supported and guaranteed by their affiliated life insurance company. So… you can rest assured that these companies are the real deal and are not just some fly by nite company. It really cannot get much safer than being backed by one of the world’s largest life insurance companies… can it? Their whole reason for existing is to facilitate transactions such as the Structured Sale.
So why are they offshore? The reason these 3rd parties are offshore is simply to ensure that 100% of all funds they receive will be used to purchase the annuity for the seller. If the 3rd party were located in the U.S., the funds sent to the 3rd party would be taxed, reducing the amount of capital available to purchase the seller’s annuity. With the utilization of the assignment company, every penny sent to the assignment company will be used to purchase the annuity for the seller. Basically, the funds only stay in the assignment company’s possession for a very brief moment… just long enough to re-route the funds to the annuity issuer.
The 3rd party plays another important role in the transaction as well. Under IRS code, once the seller takes possession or has access to the funds paid by the buyer it is considered constructive receipt and any capital gains tax is now realized and taxed immediately. So, if the buyer were to pay the seller… and the seller were to purchase the annuity him/herself… the seller would not defer any of the capital gains tax and would be required to pay the tax in the year of the sale. However, with the 3rd party accepting the funds directly from escrow and purchasing the annuity for the seller (the seller is the sole beneficiary of the guaranteed annuity), constructive receipt is not realized… therefore capital gains tax can be deferred.
One important bit of information to remember is that the minute you ever “have access” to the funds, constructive receipt is realized and you are taxed immediately. Be sure to contact us or a professional advisor before the sale of your business/real estate is finalized. Once the sale is finalized and you have access to the funds, it is too late to defer capital gains tax.
Truly, the 3rd party makes these deals happen and are as safe and secure as anything out there. Sure, initially the Structured Sale can seem confusing, but when you break it down it is rather simple.
I hope I was able to shine some light on the 3rd party assignment company and why they are needed in the Structured Sale of real estate or a business. If you have any further questions leave a comment or contact us at 1-800-666-5584.
Good luck and I’ll talk to you later!
Topics: Allstate International Assignments Ltd, Pruco, Nabco, Structured Sale | No Comments »
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