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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 |