Structured Settlements: Structured Installment Sales

Structured Settlements: Structured Installment Sales

Eleventh in a series of blog posts dedicated to helping clients decide when a structured settlement should be considered.

Today’s Installment (npi): Structured Installment Sales

February 5, 2020 – For this segment in our series of educational offerings, we’re going off-topic slightly because we wish to present a structured settlement offshoot product designed to help clients defer and sometimes eliminate capital gains taxes when selling qualifying appreciated assets: Structured Installment Sales.

Be sure to visit our companion site: MyStructuredSale.com

Real estate investors, business owners, property owners, and the realtors, business brokers, lawyers and accountants who represent and advise them will find this simple-to-implement alternative to traditional sales worthy of their time.

As any accounting major can tell you, deferring taxes and accelerating deductions is one of the fundamental tenets of accounting.

Structured installment sales help conveniently with the deferring taxes part of that formula.

The process is simple:

Step 1: Buyer and seller negotiate a price for the property or business.

Step 2: Seller decides how much of the net settlement proceeds to defer.

Step 3: Seller contacts a firm specializing in structured installment sales annuity quotes. (We hear Finn Financial Group is pretty good!)

Step 4: Terms of the structured installment sale are incorporated into the sales agreement and closing documents.

Step 5: At closing, all relevant documents are executed, and the funds dispensed to the appropriate parties.

Although Treasury regulations have permitted installment reporting for taxes since 1918, it wasn’t until 1980, when Congress passed Public Law 96-471, that Section 453 of the Internal Revenue Code was modified laying the foundation for what would become known as Structured Installment Sales. Publication 537 contains information on installment sale eligibility requirements.

In 2005, Allstate Life, in an effort to explore expanded applications for structured settlements, researched a utilization in the appreciated asset world and rolled out a product they called a structured sale. Prudential soon followed but just as the concept was beginning to gather major traction, the Great Recession hit wiping out investment equity and the opportunity to defer taxes with it.

Now, with property values up over the past decade, this tax deferring option is poised for a major resurgence. So much so that one of the largest insurers in the world, MetLife, has chosen to offer Structured Installment Sales through its specialized, appointed agency force.

Click [HERE] to watch MetLife’s 1:12 promotional video on the topic.

Structured installment sales are also available through Independent Life as well as an option funded by U.S. Treasuries.

When a structured installment sale is being considered, the parties involved need to be cognizant of a few basic rules:

A decision to defer sales proceeds must be made prior to finalizing any sales agreement to avoid constructive receipt;

Terms of the deferral should be incorporated into any sales agreement;

Plan design and deferral options may be limited;

Buyer and seller must execute certain required documents prepared by the firm implementing the structured installment sale;

The annuity must be funded directly by or on behalf of the buyer through the closing process.

The Tax Cuts and Jobs Act gives even added incentives for certain taxpayers to defer recognition of gain into future years. Those contemplating selling any qualifying appreciated asset would be well-advised to consider doing so via the structured installment sale method.

Unless they like paying taxes you can otherwise avoid.

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