Structured sales as a capital gains deferral strategy in 2015 and beyond

I get calls every week from investors, tax planners and financial consultants all asking me the same question. " Are Structured Sales for real estate capital gains still available and what are the options for investors in 2015 and beyond?"

I have published a new video that answers those questions and looks at the markets that are interested in underwriting and funding structured sales for those clients looking to defer capital gains. Essentially the life insurance companies have been replaced by trust companies and private assignment companies, but in many ways the deals are even more secure. 

Check out the video and as always you may contact Wahlstrom & Associates with your questions or to obtain a pricing strategy for a structured sale. 

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What is a structured sale?

In this informative video I review the concept of structured sales, updated for 2013 and the market and tax issues we are facing this year.  I look at the issue of how a structured sale works, the benefit of tax deferral and putting 100% of the proceeds of a real state sale to work vs paying a huge tax bill on the sale of appreciate real estate.

 Structured sales, a concept in 2013 that is growing.

Structured sales, a concept in 2013 that is growing.

In the process of a structured sale there are a few key items you need to watch out for given the issues we face in 2013:

  • Have you notified the buyer of the property of your intention to structure your sale and provided them the necessary paperwork, information and process that they will need to sign off on to make it work.
  • What funding options do you have for your structured sale? As mentioned in our earlier commentary, the recent decision by Allstate Financial to close their structured settlement division has left a void in the annuity funding option for structured sales. Do you want to wait for a life market to enter the arena or does it make sense to look at private funding options through other assignment companies?
  • What are you trying to achieve with a structured sale? Is it about just moving money from one tax year to the next, in which case we argue you should NOT be using this process, OR, are you seriously considering a long term cash flow plan using 100% of your proceeds so that your tax hit is spread over many years and is integrated into your business, financial or estate plan?

Regardless of your situation, we think you need to stay current on structured sales, know how they work and what you need to do to make them part of your real estate selling strategy. Subscribe to our page, like us on Facebook or simply watch these posting for more information during 2013 on the topic of structured sales.

Structured sales and 1031 exchange. Can the combination work in 2013?

Does it make sense to use 1031 exchange tactics to "wait out" the current void in the structured sale market caused by the departure of Allstate Financial as an underwriter of structured sale annuity funding programs?

1031 exchange and structured sale.jpg

Mark Wahlstrom, President of Wahlstrom & Associates, examines both concepts, the 1031 exchange and the structured sale, each of which have been around for decades and used successfully in the pre-real estate melt down era of the late 1990's and mid 2000's. However, over the last 5 to 7 years, the collapse of both residential and commercial real estate, coupled with annual concerns about potentially increased capital gains rates, combined to largely smother the potential of this once promising concept of tax deferral and cash flow planning using structured sales.

Interestingly, evidence so far in 2013 suggests that interest in structured sales is surging as real estate prices have begun to rebound at the exact same time as the first substantial increase in capital gains and ordinary income tax rates became law in 2013. More sellers of real estate have been looking for options to spread out the tax hit in a secure fashion and structured sales appear to fill a growing need of tax planners, CPA's and real estate investors of all sizes. In this weeks video Mark examines some timely ideas for those who have pending sales or potential sales and are wondering what options there might be in the interim.

Mark Wahlstrom is the President of Wahlstrom & Associates and one of the nations leading experts in structured sales, Oil & Gas lease bonus structures, structured attorney fee's and mass tort settlement administration.

Will the increase in capital gains tax increase interest in structured sales?

One of the big disappointments of the last two years has been the total collapse of the structured sales market as the double whammy of plunging real estate values and low capital gains rates conspired to almost totally eliminate any interest in real estate sellers in the concept. This drop in interest led to a lot of brokers, agents and life insurance companies to either pull back their marketing or shelve the concept entirely as part of their offerings to clients.

However, as Wahlstrom & Associates is one of the nations leading experts in structured sales, as well as one of the leading search engine results under that term, I think I am generally a decent barometer of interest and activity, and I am happy to report that the interest and phone calls are starting to pick up.

I can attribute this recent activity and interest in learning more about structured sales to the following factors:

  • With the capital gains tax scheduled to increase in 2011 to 20% on Federal returns, property owners and business owners who know they will be selling after the end of this year realize that they will be paying a higher rate and are starting to look into alternatives. Part of this appears to be driven by the hope that the capital gains rate could possibly be lower in future years if a Republican Congress takes over, but most of the calls and emails seem to indicate a resignation that the 20% Federal rate is here to stay for the immediate and foreseeable future, with various state capital gains rates certain to follow suit.
  • The realization from many real estate owners that property values have possibly stabilized in their area or city and that now might be the time to start looking to sell, again spurring interest in the use of the structured sale concept to spread out gains, and thus taxes, over a period of years.
  • The instability in bonds, stocks and low saving rates has sellers focused on securing a guaranteed, fixed pay out of the proceeds over time to secure or supplement a retirement program that in many cases has been depleted due to financial and market conditions over the last three years. In short, they are far more safety and income oriented and are looking for a secured method of spreading gains and income over a period of years.

I have no doubt that we will continue to see increased interest in the use of the structured sale as a tool for retirement and tax planning for those holding appreciated assets they either must sell or desire to sell. I’m not a fan of increased capital gains taxes, but in this case it might go a long way to revive the use of this valuable and simple tool for spreading our a tax hit on property, asset and business sales. structured_sale_diagram

Currently the two providers of structured sale funding vehicles are Allstate International Assignments and Brook Hollow. Click on the links to both to learn more or contact my office.

(Mark Wahlstrom is the President of Wahlstrom and Associates and is generally considered to be one of the nations leading experts in Structured Settlements, Settlement Planning and Structured Legal Fees. You can read his commentary each week on The Settlement Channel and view his broadcast on Speaking of Settlements.)


Mark Wahlstrom featured in WSJ article on Structured Sales.

This is a re-hash of what is on the front page of the Wahlstrom & Associates blog, but I figured for those of you who read this blog you deserve a fresh copy.

Every now and then a business publication really sets out to do a real job of reporting on a topic or concept.

Todays Wall Street Journal article written by reported Rachel Emma Silverman on Structured Sales is really one of the better written and researched pieces of journalism on the structured settlement process, and in particular the structured sale.

You can link to the article by clicking here although you need to subscribe to the WSJ online to read the entire piece.

Failing that get a copy of the March 21, 2007 copy of the WSJ and go to section D1. I'll eventually get a pdf and put it here in the resource section.

Her summary was essentially as follows:

1.  The strategy can be useful for older people wanting a guaranteed income stream.

2. The IRS hasn't opined on the approach, so there's a risk it could be disallowed at a future time.

3. Low capital gains rates might make it better to pay the tax upfront.

I agree with each of these conclusions, and it should be a real spur to Allstate, Prudential and others to GET A PRIVATE LETTER RULING AND GET OF YOUR REAR ENDS AND GET IT SOON!

Everyone out here selling and marketing these knows that a PLR would dramatically accelerate the sale of this product, but it should not be incumbent on my firm or my clients to go get it. The stakeholders with the most to gain are Allstate and Prudential and they need to get on the ball and get this done. 

All in all a very good article

Allstate announces change of name for NABCO.

The Allstate subsidiary that is the key element to a structured sale, NABCO Assignments Ltd., announced today that it is changing it's name to Allstate International Assignments Ltd effective March 1, 2007.

While it is largely cosmetic there is no doubt in my mind that the conversion from the awkward sounding NABCO, to the more appropriately identified Allstate International Assignments, Ltd, will assist greatly in the growth of structured sale annuity contracts to fund secured installment sales of real estate.

Very often i'd be answering questions and concerns about who NABCO was, why they were in Barbados, and how they were related to Allstate, and now the change of name gives the more proper appearance of a true subsidiary/parent tie in that will get rid of some of the surface objections often faced when trying to explain who was who.

If you are currently working on a structured sale, or have presented an illustration for a structured sale, using the old NABCO name, Allstate will continue to accept old paperwork under the NABCO moniker until May 31, 2007, after which all documents, illustrations and applications must reflect the new name.

Great move by Allstate. Cosmetic in nature but a realization that it's the Allstate name that sells the non-qualified or structured sale contracts, not NABCO.  

More news on the demise of Private annuity Trusts

As many readers are aware the IRS is going to hold a hearing on February 16, 2007 on the October ruling that put a freeze on the creation and sale of private annuity trusts.

Today's Wall Street Journal has a brief synopsis online. You may access it by clicking here.

They point out that the IRS ended the tax benefits of private annuity trusts when concerns over the misuse and aggressive marketing tactics brought to light many abuses in their use and marketing over the last few years. If, after the February hearing the IRS affirms it's decision to end this particular vehicle I expect the surge in interest in structured sales and secured installment sales to continue, with both the Allstate and Prudential structured sale products benefiting the most.  

Structured Sales. Questionable marketing?

Rather then re-type my entire blog post over at The Settlement Channel, my blog and podcast site directed at the structured settlement industry and trial lawyers, click here to read my most recent post on the questionable marketing and practices that appear to be starting to pop up in the structured sales marketing area.

In short, there are many of the firms that were national sellers and marketers of Private Annuity Trusts, deciding to take the term structured sale, and use it as a means of steering internet traffic and key word searches, and then suggest to clients and advisors that a product other then the structured sales annuity be used to fund the installment sale.

I'll have to do more investigation, as I'm sure the legal and compliance departments of Allstate and Prudential will be doing shortly, but from a quick read of these sites that are springing up we are going to see many of the PAT marketing firms using similar tactics to bait and switch people into products or concepts that might not stand up to IRS or regulatory scrutiny.

In short, if the marketer/advisor you are talking to can not PROVE to you that they are appointed by Allstate Life or Prudential Life's structured sales marketing division they are NOT appointed and most likely do not have access to the product that is used to fund structured sales.

If you have a question about a marketer or advisor I strongly suggest you contact my office, or if you prefer, contact the settlement annuity divisions of Prudential or Allstate. If you request them I will be more then happy to send you the contact information so you can carefully vet the advisor you are dealing with.  

Prudential enters the structured sales market.

In a big news day for the structured sales market Prudential Life insurance announced today that they would be offering structured sales annuity product specifically for the funding of real estate and real property via installment sales.

Most of our readers are familiar with the concept of structured sales, which at their core are immediate annuity contracts, offered on an institutional pricing basis, to fund installment sales of real estate at guaranteed amounts and dates. Allstate Insurance pioneered the product and idea back in late 2004, with a formal roll out in early 2005. It has been rather slow to take off for a variety of reasons, not the least of which was a less then vigorous marketing and information campaign by Allstate to the tax and business press. With the introduction of another major player and the resulting marketing muscle they bring, it can only help to push the market forward and create greater awareness of the product and it's use in structured real estate sales.

I'll have more on this tomorrow when the formal announcement and sales kits hit our office.  

Private annuity trusts have been blown out of the water by the IRS

Well, it was only a matter of time but the IRS and Treasury issued new regulations effectively killing Private Annuity Trusts as a tax deferral tool. The abusive nature and sloppy practices of the sales and marketing firms that were promoting these finally caught up to them.

The IRS made a specific point of saying Installment Sales of Real Estate funded by annuities aren't brought into this ruling.!

What does this mean? It means if you are looking to defer taxes on the sale of real property, you now have one real, viable, conservative option. A structured annuity sale funding and installment sale over time.

You obtain deferral, you have guaranteed payments and you have some assurance from the IRS that they aren't going to blow you out of the water.

I'll be posting a podcast on this topic later this week with Attorney Robert Wood discussing the implications of this decision.  

Structured Sales compared to other tax deferal tools.

I'll be commencing a series of blog posts on the topic of structured sales, or structured sale/installment sale annuities, over the next few weeks, but today as I was going over the options available I was looking into the Private Annuity Trust concept.

I'll be the first to admit that I am neither a tax expert or a tax lawyer. What I am is a insurance and investment professional with over 25 years of experience in using annuities and life insurance products to create estates, create cash flows for injured or retired individuals, or to help devise wealth accumulation strategies using annuities and life insurance products.

In that 25 year period I've seen a lot of unique and niche products come and go, with various tax advantages pushed by dubious promoters. Among them such novelties as Increasing whole life used to fund deferred compensation plans, minimum deposit life insurance, Arabian horse schemes, oil and gas LP's and cattle feeding. The list goes on and on. The common factor in most of these was they were based on a limited or narrow tax rulings, such as a private letter ruling, but then some marketing entity got a-hold of the concept and found a method to crank it up and paint it as a do all, end all, be all solution to some tax issue, whether that tax was income tax, capital gains or estate tax related.

I'll expand upon this as we go forward in our compare and contrast of the structured annuity sales use in real estate transaction, but first I'd like to encourage any of you interested in or contemplating the use of a Private Annuity to go over to Quatloos! which is a blog site focusing almost exclusively on income tax fraud and other crooked investment schemes. On top of some just generally good writing and commentary on mistakes people make in their search to avoid paying taxes, there is a really first rate analysis of some of the issues to watch out for in Private Annuity Trusts. I strongly encourage anyone who is looking for a means to defer taxable capital gains on real property to first read this list of issues with Private Annuities.

They share my concern that they are being over marketed, that the practices of those selling them may not pass IRS scrutiny and that buyers really don't understand what it is they are buying. There is a basic rule of thumb, if you don't know what you are buying and are relying on an investment professional to tell what it is, you are probably already headed for trouble. While agents or brokers such as myself play an important role in providing you with the information needed to make an informed decision, there is no substitute for taking the time to make sure you understand what it is you are getting into and why this is the best option for you.

I've said that Private Annuity trusts, if properly constructed and explained to the buyer, certainly have a place in the tool box of those professionals who are experts in the sale of real estate or appreciated real assets. However, there is an industry that has sprung up around these that is worrisome and I think some caution is in order before you decide to use one.

The Structured Sale annuity, which is used to fund seller friendly installment sales doesn't have some of the pizzazz that a private annuity trust offers, that being the assumed growth in principal due to equity investments in the annuity trust, but what it does offer is an uncomplicated tax argument, a simple close of escrow, a clear transfer of ownership and liability of the annuity payments to Allstate's assignment company and then the full backing of Allstate to make all they payments as promised. With the structured sale annuity it is basically a choice between absolute certainty and what appears to be a higher level of tax, investment and actuarial risk when compare to private annuities.

In short, do your homework, decide what options are best for you, but if you don't understand what you are buying or are feeling undo pressure from an advisor to purchase a plan, take a deep breath and walk away until you have the time to research further.  

Structured Sales starting to gain traction among tax professionals.

In the year i've been actively engaged in offering the Allstate Structured Sale product a few striking things have jumped out at me.

The first is that while installment sales of real property are long established and understood by most tax professionals, the concept of a secured installment sale using the NABCO assignment and Allstate annuity to secure it just blows a lot of tax professionals minds. Maybe I look at things a little more simply then others, but when you dissect the process by which this is done, which is the seller includes in the the purchase and sale an installment schedule, then directs the buyer to wire the deferred portion to the assignment company, and then execute the non-qualified assignment with NABCO, it really couldn't be any more simple.

I think the simplicity when compared to competing concepts such as private annuity trusts and 1031 exchanges is really what throws them. The accounting is simple, it's not a "big documentation" type of transaction, and the guarantees and performance are straight forward. It's almost as if people say something so simple and safe can't possibly work, because all they have seen is complexity and risk from competing strategies.

The second element that jumps out at me is how woefully inept the vast majority of structured settlement brokers are in selling this. As some of you may or may not know, the structured settlement industry is historically focused on one product, the settlement annuity, and one client, the casualty company that purchases those types of contracts to fund it's obligations in personal injury cases involving periodic payment settlements.  The skill set required for that market, singular focus on one product, exclusion of other advisors, developing exclusive markets that freeze out competition don't translate well to the structured sale market.

To succeed in selling structured sales takes a team approach of tax professional, real estate professional and typically a financial advisor to the seller of the property. It also takes more then a rudimentary knowledge of financial planning and other tax issues to be able to converse and hold your own with the other experts, and many structured settlement professionals aren't comfortable in that sphere. The net result is many cases opened and quoted, with a relative handful closed and funded. Basically a lot of smoke but no fire.

The successful expert in this area will have to engage in a method of business which is outside the norm for structured settlements, with long time periods geared toward developing relationships based on professional expertise as opposed to locked in or protected access to markets.  

Initial results of structured sales define target markets.

One of the key elements of my move into structured sale annuity markets last year, upon the introduction of the product by Allstate Life Insurance, was to keep a detail diary of sales calls, inquiries and of course closed sales. One of the key elements I've determined in looking back over this first year is that some very clear trends as to the types of people interested in these tax deferral strategies are starting to take shape.

1. The typical client is over the age of 65. In almost every case that we have opened, that failed to eventually gain traction or went to a competing product, the client was under the age of 60 and still in an active investment mode as regards their real estate holdings. By that I mean they might have wanted to defer some earnings, but the fact was that they were still actively in the game and didn't want to tie up money in a guaranteed annuity installment sale such as this, feeling it restricted their ability to use their equity or assets for further real estate purchases.

2. Every valid case that is currently closed or close to being closed has a CPA or tax expert who comprehends the value of tax deferral and they are actively advocating the use of the structured sale annuity. If the CPA isn't on board, isn't comfortable with the concept or is overtly hostile to it, you have zero chance of selling the annuity and you are better off moving on to another sale at that point. It's not that the tax concepts are difficult or complex, rather it is they are new, most CPA's haven't attended CE courses outlining the product, and they are loathe to move on something they aren't absolutely confident recommending.

3. The successful case has someone who is "cashing out" of their asset, be it real estate or a small business, and want to construct guaranteed income with an absolute minimum of headaches. These are people who are very skeptical about private annuity trusts, don't want to search for a like property to do a 1031 roll over and most definitely don't want to deal with the IRS in future years on a product that might be sketchy.

In summary, with rates exceeding 5% on the interest earnings, a variety of payment options, as well as an exceptionally solid corporate backer such as Allstate, this product is tailor made for a generation that wants guarantees, certainty and isn't fixed on growth as much as they are on guaranteed income.

If you are a CPA, planner, estate expert or real estate professional and want to know more about the structured sale annuity market, be sure to contact me about our joint marketing program, or continuing education series.  

Article in WSJ on the risks of Private annuity trusts.

In today's Wall Street Journal, there was a featured article by reporter Rachel Silverman on the topic of private annuity trusts.

You can link to the article by clicking here and read how they are far riskier then their promoters suggest.  

 Of particular interest to readers of this blog is the mention of Structured Sale Annuity contracts as a very attractive alternative to the somewhat flawed and risky private annuity trust.

As you know i'm neither a fan or opponent of the private annuity trust, 1031 exchanges or other deferral tools. Each has their place in the estate or tax planners tool box. However, it does make you pause when you read that the IRS and other tax experts are starting to look at many of the private annuity trust products and questioning the claims being made about deferral, returns and the risks involved.

Also, for the first time someone pointed out the costs of the annuity trusts, specifically set up costs that can range up to $10,000 in addition to management fees of 1% a year or more on the assets while they are held.  This compared to the fixed cost guarantees offered by the Allstate structured sale annuity product, which as readers know, is my preferred choice for structured installment sales of real property.

This article should have a positive effect on the secured installment sale using the structured sale annuity as it nicely outlined all of the risks of the major options, while discussing briefly the benefits or attributes of the structured sale. We have been successful in closing several moderately sized structured sale cases, and have several more currently in the works. What I've found is that the "typical" buyer is over 60, net worth less then $5 million and is selling a capital asset that represents a substantial portion of their wealth and future income. Those types of clients are drawn to the security and guarantees of the Allstate structured sale annuity product, and as other companies come online with their competing versions, acceptance of this method should increase dramatically.  

Structured Sales. Secured installment sales are now available.


The best way to sell your business or real property for an Assured stream of income is through a "structured sale".

There is almost no doubt you are here looking at this web entry wondering what in the world a "structured sale" annuity is. This brand new, secured method of selling your real estate, business or other qualified real property is one of the least known and poorly understood financial tools in the tax and investment community. What I'll try to do in this section as we build it out, is give you a greater understanding of the product, it's use and most importantly, how you can begin to take advantage of it in your own business or personal planning situation. 

What is a "structured sale" and why would you use one?

A structured sale, so named by the company that created the concept, Allstate Life Insurance Co. is a somewhat derivative product that combines the best of a structured settlement periodic payment annuity and the tax rules governing Installment sales. As you might know, installments have a long and established tax history and are used in many transactions when the seller of real property, typically a business or some real estate, wishes to defer their tax hit over a period of years, or "structure" the income. What this new "structured sale" annuity allows is to create an installment sale, and then fully fund the future payments, with interest, to be paid on a schedule designed by the seller to best meet their future plans.

Are you selling a Business or Personal piece of property?

Many individuals selling a businesses, professional practice or personal property would like to liquidate their investment in those assets, with out having to at the same time recognize a huge taxable gain in the year of the sale. For people who are so inclined, the structured sale annuity is a powerful tool. However, keep in mind this only works for the sale of Real Assets. In other words it is not a deferred compensation tool to be used on commissions, ordinary income, or any other type of revenue not associated with the sale of a long term asset.

What is an installment sale and how do you qualify for one if you are selling property?

While I don't provide tax advice, in general, for a sale to be considered an installment sale it must be a sale of a qualified property where you receive at least one payment after the tax year of the sale. Each installment payment you receive consists of the following components; non-taxable recovery of investment, taxable gain and interest income on the money held with the funding company.

What should you consider when using a structured sale annuity to fund your installment sale?

First, since an installment sale permits the seller to receive the payments from the buyer of the property in future tax years, it is obviously crucial to consider who that buyer is, and do they have the resources and track record to assure you that you will in fact receive your promised payments. Outside of using the new "structured sale" annuity, there is almost no way to reduce or minimize this risk short of buying a stand by letter of credit from a commercial lender which is a complex and costly transaction that the seller typically doesn't want or need to engage in just to secure their future payments.

This bring out one of the key benefits of using a structured sale annuity. By using this product through an authorized agent the sale can be structured so that the periodic payments will be funded with an annuity from a large, highly rated life insurer such as Allstate Life Insurance Company, with the assurance built into the transaction that the future payments will be paid By the Life Company, and not the buyer, thus upgrading the security of the transaction by a huge margin.

How do you go about setting up a Structured Sale of Real estate or business property?

This is a very new field and the level of professional competence is quite low across the life insurance and tax planning community. Very few annuity brokers have the necessary depth of knowledge in tax planning, business planning and estate planning to work with high level advisors on these sales, so be careful who you deal with. That said, the actual process of the sale and quotation process is quite simple compared to more complex transactions such at private annuities and 1031 real property exchanges.

1. You enter into an installment sale agreement under which a buyer promises to make periodic payments for a stated number of years, and then you have the funding life insurance company run a quotation for you illustrating the payment options you desire.

2. The buyer then assigns their obligation to make those periodic payments to an assignment company, which in the case of Allstate Life, is named NABCO assignments Ltd. and is a wholly owned subsidiary of Allstate Life.

3. The assignment company funds the payment obligation by purchasing an annuity from the life insurance company.

4. The life insurance company then begins making the payments to the seller as agreed to under the terms of the sale, and issues an agreement to pay on the performance of the assignment company.

It's that simple and the paperwork is exceptionally low compared to other means of deferral.

What are the benefits of a structured installment sale annuity?

First of all you get to defer the recognition of taxable gain until future year. Deferral is almost always preferable to immediate recognition of income and the huge tax hit that comes with it.

Second, you get a guaranteed rate of return from the life company. Just like with any other fixed annuity product you get a fixed, guaranteed payment schedule, at interest that is tax deferred as well, at what are usually very competitive yields.

Third, through the structured sale you eliminate concerns about the buyers ability to make the future payments that are so crucial to the seller. Allstate stands in place of the buyer and makes the payments directly to the seller with no middle man or trustee involved.

Finally, long term financial security and planning options. Just as you can in a court settlement annuity, by using a structured sales annuity you can do monthly, quarterly, annual, semi-annual payments, balloon lump sums, increasing income streams, etc. There are almost no limits to how you design the cash flow, it's up to the seller and their advisor to devise the best options.

Do you want to know more about "Structure Sales"?

Wahlstrom & Associates has spent the last year developing a particular emphasis in their annuity practice to assist financial professionals, tax lawyers, estate planners and CPA's in learning about this fantastic tool. We will be adding updates and fresh content almost every week on our blog page here on the site, so click on the Structured Sales Blog, to stay up to date. 

If you are a private investor or seller of real property and are interested in learning whether or not this product is right for you, please go to my contact page here on the site and email my with your questions and requests and we will be happy to assist you. Our practice is national and we have affiliated experts in almost every state in the US, so we can be sure to at least start you on the right path to determine if this is for you.