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.