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.)