Final regulations on section 1.468b-6 trusts

On this weeks Speaking of Settlements, the weekly podcast feature of The Settlement Channel, I am joined once again by noted tax law attorney Robert Wood of the firm Wood & Porter of San Francisco, CA. The reason for having Rob back two weeks in a row is the news that the Treasury has issued final regulations on section 468B-6 trusts and I wanted to get copies and material to my audience as soon as possible.

Now, before anyone gets too excited, these regulations and final rules are NOT related to the more commonly discussed 468B trust that is used for litigation and mass torts. These rules are not related to those trusts or the pending issue before Treasury regarding the taxation of single claimant structures, as much as we would like to get that ruling after all these years of waiting.

No, this podcast is relative to the section of those trusts that govern a variety of other trusts, but specifically those related to section 1031 exchanges and the trust accounts used to manage those transactions. Now, before you go away and don't read this, keep in mind that Allstate Life has their structured sale product, which is a vital element of the 1031 fall back or fall out market so knowledge of these provisions is of keen interest if you are involved in that market.

I know it's a small niche as of yet, but a lot more producers should be looking at the 1031 fallback or fall out market as a means of getting into the structured sales arena. So take a few minutes, click on this link, and learn a little more about 468B-6 trusts and the new rules on section 1031 exchanges. 

You can also read more on these regulations and obtain a copy of this ruling by going over to The Tax Law Channel and looking for the pdf copy of the regulations.

468b regulations that impact section 1031 like kind exchanges finally published

In some rare good news out of the US Treasury department we finally obtained new, final regulations on the application of IRC code section 1.469B-6 trusts. While at first read a lot of structured settlement professionals will be getting all excited and thinking that this is the long awaited ruling from Treasury on 468B qualified settlement funds and single claimant cases, it is in fact related to the issue of escrow accounts, trusts and other funds used during deferred exchanges, such as a section 1031 like-kind exchange.

However, while this is not really relevant to the mass tort and multi-claimant aspect of the structured settlement industry, it is of intense interest to the people over at Allstate and for those of us who are actively in the structured sales business. As we all know this area has languished as a result of a very slow build up in knowledge and familiarity with these annuities, but with a very likely capital gains tax increase on the horizon with the 2009 U.S. Congress the viability of tax deferral of capital asset sales using a structured sale annuity will be of far greater interest to tax payers and tax experts. 

The area of 1031 like kind exchanges is a further subset and niche in that market, but one with immense potential for those settlement professionals willing to invest the time, talent, marketing and process to make it a new line of business. My day job at Wahlstrom & Associates has been focused on this area for over two years and these clarifications should be welcome news in marketing to qualified intermediaries and others who inhabit the 1031 exchange world. 

I will be hosting Attorney Robert Wood, principal of Wood & Porter of San Francisco and the lead commentator on The Tax Law Channel, our newest channel here on LBN. If you want to know more about this ruling, obtain a pdf copy of it or investigate how you can start to work in this market, give me a call or send me an email after our podcast later this week. 

Again, it's not the long awaited 468b single claimant ruling, but it's almost as good if you are in the structured sales market. 

The mortgage market collapse and structured sales.

As anyone who reads my blogs here and at The Settlement Channel know i've been warning about the inevitable collapse of the real estate market for over two years now. My most recent post on The Settlement Channel discusses my thoughts on real estate, sub prime mortgage and where we go from here.

As part of those warnings I mention the loose and careless lending practices being promoted by mortgage brokers nationwide, although living in Phoenix I got an up close view over the last 7 years of just how wild and crazy it got. Virtually anyone could get a loan if you really wanted one. College students buying houses on the prospect of sharing the mortgage payment with their roommates, retirees on fixed incomes getting no money down loans to buy condo's, single mom's just out of a divorce and bankruptcy getting a 2% down loan with an ARM at 3% to buy a home in Scottsdale. Those are just some of the one's I know of personally.

So, the inevitable happened. The market slowed down, payments got late, foreclosures rose, home prices dropped, mortgage rates reset at higher levels, and all of a sudden we have a mortgage crisis as all these packaged loans start to go bad and the institutional investors panic about losing their money. We are now in the midst of a classic credit induced sellers panic and it should last at least a full year as the lending community figures out how to start making responsible loans again.

The issue is, what if you have a sale you were trying to make happen and were scheduled to do a 1031 roll over or transfer, and now the new property you wanted to go into can't be financed for what you thought you could get? I have no doubt that there are a lot of transactions right this minute that are blowing up because the property to be rolled into can't appraise for what the buyer needs, the financing has collapsed or other issues have put your purchase at risk.

What do you do if your 1031 roll over is going bad, but you still must sell your property?

You absolutely need to look into using a structured sale annuity to spread out your tax hit and defer the taxation of your gains as the real estate markets go through this correction. If you are lucky enough to have a buyer that can still afford your property, and you want to spread your gains out, to my mind the best option now is to use a structured sale annuity to fund an installment sale over time. Spread out your tax hit, consolidate your assets and debt, wait for a better buying opportunity and then take advantage of it when you see it.

Rolling over into a property that is over valued and sure to decline is never a smart decision no matter what you think you might save in taxes! Take your sale, defer the gains safely and at good rates of interest and then wait for your next buying opportunity.

Contact my office if you'd like to know more.