The fiscal cliff. Should you structure your sale or settlement before 2013?

Few metaphors have been more over used in the last month or so than that of "The Fiscal Cliff".  

That said it is important for the next four weeks ending 2012 that professionals and others be aware of the issues and questions related to the certain tax law changes and how they relate to structured settlements, structured sales, structured legal fees and oil&gas lease bonus deals.

Structured Settlements:  For all intents and purposes people who are considering a tax free, section 103 qualified structured settlement should be more comfortable with the decision given the almost 100% certainty that marginal tax rates are going up on the federal level. The ability to obtain guaranteed, tax free income that is not subject to state or federal tax is going to have greater value just due to the tax savings, but also in comparison to other investment options such as dividend stocks, which are scheduled to be taxed at a much higher rate under anticipated tax plans in 2013. 

Structured Sales of real estate or farm property: Under anticipated tax plans we are almost certain to see a rise in the capital gains tax. No matter how foolish this might be in the big picture of our economic policy, we can pretty much take this to the bank. Furthermore, all income will now be subject to the Obamacare tax of 3.8% on top of what ever the marginal rate is for a particular year, so it is safe to say that capital gains tax rates are as low now as they are going to be for some time.  With that knowledge I strongly encourage anyone who can complete a sale in 2012 to close it, pay your taxes at the lower rate and invest your money. I see no strategic advantage in 2012 to structuring sales out into future years at higher rates of taxation. 

Structured Legal Fees: Much in the same line as structured sales, which allow for the deferral of currently taxable income into future tax years, structured legal fees are designed to secure guaranteed future income by pushing it into the future in an orderly, structured plan. Again, given the certainty of much higher marginal rates at the top end, coupled with the 3.8% Obamacare surtax on income, a lawyer is well advised to take as much income in 2012 as is practical and to begin to devise structured legal fee techniques on income that you know is going to fall into 2013. No responsible settlement advisor would suggest structuring income at the end of this year given the certainty of the tax increase, so don't let yourself get talked into anything unless you have a substantial planning reason for doing so. 

Oil and Gas Lease Bonus structures: Again, the rule on taxable income or ordinary income or gains that qualify to structure hold here, if the tax rate on your income is certain to be higher in 2013, then take as much income in 2012 as you can and pay down debt or build up your cash reserves. However, once 2013 rolls around and we see what rates are, the value of structuring taxable income from oil and gas lease bonus payments will be much greater. 

In summary, if you have tax free income via a structured settlement option there is no reason to delay as the tax free nature of the payment increases in value when tax rates rise. However, if you are considering a taxable transaction you are well advised to take the funds in 2012 and being to acquaint yourself with deferral options in 2013 and beyond. 

Looking to structure your divorce settlement so as to save taxes and secure income? Allstate has the answer.

Divorce is rarely a happy event but a successful divorce settlement that can bring tax advantages and greater security to both sides of the transaction is going to be great news for many divorce attorney's and their clients across the country.

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Today Allstate Financial has continued it's tradition for innovation and expansion in the structured settlement marketplace by announcing to brokers nationally that Marital Property Transfers, ie Divorce settlements, are now eligible to be structured using their Allstate International Assignments, Ltd, facility and Allstate Life Insurance Company as the funding mechanism. 

This one area of structured settlements has been for the settlement planners who specialize in structured settlements in taxable damage situations, sort of the holy grail, as it is an area of the legal profession where there is a lot of activity and financial planning stress due to the nature of the situation involved. Now with the ability to use a structure to bridge the negotiation gap between parties, the potential exists to provides real value to both sides of the transaction in money saved and security added. 

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Mark Wahlstrom, the host of The Settlement Channel will be doing a commentary on the entire process later this week on Settlement Expert TV, and at that time will provide a more detailed tutorial on how structured divorce settlements work, the tax implications and advantages for both parties if they elect to structure a divorce settlement and who might be most interested in pushing funds into future years and securing cash flows. 

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Obviously the initial benefit of a marital property transfer being funded through a structured divorce settlement is the payer gets a full tax deduction for the amount funded, while the beneficiary of the payments has a secured cash flow from a AA+ rated credit and only pays taxes on the funds in the years in which they receive them. Mark will discuss the creative application of this powerful tool in his commentary later this week. Until then to learn more about the Allstate Financial divorce structured settlement program, keep checking back to our web site and contact Mark Wahlstrom for more details. 

What is the problem with structured settlements? Has the brand been lost?

In this week's edition of Speaking of Settlements, national structured settlement expert, Mark Wahlstrom, looks at some of the empirical data on structured settlement premium written, interest rate trends and the shrinking number of life markets involved in the structured settlement market. 

Mark's conclusion is that there are some fundamental problems in the structured settlement profession as evidenced by shrinking premium, diminished interest from life markets and an aging and static based of structured settlement brokers actively engaged in the profession.

The myth that structured settlement annuity sales have shrunk as a result of lower interest rates is exposed to some degree by the fact that fixed annuity and income annuity sales for the rest of the financial planning industry are up, even at record levels, for certain lines, all with the same interest rate levels the structured settlement profession use as an excuse for poor results. It begs the question as to why structured settlement sales have declined 20% over the last two years, when the rest of the financial service industry is seeing gains of 6% to 15% on similar lines over the same time period. 

If interest rates can not be blamed for this drastic decline, then what is at work in the structured settlement profession to cause such severe drops in premium?

Mark's answer is that the structured settlement brand name has been taken over by the factoring profession and that it is now going to be almost impossible to salvage the integrity of the product in the minds of consumers. The steady drum beat and message that implies that a structured settlement is something to be rid of, ( "It's your money, and you want it NOW!") has polluted the minds of NEW potential clients to a degree that they all wonder why they would ever want to be in a structured settlement when it appears that everyone is trying to get out of one. 

Obviously, those in the structured settlement profession are well versed on the value, importance and integrity of the structured settlement, but as Mark Wahlstrom warned repeatedly over the last five years, the settlement profession's pathetic budget to counter this adverse message from factoring companies has doomed the profession to the loss of it's brand identity with potential newclients.

Listen to this week's edition of Speaking of Settlements and watch for next week's discussion on the implications of the lost battle for the mind's of new customers and what brokers, planners and attorney's can do to manage their professional practice going forward.