Hi Mike and "theman2", First off, I want to identify myself as coming from the Structured Annuity industry. I saw this post and just wanted to clear up a few mis-understandings by "theman2" and to shed a bit more light on the subject for Mike. Actually, the Structured Installment Sale is a good strategy for many people. It is kind of a misguided blanket statement to say that the Structured Installment Sale is not good for everyone. Just like with all strategies, they all cater to specific needs and goals. Many people may be better off simply paying the tax... while a good majority would be way better off by using some sort of tax deferral strategy. No knock against "theman2", but he gives no specific reason for advising to "Don't do it!". Most of the time resistance for more advanced tax deferral strategies are because of a lack of knowledge on the topic. People tend to shy away from things that they don't understand. Mike, the Structured Installment Sale may or may not be the right strategy for your father. People that it is perfect for are those: - Who are looking for a guaranteed income stream that they do not have to worry about for retirement
- Who would like to defer capital gains tax
- To leave the possibility for future tax planning on those funds open... remember, once a seller pays the capital gains tax there is no chance to ever decrease the tax or use the funds for their benefit
- Who do not want to have to monitor the investment or the stock market
- Who want to protect that portion of income for retirement The Structured Installment Sale is to create security, to defer tax, and leave the possibility for future tax planning on those capital gains open. Of course, many sellers will not benefit from the Structured Installment Sale. Drawbacks are: - The funds are in a fixed annuity, which of course means there is low liquidity
- The fixed guaranteed annuity earns a conservative return (between 3.5% - 5.5% depending on the
specific payout terms your father would like)
Regarding the comment by "theman2" about the buyer not liking the idea of involving a third party insurance company, this is a road block that some transactions face. The Structured Installment Sale is similar to a 1031 exchange in that they both contain a 3rd party that the funds must flow through. With a 1031 exchange, it is a qualified intermediary. These intermediaries hold the funds until a suitable property is found. In the time the funds are held the QI actually claims the interest earned on the funds as their profit. Recently there has been many cases of QI's who haphazardly invest the funds in the account and end up losing the money of the seller. Of course, this is somewhat rare, but it has happened at an alarming rate in the last 2 years. So, be sure to find a trustworthy QI with a good reputation. With the Structured Installment Sale, the funds are instead sent to a company called an Assignment Company. These assignment companies are partially owned by the insurance company (Allstate Life Insurance has their own... and Prudential Life Insurance has their own). The large life insurance companies 100% back and guarantee the performance of the assignment company, which equates to extreme security that is not found in the 1031 exchange industry. The aspect that many people who do not understand the structured annuity industry (our company has been in the industry for over 24 years) become afraid of with the Structured Installment Sale is that the insurance companies have located their Assignment Companies in the country of Barbados. This initially frightens people because they have heard the stories of illegal tax shelters using Barbados and other nations offshore. In reality, Barbados and the U.S. have several tax treaties that do allow and make 100% legal certain transactions to take place. Among them are the U.S. Barbados Tax Treaty - Article 18... which specifically allows the transmission of annuity premium funds to Barbados U.S. income tax free. This does not mean that the seller is not paying taxes... it simply means that the U.S. has agreed not to tax the Assignment Company on the annuity premium funds they receive. Once the funds reach the Assignment Company, they send them over to their parent company (either Allstate Life or Prudential Life) to purchase the fixed and 100% guaranteed annuity to pay the seller the installment payments. These assignment companies are not new. Actually, in the Structured Settlement industry, they have been used for over 25 years and are once again... completely legal. Really, just like with anything, learning the facts and being educated on the subject is the best way to find out the truth. Anyhow, I didn't mean to write a post this long. I just noticed this post and wanted to clear up a few things. In summary, the Structured Installment Sale may be a good option for your father. However, just like with any strategy, it is always a good idea to find out the facts first... seek advice from your CPA... and move forward from there. People that lay out blanket statements like "just pay the tax and be done with it" are really doing a dis-service to sellers. It is like saying, "don't try to legally lessen the amount of taxes you pay to Uncle Sam". Kind of crazy, but many people do still have that attitude. I hope that helped to put a different side to the story. The thing to do is to contact a reputable company who offers the Structured Installment Sale, gather facts and information on the strategy (both the bad and the good), take the facts to your CPA or Tax Attorney, and make an educated decision on the best course of action. There really is no better way to do it. And yes, I am with a company who is a leader in the Structured Annuity industry. Our company focuses on education first and foremost. If you would like me to forward you information so you can make an informed decision on your own, feel free to contact me at 800-666-5854 or email me at:
mauch[at]structuredsalespro[dot]com If this has helped, excellent. If not, I urge you to check out all of your options in an objective and fact based manner before you simply choose to pay the tax and be done with it. Cheers, Trevor Mauch
Settlement Professionals Inc. | 
