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.

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.)



Mark Wahlstrom featured in WSJ article on Structured Sales.

This is a re-hash of what is on the front page of the Wahlstrom & Associates blog, but I figured for those of you who read this blog you deserve a fresh copy.

Every now and then a business publication really sets out to do a real job of reporting on a topic or concept.

Todays Wall Street Journal article written by reported Rachel Emma Silverman on Structured Sales is really one of the better written and researched pieces of journalism on the structured settlement process, and in particular the structured sale.

You can link to the article by clicking here although you need to subscribe to the WSJ online to read the entire piece.

Failing that get a copy of the March 21, 2007 copy of the WSJ and go to section D1. I'll eventually get a pdf and put it here in the resource section.

Her summary was essentially as follows:

1.  The strategy can be useful for older people wanting a guaranteed income stream.

2. The IRS hasn't opined on the approach, so there's a risk it could be disallowed at a future time.

3. Low capital gains rates might make it better to pay the tax upfront.

I agree with each of these conclusions, and it should be a real spur to Allstate, Prudential and others to GET A PRIVATE LETTER RULING AND GET OF YOUR REAR ENDS AND GET IT SOON!

Everyone out here selling and marketing these knows that a PLR would dramatically accelerate the sale of this product, but it should not be incumbent on my firm or my clients to go get it. The stakeholders with the most to gain are Allstate and Prudential and they need to get on the ball and get this done. 

All in all a very good article

Allstate announces change of name for NABCO.

The Allstate subsidiary that is the key element to a structured sale, NABCO Assignments Ltd., announced today that it is changing it's name to Allstate International Assignments Ltd effective March 1, 2007.

While it is largely cosmetic there is no doubt in my mind that the conversion from the awkward sounding NABCO, to the more appropriately identified Allstate International Assignments, Ltd, will assist greatly in the growth of structured sale annuity contracts to fund secured installment sales of real estate.

Very often i'd be answering questions and concerns about who NABCO was, why they were in Barbados, and how they were related to Allstate, and now the change of name gives the more proper appearance of a true subsidiary/parent tie in that will get rid of some of the surface objections often faced when trying to explain who was who.

If you are currently working on a structured sale, or have presented an illustration for a structured sale, using the old NABCO name, Allstate will continue to accept old paperwork under the NABCO moniker until May 31, 2007, after which all documents, illustrations and applications must reflect the new name.

Great move by Allstate. Cosmetic in nature but a realization that it's the Allstate name that sells the non-qualified or structured sale contracts, not NABCO.  

More news on the demise of Private annuity Trusts

As many readers are aware the IRS is going to hold a hearing on February 16, 2007 on the October ruling that put a freeze on the creation and sale of private annuity trusts.

Today's Wall Street Journal has a brief synopsis online. You may access it by clicking here.

They point out that the IRS ended the tax benefits of private annuity trusts when concerns over the misuse and aggressive marketing tactics brought to light many abuses in their use and marketing over the last few years. If, after the February hearing the IRS affirms it's decision to end this particular vehicle I expect the surge in interest in structured sales and secured installment sales to continue, with both the Allstate and Prudential structured sale products benefiting the most.  

Structured Sales. Questionable marketing?

Rather then re-type my entire blog post over at The Settlement Channel, my blog and podcast site directed at the structured settlement industry and trial lawyers, click here to read my most recent post on the questionable marketing and practices that appear to be starting to pop up in the structured sales marketing area.

In short, there are many of the firms that were national sellers and marketers of Private Annuity Trusts, deciding to take the term structured sale, and use it as a means of steering internet traffic and key word searches, and then suggest to clients and advisors that a product other then the structured sales annuity be used to fund the installment sale.

I'll have to do more investigation, as I'm sure the legal and compliance departments of Allstate and Prudential will be doing shortly, but from a quick read of these sites that are springing up we are going to see many of the PAT marketing firms using similar tactics to bait and switch people into products or concepts that might not stand up to IRS or regulatory scrutiny.

In short, if the marketer/advisor you are talking to can not PROVE to you that they are appointed by Allstate Life or Prudential Life's structured sales marketing division they are NOT appointed and most likely do not have access to the product that is used to fund structured sales.

If you have a question about a marketer or advisor I strongly suggest you contact my office, or if you prefer, contact the settlement annuity divisions of Prudential or Allstate. If you request them I will be more then happy to send you the contact information so you can carefully vet the advisor you are dealing with.  

Podcast on Private annuity trusts and the recent IRS decision.

Please note the attached podcast featuring attorney Robert Wood, one of the nations leading experts on the topic of structured sales and taxable damage cases. 

You may access the podcast by clicking here.

Attorney Wood joins Mark Wahlstrom on The Settlement Roundtable to discuss the recent decision by the IRS to effectively kill Private Annuity Trusts as a tax deferral tool, and how this is going to impact real estate, tax, legal and financial professionals working with investors and tax payers who want to defer capital gains into future years.

There is little doubt but that structured sales are going to be the preferred tool for investors to roll gains into future years.  

Prudential enters the structured sales market.

In a big news day for the structured sales market Prudential Life insurance announced today that they would be offering structured sales annuity product specifically for the funding of real estate and real property via installment sales.

Most of our readers are familiar with the concept of structured sales, which at their core are immediate annuity contracts, offered on an institutional pricing basis, to fund installment sales of real estate at guaranteed amounts and dates. Allstate Insurance pioneered the product and idea back in late 2004, with a formal roll out in early 2005. It has been rather slow to take off for a variety of reasons, not the least of which was a less then vigorous marketing and information campaign by Allstate to the tax and business press. With the introduction of another major player and the resulting marketing muscle they bring, it can only help to push the market forward and create greater awareness of the product and it's use in structured real estate sales.

I'll have more on this tomorrow when the formal announcement and sales kits hit our office.  

Private annuity trusts have been blown out of the water by the IRS

Well, it was only a matter of time but the IRS and Treasury issued new regulations effectively killing Private Annuity Trusts as a tax deferral tool. The abusive nature and sloppy practices of the sales and marketing firms that were promoting these finally caught up to them.

The IRS made a specific point of saying Installment Sales of Real Estate funded by annuities aren't brought into this ruling.!

What does this mean? It means if you are looking to defer taxes on the sale of real property, you now have one real, viable, conservative option. A structured annuity sale funding and installment sale over time.

You obtain deferral, you have guaranteed payments and you have some assurance from the IRS that they aren't going to blow you out of the water.

I'll be posting a podcast on this topic later this week with Attorney Robert Wood discussing the implications of this decision.  

Structured Sales compared to other tax deferal tools.

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.  

Structured Sales starting to gain traction among tax professionals.

In the year i've been actively engaged in offering the Allstate Structured Sale product a few striking things have jumped out at me.

The first is that while installment sales of real property are long established and understood by most tax professionals, the concept of a secured installment sale using the NABCO assignment and Allstate annuity to secure it just blows a lot of tax professionals minds. Maybe I look at things a little more simply then others, but when you dissect the process by which this is done, which is the seller includes in the the purchase and sale an installment schedule, then directs the buyer to wire the deferred portion to the assignment company, and then execute the non-qualified assignment with NABCO, it really couldn't be any more simple.

I think the simplicity when compared to competing concepts such as private annuity trusts and 1031 exchanges is really what throws them. The accounting is simple, it's not a "big documentation" type of transaction, and the guarantees and performance are straight forward. It's almost as if people say something so simple and safe can't possibly work, because all they have seen is complexity and risk from competing strategies.

The second element that jumps out at me is how woefully inept the vast majority of structured settlement brokers are in selling this. As some of you may or may not know, the structured settlement industry is historically focused on one product, the settlement annuity, and one client, the casualty company that purchases those types of contracts to fund it's obligations in personal injury cases involving periodic payment settlements.  The skill set required for that market, singular focus on one product, exclusion of other advisors, developing exclusive markets that freeze out competition don't translate well to the structured sale market.

To succeed in selling structured sales takes a team approach of tax professional, real estate professional and typically a financial advisor to the seller of the property. It also takes more then a rudimentary knowledge of financial planning and other tax issues to be able to converse and hold your own with the other experts, and many structured settlement professionals aren't comfortable in that sphere. The net result is many cases opened and quoted, with a relative handful closed and funded. Basically a lot of smoke but no fire.

The successful expert in this area will have to engage in a method of business which is outside the norm for structured settlements, with long time periods geared toward developing relationships based on professional expertise as opposed to locked in or protected access to markets.