| The Challenge Like many people, your real estate is | | | | than the asking price - many times significantly so. |
| probably one of your single largest assets in your | | | | Becoming knowledgeable about this key concept can |
| financial portfolio. As a result, there is little doubt that | | | | allow you to sell your property with much more |
| the sale of any property - be it a primary residence, | | | | peace of mind. |
| vacation home, investment or rental property, raw | | | | The Fine Print Does the concept of the Structured |
| land, or a commercial parcel - all bring monumental tax | | | | Sale Annuity seem too good to be true? There are |
| anxiety to mind for you. With skyrocketing values | | | | indeed some restrictions imposed by the IRS, but |
| across the nation over the past several years, these | | | | they are all manageable. In order for the benefits |
| concerns are paramount to all individuals and families | | | | described herein to be realized, the Seller must avoid |
| who desire to limit the tax hit Uncle Sam takes on | | | | constructive receipt of the funds. The Buyer, at the |
| their sale. As you probably know, until now, a selling | | | | Seller's request, will direct appropriate funds to be |
| party had little option on the sale of a personal | | | | sent from the escrow account - to the assignment |
| residence, and only a handful of options on the sale | | | | company owned by the life insurance company. The |
| of investment properties, raw land or commercial real | | | | Assignment Company in turn purchases the identified |
| estate. Private Annuity Trusts, TIC's, Charitable | | | | annuity and promises to make all future periodic |
| Remainder Trusts and 1031 Exchange are all well | | | | payments to the Seller. A simple one page sales |
| known, but carry some drawbacks with their | | | | agreement between the Buyer and Seller includes the |
| execution and administration, not the least of which, | | | | necessary language allowing for the structure, with |
| are the significant costs of setup and annual | | | | the terms of the agreement governing the payment |
| management. While not the panacea to every | | | | schedule. Also, note that the minimum premium the |
| situation, there is a new and exciting product, the | | | | life insurance companies will accept is $100,000. |
| Structured Sale, which is rapidly growing in popularity. | | | | Show Me the Money Let's assume for sake of |
| The Structured Sale is providing an opportunity to | | | | example that you are 50 years old, and you wish to |
| avoid immediate tax liability and grow your funds in a | | | | sell your property for $1,000,000. You decide to keep |
| customized manner you design. | | | | $500,000 out of the transaction, perhaps because |
| Not Your Grandfather's Annuity The Structured Sale | | | | this portion will already come to you without capital |
| Annuity takes advantage of two IRS Revenue | | | | gains tax because of the maximum Section 121 |
| Rulings (82-122 & 75-457) and allows a selling | | | | exclusion or simply because you need the funds to |
| party to place any portion of their proceeds into a | | | | pay some associated obligations and want to have |
| fixed annuity product with a guaranteed yield and | | | | additional money immediately available. How might |
| rate of return paid back to the seller. Unlike traditional | | | | investing the remaining $500,000 through the |
| annuities, however, the new Structured Sale Annuity | | | | Structured Sale product potentially provide you with |
| product offers unprecedented flexibility in how the | | | | some financial benefits? The following are some |
| guaranteed funds are paid out. The individual can truly | | | | examples of how this might work: |
| design the payment schedule to meet their unique | | | | Option #1: |
| financial needs. Monthly, quarterly, semi-annual or | | | | Cash at Closing: $500,000 |
| annual payments are all available, as are future lump | | | | Structured Annuity: $2,538 per month, beginning one |
| sums in any combination. | | | | month from closing, for life, with a 30 year guarantee |
| Sellers have the choice of starting payments | | | | ($913,680). |
| immediately (regardless of their age) or deferring | | | | Total Sale: $1,413,680 |
| payments for up to 20 years, maximizing the growth | | | | (Should you live 40 years, the life company will |
| and creating a subsequently higher yield on the back | | | | continue to pay the obligation. Should you decease |
| end. This is a great tool to help supplement | | | | ten years into the agreement, the life company will |
| retirement, fund a college education for children or | | | | continue to pay your Estate for the remaining 20 |
| grandchildren or provide for future lump sums that | | | | years of the guarantee period.) |
| can be used to take advantage of other investment | | | | Option #2: |
| opportunities or help pay large estate tax burdens. | | | | Cash at Closing: $500,000 |
| While all of these advantages are exciting in and of | | | | Structured Annuity: $1,810 per month, beginning one |
| themselves, perhaps of greater importance to the | | | | month after closing for 20 years only ($434,400). |
| Seller is the fact that a guarantee period can be | | | | $500,000 lump sum payment made in 20 years. |
| placed on the payment schedule, ensuring that the | | | | Total Sale: $1,434,400 |
| annuitant's Estate will continue to receive funds for | | | | (Again, this is a classic retirement scenario with a |
| as long as 40 years, even if they are deceased. | | | | large lump sum on the back end that will assist in |
| Moreover, this product offers guaranteed financial | | | | paying Estate Taxes to your heirs, or fund potentially |
| security, allowing Sellers to be more aggressive with | | | | necessary assisted living costs.) |
| other investment opportunities. Best of all, the | | | | Option #3: |
| payments are guaranteed by leading life insurance | | | | Cash at Closing: $500,000 |
| companies (all with an A+15 rating by A.M. Best.), and | | | | Structured Annuity: $5,057 per month, beginning at |
| are taxed at a deferred rate, in accordance with | | | | age 60, for life with a 20 year guarantee |
| form 6252 of the IRS. | | | | ($1,213,680). |
| A New Strategy For A Slowing Real Estate Market | | | | Total Sale: $1,713,680 |
| "How large a future value do you ultimately want or | | | | (This is a classic retirement scenario that allows for |
| need?" With a slowing real estate market in many | | | | substantial growth and deferral of tax liability.) |
| parts of the country, many Sellers are now listing | | | | Option #4: |
| their properties for less than they had hoped. | | | | Cash at Closing: $500,000 |
| However, by answering the question "how large a | | | | Structured Annuity: $1,700 per month, beginning one |
| future value do you ultimately want or need?" you | | | | month after closing for 10 years only ($204,000). |
| can utilize the Structured Sale concept to afford to | | | | $3,030 per month, beginning in 10 years, for 10 years |
| potentially accept a lower purchase offer. Why? | | | | only ($363,600). |
| Because a structured sale will allow you to avoid | | | | $5,425 per month, beginning in 20 years, for 10 years |
| immediate taxation and you can grow the net | | | | only ($651,000). |
| proceeds to a future dollar value ultimately higher | | | | |