Often times, sellers do not want to take on the risk of owner financing but desire a stream of income and the tax advantages of deferring capital gains. You can now replace the risk of the buyer’s non-performance with an A+ XV insurance company that guarantees the payments by contract and offers more flexible options to the seller (payments are exempt from creditors in most states).

Significant advantages to the Seller:

• Preserves tax advantages of deferred capital gains on Installment Sales (Internal Revenue Code Section 453)
• Takes risk out of solvency or non-performance of buyer
• Allows flexibility of terms not available with typical installment sale
Payments can be:
• paid in lump sums at various periods
• deferred from 1 to 20+ years
• paid in several income streams to assign to heirs
• paid over lifetime of one or two sellers (Joint and Survivor) Flexible payout periods allow extensive planning for taxes, estate planning and charitable giving
• Provides enhanced rates of return on pre-tax dollars

EXAMPLE:

10 Year Payout – A Seller, age 45, requests that the Buyer defer $515,000 of the purchase price for 10 years, and then pay him over the next 10 years. At age 55 the Seller begins receiving his guaranteed tax deferred 10-year payout of over $100,000 per year for a total payout of over $1,000,000.

20 Year and Life Payout – A Seller, age 45, requests that the Buyer defer $600,000 of the purchase price for 5 years, and then pay him for life with at least 20 years guaranteed. At age 50, the Seller begins receiving his guaranteed tax deferred lifetime payout of $50,000 per year (20 years~$ 1 million guaranteed) and continues to receive payments for life. The projected life payout for a 45 year old male is $1,350,000.

Advantages to the Buyer:

• makes the deal work when seller hesitates to owner finance
• enhances the cash sale with flexible terms, guaranteed returns, and tax deferral
• allows purchase of property at discounted cost
• no lien on assets

EXAMPLE:

Buyer negotiates the sale at full price of $1 million property with $100,000 lump sum at closing and $100,000 over 9 years. The result is the total price paid is $825,729 ($100,000 at closing and $725,729 for 9 years of payments), which is less than actual asking price because of the discounted cost of the payments.

OVERCOMING OBJECTIONS:

What if the capital gains tax rate increases?
The seller can elect to pay capital gains at any time and not affect the income stream. If the capital gains tax rate increases, recognize and pay the tax prior to the increase.

The Buyer is offering a higher interest rate for owner financing.
The net investment rate needs to take into consideration the rate necessary to create the stream of income using after tax dollars. We can illustrate this for you.

How about a 1031 Exchange?
As a means of deferring capital gains, Section 1031 exchanges are often difficult to find suitable replacement properties within the brief time period allotted, so adding language to the exchange that allows this option as a fall-back is advisable.

The Structured Sale Annuity provides secure, contractually guaranteed income from an A+ XV insurance company and also eliminates the risk of the buyer’s non-performance.

These are not traditional annuities, which are limited in payment options, but specifically designed for this purpose to comply with IRS codes. For this reason, this product is not available through normal distribution markets and specific language and description of payments must be outlined in an installment sales agreement and assignment.

This product can be another tool/option for your clients to consider that is not available to them in the marketplace, particularly those who find value in a predictable, low-risk source of income.

Please call us for more information and illustrations~

Carola M. Davis, CFS ~ John H. Davis, JD
SETTLEMENT PARTNERS
TOLL FREE:866-413-4555