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Advantages of Structured Sales

An article published in the Wall Street Journal on October 19, 2006 disucssed the IRS's plan to limit a deferral strategy that is causing confusion about Structured Sales. The Private Annuity Trust ("PAT"), became popular during the real estate boom and was very widely used. It is now under fire. An announcement by the IRS outlined the new regulations that will be issued which will end the use of PATs entirely for all transactions after October 18, 2006.

If you would like more information about the advantages of a Structured Sale, contact a structred settlement broker at Kleinick Law today!

An earlier article published on June 1st in the Wall Street Journal (and by the same staff writer, Rachel Emma Silverman), outlined troubling issues with Private Annuity Trusts. Some brief comparisons were pointed out regarding Structured Sales and other plans.

Keeping the Tax Man at Bay

Sellers of appreciated property can choose from a variety of strategies designed to defer or cut capital-gains taxes. Here are some of the latest options:

STRATEGY

 

HOW IT WORKS

 

COMMENT

Structured Sale

 

You accept a series of installment payments for your property, thereby spreading out capital-gains taxes over years. The buyer doesn't make the payments directly; he pays a financial-services firm to issue them. This firm assumes buyer's future payment obligations and pays the seller thereafter.

 

Structured sales are a modern twist on traditional installment sales. In a traditional installment sale, the buyer might default on payments. With a Fortune 100 financial-services firm guaranteeing the payments this problem is eliminated.

Private Annuity Trust

 

You sell assets to a trust in exchange for annuity payments that last the rest of your life. Whatever's left in the trust when you die goes to your heirs free of estate taxes.

 

Allows you to defer capital-gains taxes and reduce estate taxes. But the widely promoted tactic is controversial and longer passes IRS muster.

1031 Exchange

 

The strategy allows you to defer capital-gains taxes by selling one property and quickly buying another property of equal or greater value.

 

1031 exchages have grown very popular, especially for real estate, but they on ly work for commercial or investment assets, and there are strict rules and deadlines.

Charitable Remainder Trust

 

You put assets into a trust and receive a regular payment streatm. When you die, what's left goes to a charity, for which you recieve an upfront tax deduction.

 

This safe strategy can reduce capital-gains, income, and estate taxes, but might not do much for your heirs.

While a Structured Sale utilizes an annuity (and therein lies the confusion), it employs proven installment sales techniques that have been used for decades. According to tax attorney Robert Wood of Wood & Porter, a "Structured Sale is a blend of an installment sale and a guaranteed payment stream."

The Structured Sale is a powerful tool to close deals and make lifelong clients. It should not be confused with the now defunct Private Annuity Trust. Feel free to email or call Creative Capital.

If you would like more information about the advantages of a Structured Sale, contact a structred settlement broker at Kleinick Law today!

 
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