info@creative-capital.com
Real Estate Agents
Business Brokers
About Us
We Do Not Charge
Contact Information
Tax Disclaimer

Don’t Miss the Advantages of a Structured Sale Because of Confusion Over Other Deferral Strategies

An October 19, 2006 article in the Wall Street Journal concerning the IRS plan to limit a deferral strategy is causing confusion about Structured Sales. The Private Annuity Trust (“PAT”), which became popular and widely used during the real estate boom, is under fire. The IRS announced that new regulations will be issued shortly which will end the use of PATs entirely for all transactions after October 18, 2006.

In an earlier article on June 1st in the Wall Street Journal (and by the same staff writer, Rachel Emma Silverman), troubling issues with Private Annuity Trusts were pointed out along with a brief comparison with 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 no 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 exchanges have grown very popular, especially for real estate, but they only 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 stream. When you die, what’s left goes to a charity, for which you receive an upfront tax deduction. This safe strategy can reduce capital-gains, income and estate taxes, but might not do much for your heirs.
Source: WSJ research


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.”

Source: The Tax Advisor / Aug. 2006 / The Advantages of Selling Appreciated Assets via a Structured Sale / By Robert W. Wood, J.D.

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 and ask to speak with our general counsel, Martin Jacobson.
  
         


Creative Capital Inc.
1200 Tices Lane
East Brunswick, NJ 08816

phone: 732-249-8669 • toll free: 800-327-9224• fax: 732-249-8679
info@creative-capital.com