Estate Planning Vault

Structured Sale Annuity

Move over 1031 exchange, tenancy in common exchange, private annuity trust, charitable remainder trust, and installment sale – there’s a new kid on the block when it comes to tax-deferral vehicles – namely, the structured sale annuity.

The structured sale annuity essentially combines components of an annuity (which secures multiple payments with the investment of a lump sum) and an installment sale (which permits the buyer to pay the seller in installments, allowing the seller to pay taxes on the payments, thus spreading the tax bill over time).

A structured sale annuity is basically an installment sale, but the buyer pays an “assignment company” who then purchases an annuity, resulting in the buyer’s “payment obligation” being transferred to the annuity company, thus providing a more secure guarantee of payment (due to the financial stability of companies currently offering this product), while still allowing taxes to be paid over time as payments are made.

Tax professionals suspect the Internal Revenue Service may eventually oppose structured sale annuities and impose tax deferral restrictions as they did recently with private annuity trusts. Additionally, some experts question whether it might not be more beneficial for a buyer to go ahead and pay the current 15% capital gains tax rather than postpone paying until some future date when the tax might be more, should Congress approve a rate increase.

Source: The Orange County Register, 12-3-06