Structured Settlement Consultant The Structured Sale Rick Danowsky Structured Settlement Consultant

Why do you need to know about the Structured Sale? Market surveys indicate a need for this type of product. It enhances the products / services you already provide. It may help you make more sales.

The Market : People Baby Boomers are retiring. This sector is beginning to transfer a huge amount of assets into retirement income. $8 Trillion in investable assets Boomers hold well over 50% of all vacation homes and rental properties 11,000 per day turning 65. *Data obtained from the 2004 Business Ref. Guide.

Fears/Concerns at Retirement Outliving their income Currently 76,000 people age 100 or older in the United States. Estimated that by the year 2029 there will be over 2,000,000 people age 100 or older. Market Risks Taxes

The Market: Businesses, Farms 210,000 businesses sold annually out of 1,122,000 for sale. Types of Businesses Professional Practices Small Business(es) Service Companies Manufacturing Trucking Retail and Wholesale operations Corporate / private farming operations

Structured Sale Applications Sale of a business or property Exit strategy Agriculture Farm Sales Crop Sales Partial 1031 exchange Structure The “Boot” 1031 exchange “Fallback” Tax deferral if exchange fails Eliminate Obstacles to sale

Structured Sale Example: Farm Sale Situation: A farmer, age 65, owns a 3500 acre farm in Iowa. The farm land was originally purchased for $800 per acre. Sells land at $3,500 per acre. Objectives: The couple wishes to sell farm to provide for a secure retirement. Provide a steady stream of income without the fluctuations of the market.

Solution: Total sale price of the farm is $12,250,000. Lump Sum Installment Sale Lump Sum $12,250,000 $0 Basis $2,800,000 $ 2,800,000 Gain $9,450,000 $ 9,450,000 Taxes (Federal* 23.8%) $2,249,100 $0 (Taxes Deferred) (State** 8.98% IA) $848,610 $0 (Taxes Deferred) Net To Invest $9,152,290 $12,250,000 *Federal Capital Gains varies from year to year, and depends upon whether gain is classified as long or short-term. ** State capital gains rates vary from 0% to 12%, depending on the state. Broker Use Only. Information provided is not intended as tax or legal advice. Buyers and sellers should consult with their own attorney or tax advisor.

Payout Summary $46,935.82 per month for 30 years Total guaranteed payout of $16,896,895.20 $ 59,918.65 per month for 20 years Total guaranteed payout of $14,380,476 $74,191.32 per month for 15 years Total guaranteed payout of $13,354,437.60 $103,600.60 per month for 10 years Total guaranteed payout of $12,432,072 9

Structured Sale Example A couple, married filing jointly, sells a property for $5,000,000. It was purchased 20 years ago for $1,000,000 (capital gains of $4,000,000). Terms of the Structured Sale are monthly payments of $19,440 per month ($233,286 annually), beginning January 1, 2014 for 30 years. (Assuming only capital gain income and no other income) Cash Sale Tax on Capital Gains of $4,000,000   Capital Gains 20% ($ 766,625) Medicare Surtax 3.8% ($ 142,500) Total taxes ($ 909,125) Net to Invest ($5,000,000 – taxes) $4,190,875 To equal the after tax income of $213,991 from the Structured Sale, the seller would have to invest $4,090,875 and earn a guaranteed 4.8% net return. Structured Sale Tax on $233,286 (annual payment for 30 years)   Capital Gains 15% ($ 19,294) Medicare Surtax 3.8% ($ 0.00) Total taxes ($ 19,294) Total Taxes over 30 yrs. ($ 578,830) NPV of annual taxes over 30 yrs at a discount rate of 3% ( $378,177) After Tax Income $ 213,991 Total Guaranteed Income (pre-tax) $ 6,998,587

Benefits: Defer capital gains tax and utilize it to provide a potentially higher return than other fixed investments utilizing only the net amount after taxes. (Fear of taxes) Can possibly avoid higher taxes on sale (Fear of taxes) Utilized the built up equity to create a long term income. (Fear of outliving money) No ongoing relationship between the buyer and seller. (Freedom) All payments are guaranteed (Fear of market risk) Eliminates risk of buyer default (Security)

Other Options (not all or nothing) Partial 1031 exchange and structure the balance (“boot”) Use of a trust or corporation for estate planning Alternate payout Cash at sale Partial Structure Period Certain Trust Dollar Cost averaging Defer Recognition

Removing obstacles to the sale By understanding what motivates the seller/buyer, and having a tool to address those issues, the sale can move forward. The Structured Sale allows flexibility: Seller receives future payments Buyer pays with cash or conventional loan No negotiating over terms! The Structured Sale is also an effective tool in helping to eliminate obstacles to the sale. Oftentimes, a buyer and seller agree on the value of a property or business, however, they cannot agree to terms. The Structured Sales process allows the buyer and seller to independently control their cash flows or terms, while still providing all of the tax benefits of the installment sale. In addition, the process provides superior guarantees and flexibility that addresses the fears and concerns that we discussed earlier, which could provide the level of comfort or confidence the seller needs to move forward with his/her plans.

Benefits of a Structured Sale For the Seller: Eliminate Risk of Buyer default No ongoing relationship with buyer Flexibility of payment stream Long term payments Multiple streams Taxes deferred until received Simple process

Benefits (Cont.) For the Buyer: No ongoing relationship with seller Control of Own Cash Flow Cash Other (loan terms) Simple process

Benefits (cont.) Removes barriers to sale Buyer / Seller don’t have to agree on terms Addresses fears of seller at exit Taxes / market risk / outliving income Combine with other strategies to meet the objectives of the Buyer/Seller

Conclusion The Structured Sale is an extremely flexible program that allows the seller of a business or property to defer capital gains and provide a guaranteed stream of income. It can also be used in conjunction with other strategies, like 1031, to achieve the seller’s financial goals. If you would like to see how the Structured Sale would work for your situation, please contact us for a proposal.

Structured Sales The Process

There are three (3) separate, codified transactions that combine to make-up the Structured Sale process. The Structured Sale is not a product, it is a process.

First Transaction SELLER BUYER Seller sells real estate or a business to a Buyer for cash plus a promise of future periodic payments. Qualifies as Installment sale under IRC Sec. 453

Second Transaction BUYER Assignment Company Buyer wires funds necessary to make future payments to Assignment Company In exchange, the Assignment Company accepts the obligation to make periodic payments agreed to in Installment Sales Agreement. *Revenue Rulings 75-457 and 82-122 and Tax Court decisions in Wynne v. Commissioner (47 B.T.A. 731 (1942), nonacq. 1943 C.B.42) and Cunningham v. Commissioner (44 T.C. 103 (1965), acq. 1966-2 C.B. 4) for substituting obligors.

Third Transaction Step 1 Annuity or Other Funding Vehicle Assignment Company Using funds from Buyer, Assignment company purchases a funding vehicle and places the assets into a trust. Trust company agrees to make the agreed upon payments.

Third Transaction step 2 Insurance Company or Trust SELLER Trust Company makes payments agreed to in the original Installment Sales Agreement directly to the seller.

Structured Sales Specialists For more information or a case analysis and presentation, please contact: Rick Danowsky John Krohn Structured Sales Specialists   877.343.2998 www.cashflowsolutionsgroup.com Thank you.