1. Structured Settlement Consultant
The Structured Sale
Rick Danowsky
Structured Settlement Consultant

2. 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.

3. 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.

4. 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

5. 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

6. 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

7. 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.

8. Solution: Total sale price of the farm is $12,250,000.
Lump Sum Installment Sale
Lump Sum $12,250, $0
Basis $2,800, $ 2,800,000
Gain $9,450, $ 9,450,000
Taxes
(Federal* 23.8%) $2,249, $0 (Taxes Deferred)
(State** 8.98% IA) $848, $0 (Taxes Deferred)
Net To Invest $9,152, $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.

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

10. 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 $233, (annual payment for 30 years)
Capital Gains 15% ($ 19,294)
Medicare Surtax 3.8% ($ )
Total taxes ($ ,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

11. 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)

12. 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

13. 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.

14. 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

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

16. 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

17. 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.

18. Structured Sales
The Process

19. 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.

20. 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

21. 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 and 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 C.B. 4) for substituting obligors.

22. 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.

23. 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.

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