Hyers & Associates

Get a Quote »When selling a business, professional practice or personal property, you may wish to defer a portion of the capital gains tax realized from the sale.  A structured sale annuity allows you to spread the tax liability over several years through periodic annuity payments.

Rather than reporting the profit as a lump sum in the year of the sale, the annuity would disperse the taxable gains over a desired number of years.

What is a Structured Sale?

Also known as an installment sale, a structured sale is the sale of a qualified asset where you receive at least one payment after the year of the transaction.  Each installment or payment consists of a portion of the following:

• The nontaxable recovery of your original investment (cost basis)
• The taxable gain from the sale (profit)
• Earned interest

In many cases, annuity contracts underwritten by well capitalized, highly rated insurance companies are used to guarantee payment of  all three components.

How Does a Structured Sale Work?

You and the buyer agree on a purchase price of the asset.  You both enter into an installment sale agreement where the buyer promises to make periodic payments for a set period of years. Next, the buyer assigns the periodic payments in a lump sum (agreed upon purchase price or portion thereof) to an assignment company.

The assignment company immediately uses the lump sum to purchase an annuity contract that guarantees future payments. The insurance company underwriting the annuity then makes regular future payments to you the seller.

Assignment Timing and Future Obligations

The installment sale agreement must be established before the sale of the asset takes place.  It cannot be setup if all funds have already been exchanged between you and the buyer.

It is important to note that the buyer does not make periodic payments to you, rather s/he assigns the agreed upon amount of the sale in a lump sum.  This way, the buyer has no future obligations and you need not worry about their ability to make future payments.

Additionally, you (the seller) are not obligated to receive all funds by way of periodic annuity payments.  In some cases, you may wish to receive only a portion of the sale through future payments and the remaining amount in a lump sum - or by any other agreed upon arrangement with the buyer.

Why Use an Annuity?

Annuities are used to facilitate the transaction because of their safe track record and long history of meeting financial obligations. Few other investments can provide periodic payments as well as an annuity contract.  The insurance companies providing the annuity payments are highly regulated and have strict reserve requirements designed to prevent insolvency.

Annuities also credit fixed interest on the funds in deferral. Your future payments earn interest until they are withdrawn in subsequent years.

Advantages of a Structured Annuity Sale

Using a periodic payment annuity, you can defer the recognition of your taxable gains.  The capital gains that would otherwise be owed to the government will instead earn fixed interest in a safe, insured, reliable account.  Should you have future capital losses from other transactions, you could write those off against your future annuity payments.

You can also alleviate any concerns about the buyer’s ability to make future payments.  The buyer’s role is complete once s/he assigns the agreed upon purchase price (or portion thereof) to the assignment company. The monthly payments will provide a steady source of reliable income to you or your estate. Should you pass away before all funds were distributed, then your named beneficiaries will continue to receive future payments.

There is very little investment risk associated with annuity payments.  The account provides predictable growth and long term financial security that is difficult to find elsewhere. The stock and bond markets have been very volatile over the last decade and can quickly reduce your principal and/or earnings when the economy is unstable.  Fixed annuities have no direct exposure to market risk.

Request Assistance

At Hyers and Associates, Inc, we work with only highly rated and well known annuity providers to facilitate structured sales. Our experts can answer your questions and provide you with illustrations before the sale.

Please feel free to contact us to inquire about installment payments for you or your client.