Structured Installment Sales Trust

When you have worked hard to build wealth through property or a business that has appreciated significantly, the thought of a large tax bill can make selling feel like a losing proposition.

Too often, fear of capital gains taxes keeps owners from unlocking the value of their assets, whether they are looking to reinvest, diversify, or simply enjoy the wealth they have earned.

Fortunately, proven, IRS-approved strategies may allow you to sell high-value assets while deferring immediate capital gains taxes. A structured installment sales trust is one such strategy, designed to help property and business owners manage tax exposure while creating predictable, long-term cash flow from sale proceeds. A structured installment sales trust might just be the tax tool you didn’t know you had.

At 453 Trust Powered by Pennington Law, we help clients make use of these powerful financial tools. Our national practice of experienced legal and financial professionals can help you with matters such as tax law, asset protection, wealth and fiduciary issues, estate planning and trusts, and financial advisory services.

Unlike other firms that outsource critical components of your plan, we deliver an IRS-compliant program built entirely in-house. When you work with us, you get seamless coordination, accountability, and comprehensive support when you need it most.

Contact us today for an initial evaluation with our experienced attorneys and learn how a structured installment sales trust may support your financial, tax, and estate planning objectives.

How a Structured Installment Sales Trust Works

A structured installment sales trust uses the installment method of taxation under IRC Section 453 to defer an immediate capital gains tax bill after selling an appreciated asset.

In a traditional installment sale under IRC 453, the buyer of an asset pays the purchase price in multiple installments over a multi-year period. The seller pays capital gains tax only on the installment payments received in a tax year. Thus, the seller can spread the capital gains tax bill from the sale of an asset over multiple years.

In a structured installment sales trust, the parties execute an installment agreement as an addendum to the sales contract that outlines the buyer’s installment payment obligations. The buyer then assigns their obligations under the installment agreement to an assignment company and pays the assignment company money to cover the installment payments.

The assignment company then purchases an annuity from a highly rated insurance company, which issues the annuity payments to the seller on behalf of the assignment company.

How an Attorney Can Help Set Up a Structured Installment Sales Trust 

A knowledgeable attorney can help you set up a structured installment sales trust by:

• Meeting with you to discuss your financial objectives, needs, and concerns
• Reviewing the details of your assets to assess the suitability of a structured installment sales trust for your goals
• Drafting transaction paperwork, including sales contracts, installment agreements, and assignment documents
• Identifying qualified assignment companies and annuity providers to minimize the risk of default on the payments owed to you
• Providing ongoing counsel regarding your tax obligations as you receive installment payments

Who Should Consider a Structured Installment Sales Trust?

A property owner might consider using a structured installment sales trust to sell an appreciated asset under many circumstances, including:

• The asset has substantially appreciated since the owner acquired it, which could result in a significant realized capital gain upon sale.
• The seller has a high income in the year of the planned sale, which may put them in the top 20 percent long-term capital gains tax bracket.
• The seller wishes to convert wealth into assets into a long-term income stream for retirement or other personal or financial goals.

Tax Advantages of Using a Structured Installment Sales Trust

By selling an asset through a structured installment sales trust, a seller can avoid paying capital gains tax on the lump-sum proceeds in the year of the sale by taking advantage of tax deferral through future periodic payments.

They can spread their capital gains tax liability over multiple years by receiving scheduled payments under the installment agreement. Doing so can help the seller fall into a lower capital gains tax bracket, thereby reducing the tax liability from the sale.

Structured Installment Sales Trust for Real Estate Transactions 

Structured installment sales trusts have become a popular alternative to other legal strategies for deferring capital gains taxes from real estate transactions, such as the 1031 exchange.

A 1031 exchange has strict timing rules and requires a property owner to reinvest the sale proceeds into another piece of real estate of equal or greater value to defer capital gains taxes. On the other hand, structured installment sales allow property owners to mitigate capital gains taxes by paying them over multiple years while receiving periodic installment payments that they can use for any purpose they wish, such as to fund retirement or reinvest into other investment opportunities.

Benefits of Structured Installment Sales Trusts for Estate & Retirement Planning

Structured settlement trusts offer several benefits, including:

• Deferral of capital gains taxes – Structured installment sales trusts allow property owners to defer an immediate capital gains tax bill after a sale, avoiding a significant upfront financial hit and spreading the tax liability over multiple years, when they may have more tax-advantaged personal financial circumstances.
• Creation of a defined income stream – A structured installment sales trust can provide an asset owner with a predictable, multi-year income stream from the sale of their asset, helping fund retirement or pursue other opportunities.
• Decreased risk of default – Unlike a traditional installment sale, where a seller faces the risk of the buyer defaulting on installment payments, a structured installment sales trust secures payment through an annuity from a highly rated insurance company, reducing the risk of default on payments to the seller.

Schedule a Consultation to Explore Structured Installment Sales Trust Options

Before you incur capital gains taxes from selling a major asset, talk to our knowledgeable lawyers to learn more about structured installment sale trust options and whether it might be right for you.

Contact 453 Trust Powered by Pennington Law today for a confidential consultation with an experienced attorney to learn more about the pros and cons of a structured installment sale trust.