Allstate Financial provides "divorce structured settlements", what are the tax issues?

Sure it's an arcane topic and a very niche product, but Allstate Financial continued its legacy of product innovation in structured settlements by rolling out in greater detail it's structured divorce annuity product. At first blush most structured settlement planners and divorce attorney's are going to get all excited about this, but at the end of the day it has some limitations in it's current form and format that will make it a strategic planning tool vs a broad market sales opportunity.

To work out these difference in what people think this is and what it actually will be used for I asked noted tax law attorney Rob Wood to join me on Settlement Expert TV. Our discussion focused on exactly what IRC section 1041 defines as taxable and non-taxable marital transfers, why alimony and child support payments may NOT be sued with this product, ( thus curtailing a huge segment of the potential market) as well as the importance of planners and divorce attorneys to clearly and carefully define in settlements what is marital assets, alimony and child supports. 

Yet even with these limitations it is my opinion that there are some very important potential uses for this product in divorce settlements and planning. While it might seem a simple split of assets would make it unlikely that any party to the settlement might want to spread out payments over time as there is no clear tax benefit to doing so, the uses for deferred planning are not really tax driven but in this case event or personality driven.

For instance, imagine a spouse with a noted history of drug or alcohol abuse that it is agreed by all parties is not capable or responsible in handling assets. Or what if the dissolution is caused by a criminal event and you have a partner in prison? In this case you could push payments into the future. Or more likely, what if the spouse is looking to qualify for medicaid or other benefits and needs to be under an asset or income limit? Obviously each case is unique but there are many reason's I could see why this could be used and I expect it will get traction in the legal and planning community if the structured settlement profession makes an effort to train and educate family law and divorce attorney's as to it's best possible application. 

Oil and Gas lease bonus payments, Allstate innovates once again.

In this weeks edition of Speaking of Settlements we look at one of the more innovative programs in the non-qualified market and that is the structuring of oil and gas lease bonus payments through the use of a structured settlement annuity device.

As many people in the structured settlement profession know, Allstate Financial has been a consistent innovator in the area of structured taxable damage awards, as well as structuring the sales of appreciated real estate through their structured sales program. They continue their progressive ways with the announced ability to now structure oil and gas lease bonus payments, allowing people who are leasing their land for oil and gas drilling to defer bonus payments into future years tax returns. 

The reason this is so important and valuable is that the bonus payment is on top of the annual or quarterly lease payments and is typically a one time bonus up front. By being able to move those dollars into future years, you are able to spread the tax hit over time, earn interest on the funds while deferring, guarantee payments on a fixed schedule and ideally receive them when you are in a lower tax bracket or have other off setting deductions. Of course, on top of the tax benefits, many people just find the idea of being able to secure future payments with the bonus funds to simply be prudent financial planning and want to take advantage of that option now.

To learn more about the Allstate Financial Oil and Gas leasing bonus program, you can go to Mark Wahlstrom's firms website at www.wahlstromandassociates.com. or continue to view commentary from other expert at Settlement Expert TV. 

Structured sales and farm land, the boom in farm land prices creates tax planning opportunities for farmers

In this weeks edition of Speaking of Settlements, I look at the renewed interest by my farmers in using structured sales to spread out the tax hit and guarantee cash flow on the sale of their farm land. I also look at the recent surge of farmers who are leasing land to oil companies due to the discovery of shale under their property and the ability to collect oil and gas leasing bonus payments that can be structured as well.

Structured sale of farm land is a key tool in tax and financial planning for farmers

Structured sale of farm land is a key tool in tax and financial planning for farmers

The use of the structured sale has been on the back burner for several years now, largely as a result of the collapse of the real estate market and financing options for both buyers and sellers. It was a product originally conceived and used successfully for several years when people who own highly appreciated, low cost basis real estate, want to cash out and sell, but don’t want to write huge tax checks to the state and federal government on the capital gain. While we can all agree it makes a lot more sense to use 100% of your net sale proceeds and spread the money out over years, many people are still wondering what a structured sale is, and why it makes sense for those selling farm property.

 In almost every case that has been referred to my office over the last year in which farm land is being sold or is under consideration for sale, it is a family owned farm that has almost no cost basis and close to 100% of the sale is going to be subject to capital gains tax. While the tax is a big issue, what is a larger problem is that with the sale of the farm, most farmers or their families are also losing their source of annual income, something they need to sustain through the investment income on the sale proceeds.

The structured sale allows them to design guaranteed payments, on a schedule that makes sense for their situation, paid monthly, annually and for years if not decades into the future. Combined with spreading out the tax hit, putting 100% of the net proceeds to work and creating a guaranteed cash flow and payment stream that provides income to the family, you can see why this is becoming increasingly popular during these uncertain market conditions.

If you want to learn more about structured sales and it’s use when selling farm property, contact my office through our web site at www.wahlstromandassociates.com and we will be happy to assist you.