Allstate exits the structured settlement market, implications for structured sales

The announcement earlier this month that Allstate would be leaving the structured settlement market has had profound implications on the market for structured sales, oil and gas lease bonus structures, divorce structures and other taxable damage or taxable sales. Mark Wahlstrom looks at the implications of these changes, discusses possible new companies interested in moving into the market as well as what people should do in the interim if they have a structured sale case they are working on. 

The fiscal cliff and structured settlements, what you should know for year end

Few metaphors have been more over used in the last month or so than that of "The Fiscal Cliff".  

That said it is important for the next four weeks ending 2012 that professionals and others be aware of the issues and questions related to the certain tax law changes and how they relate to structured settlements, structured sales, structured legal fees and oil&gas lease bonus deals.

Structured Settlements:  For all intents and purposes people who are considering a tax free, section 103 qualified structured settlement should be more comfortable with the decision given the almost 100% certainty that marginal tax rates are going up on the federal level. The ability to obtain guaranteed, tax free income that is not subject to state or federal tax is going to have greater value just due to the tax savings, but also in comparison to other investment options such as dividend stocks, which are scheduled to be taxed at a much higher rate under anticipated tax plans in 2013. 

Structured Sales of real estate or farm property: Under anticipated tax plans we are almost certain to see a rise in the capital gains tax. No matter how foolish this might be in the big picture of our economic policy, we can pretty much take this to the bank. Furthermore, all income will now be subject to the Obamacare tax of 3.8% on top of what ever the marginal rate is for a particular year, so it is safe to say that capital gains tax rates are as low now as they are going to be for some time.  With that knowledge I strongly encourage anyone who can complete a sale in 2012 to close it, pay your taxes at the lower rate and invest your money. I see no strategic advantage in 2012 to structuring sales out into future years at higher rates of taxation. 

The fiscal cliff...are you ready for 2013?

The fiscal cliff...are you ready for 2013?

Structured Legal Fees: Much in the same line as structured sales, which allow for the deferral of currently taxable income into future tax years, structured legal fees are designed to secure guaranteed future income by pushing it into the future in an orderly, structured plan. Again, given the certainty of much higher marginal rates at the top end, coupled with the 3.8% Obamacare surtax on income, a lawyer is well advised to take as much income in 2012 as is practical and to begin to devise structured legal fee techniques on income that you know is going to fall into 2013. No responsible settlement advisor would suggest structuring income at the end of this year given the certainty of the tax increase, so don't let yourself get talked into anything unless you have a substantial planning reason for doing so. 

Oil and Gas Lease Bonus structures: Again, the rule on taxable income or ordinary income or gains that qualify to structure hold here, if the tax rate on your income is certain to be higher in 2013, then take as much income in 2012 as you can and pay down debt or build up your cash reserves. However, once 2013 rolls around and we see what rates are, the value of structuring taxable income from oil and gas lease bonus payments will be much greater. 

In summary, if you have tax free income via a structured settlement option there is no reason to delay as the tax free nature of the payment increases in value when tax rates rise. However, if you are considering a taxable transaction you are well advised to take the funds in 2012 and being to acquaint yourself with deferral options in 2013 and beyond. 

Allstate rolls out their structured sales product for oil & Gas Lease bonus payments

In yet another innovative move by Allstate Financial and their structured settlement division, it was announced this week that Allstate would be rolling out yet another “non-qualified” annuity funding vehicle that would allow for the structuring of oil and gas lease bonus payments.

While seemingly obscure to those who do not have land upon which they lease oil or gas rights to drilling or production companies, this market has substantial potential given the wide number of privately held or closely held businesses, as well as individuals, who might be interested in spreading the bonus payments they get in some years over a several year period. The fact is in an era of rising oil and gas prices, these lease bonus payments can be substantial and many owners of the leases would prefer to spread those big bonus years where oil and gas prices spike, over several years if possible, or even defer it far into the future when the oil or gas lease might be played out or sold. This is going to be a really solid planning tool in this niche market.

This particular product has one key feature in that there is a revenue ruling, RR 68-606, which specifically addresses the tax treatment of this technique, something that has inhibited the use of structured sales and income deferral strategies in the areas such as celebrity endorsements and divorce settlements.

Learn more about this announcement by viewing this weeks edition of Speaking of Settlements, where Mark Wahlstrom discusses some of the basic issues and for whom this product or strategy might be suitable. Structured settlement expert and broker, Mark Wahlstrom can be contacted at Wahlstrom & Associates in Scottsdale, AZ