Structured sales, the solution for capital gains taxes? Part II

Last week I looked at some of the reason's why the structured settlement profession has turned it's back, at least for the time being, on the structured sales market. This market, with fundamentals that seem to scream out for a life insurance company to jump in with both feet, is currently adrift with out a single life insurance company willing to ramp up even a small division to provide annuity funded structured sales for clients. 

However, while the life companies wait for a leader to emerge, the structured sale experts in the country have been busy developing other funding options to allow for structured sales. While I really have no intention of providing free publicity to any of the firms developing alternative assignment and funding options, the most important fact for planners, tax experts and others working with people looking to defer or structure capital gains sales, to know is that there ARE options other than life company funded structured sales. 

The alternative funding options tend to fall into three distinct categories:

  • Private assignment companies located "off shore" in Caribbean nations which have a tax treaty with the US and a reputation for quality banking functions. While this idea of sending your money to an assignment firm in Barbados, Bermuda scares the daylights out of some people, this is actually a very routine transaction and is done by major corporations hundreds of times a day. 
  • European, typically Irish, assignment companies, who take advantage of the same tax treaty used by other major US corporations such as Apple who house financial entities in Ireland or the UK for tax and transactional reasons. These, in the minds of some consumers, carry both political and financial risk, but in fact are generally considered by most settlement experts to be reasonably secure.
  • Those with US assignment companies and US domiciled trust companies which custody and pay out the assets backing up the structured sale. These seem to be far less scary to the average consumer as the funds never leave the US banking, legal and financial supervisory system, an arrangement they are much more comfortable with. 

While the assignment company aspect of the transaction is key, so as to not blow up the tax treatment of the structured installment sale, even more important to the beneficiary of the structured sale is where their assets are being managed and who the custodian is. The increasing use of trust company custodian's is to my mind a positive development and one that allows for a high degree of security as to the custody of the assets, as well as adherence to the terms of the purchase and sales agreement and assignment documents, which govern the payout stream. 

In the standard life company arrangement, you would have a company owned, or partially owned, assignment company that funded virtually all of the structured sales with life company annuity contracts. In the newer versions you have a variety of funding options to back up the payment stream, among them US Treasury obligations, bond's and secondary market annuity streams. The determining factor on which funding option is best suited for the client needs to be discussed in great detail prior to any agreements as it does involve some risk assessment and security regarding payments streams. I'll discuss these options in greater detail in section three of this analysis of structured sales in 2014. 

In conclusion, despite the lack of attention to this growing market by life insurance companies, there is a growing and soon to be thriving market of independent assignment companies which are being developed so as to meet demand. If you have questions regarding structured sales and how they can defer capital gains, contact the author, Mark Wahlstrom at 


Posted on March 19, 2014 .