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Home > Tools and Resources > Selling a Business > Enhancing the Sale of Business by Deferring Capital Gains Tax - Structured Sales

Enhancing the Sale of Business by Deferring Capital Gains Tax - Structured Sales

By Chad Ettmueller | Atlas Settlement Group
Contact Chad Ettmueller | Visit Website | About The Author

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What if you could offer your clients a way to sell their business and avoid immediate taxation while growing the net proceeds in a tax free form?  Would such ability increase your value as a knowledgeable professional in the eyes of your client?  Would it allow your client to possibly accept a little less for his business, yet still achieve his financial goals through the sale?  The product, a Structured Sale Annuity, offers an exciting new wealth management tool that allows individuals selling their business, property or land the opportunity to place the net gains of their sale into a structured annuity and pay no capital gains tax at the time of sale. In fact, capital gains tax is exchanged for a deferred ordinary income tax liability in the year payments are received and only for the amount received in that calendar year.

Not Your Grandfather's Annuity

The Structured Sale Annuity takes advantage of two IRS Revenue Rulings (82-122 & 75-457) and allows a selling party to place any portion of their net proceeds into a fixed annuity product with a guaranteed yield and rate of return paid back to the seller.  Unlike traditional annuities, however, the new Structured Sale Annuity product offered provides unprecedented flexibility in how the guaranteed funds are paid out.  The individual can truly design the payment schedule to meet their unique financial needs.  Monthly, quarterly, semi-annual or annual payments are all available, as are future lump sums in any combination.  Your client has the choice of starting payments immediately (regardless of their age) or deferring payments for up to 20 years, maximizing the tax free growth and creating a subsequently higher yield on the back end. 

Perhaps even more important is the fact that a guarantee period can be placed on the payment schedule, ensuring that the annuitant's Estate will continue to receive funds for as long as 40 years, even if they are deceased.  This is a great tool to help supplement retirement, fund a college education for children or grandchildren or provide for future lump sums that can be used to take advantage of other investment opportunities, perhaps in a more favorable economic climate.  Moreover, this product offers guaranteed financial security, allowing your client to be more aggressive with other investment opportunities.  Best of all, leading Life Insurance Carriers guarantee the specific rate of return and payments, all with an A+15 rating by A.M. Best.

Adding Value to the Process

How many times has your client sold their business for less than they had hoped or had to enter into a seller financing relationship in order to secure a larger sales price?  By utilizing the Structured Sale concept, your clients can now afford to take a smaller purchase offer in order to relieve their obligation to the business, knowing, again, that they avoid immediate taxation and can grow the net proceeds to a future dollar value higher than the asking price.  Moreover, the seller need not be concerned with the fulfillment of payment obligations from potential buyers in a seller financed sale, as they are not directly dependent on the solvency of the buyer.  As such, your client can achieve his financial goals with a lower sales price on his asset, obtain guaranteed long term financial security and avoid any investment risk with the proceeds – especially in today's volatile economic environment.

Furthermore, if you represent the buyer in a transaction, the Structured Sale offers an opportunity to purchase a business or parcel of land at a lower figure, offering the seller all of the aforementioned benefits and most important – leaving vital working capital for your client to make the necessary changes they wish to make or invest in marketing strategies to grow the production of the business or develop the land.

The Fine Print

Does the concept of the Structured Sale Annuity seem too good to be true?  There are indeed some restrictions imposed by the IRS, but they are all manageable.  In order for the benefits described herein to be realized, the seller must avoid constructive receipt of the funds.  In other words, the buyer will make out two checks to purchase the business; one to the seller and a second to the life insurance company, in the name of the seller.  A simple one page sales agreement between the buyer and seller includes the necessary language allowing for the structure, with the terms of the agreement governing the payment schedule. 

You are providing your client a wonderful service when you illustrate a Structured Sale benefit analysis for any sale with a net remainder of $100,000 or more, as there is no cost to anyone ever.  Moreover, this product will work with most any listing, including very difficult to manage C-Corps, under certain parameters.  All that is needed to run illustrations is the date of birth for the selling party and a premium amount that illustrations should be run. 

Show Me the Money

Assume your 50 year old client sells his business or property for $1,000,000.  He needs to keep $500,000 out to pay some associated obligations and have some additional money immediately available.  He wisely invests the remaining $500,000 through the Structured Sale product.  Following are some examples of how his proceeds might be returned to him:

Option #1:  
Cash at Closing: $500,000
Structured Annuity: $2,538 per month, beginning one month from closing, for life, with a 30 year guarantee ($913,680).
Total: $1,413,680
  (Total guaranteed yield is $913,680. Should your client live 40 years, Allstate will continue to pay the obligation.  Should your client decease ten years into the agreement, Allstate will continue to pay his Estate for the remaining 20 years of the guarantee period.)

Option #2:  
Cash at Closing: $500,000
Structured Annuity: $1,810 per month, beginning one month after closing for 20 years only ($434,400).
$500,000 lump sum payment made in 20 years.
Total: $1,434,400
  (Again, this is a classic retirement scenario with a large lump sum on the back end that will assist in paying Estate Taxes to your clients heirs, or fund potentially necessary assisted living costs.)

Option #3:  
Cash at Closing: $500,000
Structured Annuity: $5,057 per month, beginning at age 60, for life with a 20 year guarantee ($1,213,680).
Total: $1,713,680
  (This is a classic retirement scenario that allows for substantial growth and deferral of tax liability.)

Option #4:  
Cash at Closing: $500,000
Structured Annuity: $1,700 per month, beginning one month after closing for 10 years only ($204,000).
$3,030 per month, beginning in 10 years, for 10 years only ($363,600).
$5,425 per month, beginning in 20 years, for 10 years only ($651,000).

Total: $1,718,600
  (Another retirement scenario with step increases to account for inflation.)

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About The Author
Chad Ettmueller operates nationally as a Structured Settlement Specialist with Atlas Settlement Group in Atlanta, Georgia.

Atlas Settlement Group wants to maximize your role as a broker and do all we can to assure your success.  We are excited about this investment vehicle and the ability to help your client turn the sale of his business into a multi generational legacy.  Please feel free to call us if you have any questions or if you want to learn more about how Structured Sale Annuities can help you provide the perfect financial solution for your client.

Please contact Chad Ettmueller at (404) 926-4160 or

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