E183: Chad Ettmueller and Monty Walker Discusses Structured Installment Sales and Annuity Products - Watch Here

About the Guest(s):

• Chad Ettmueller: Chad is with JCR Settlements, a settlement planning firm based in Scottsdale, Arizona. They specialize in structured installment sales and offer annuity products to help individuals design a future payment schedule that meets their unique needs.
• Monty Walker: Monty is a CPA with a formal background in accounting. He practices nationally and primarily supports the M&A industry, helping entrepreneurs determine how to keep more funds when selling their company.

Episode Summary:

In this episode, Ronald Skelton interviews Chad Ettmueller and Monty Walker from JCR Settlements about structured installment sales and annuity-based products. They discuss how these products can help business owners defer taxes and secure a long-term income stream when selling their businesses. Chad and Monty explain the process of structuring installment sales, the benefits of deferring taxes, and the flexibility of payment schedules. They also highlight the potential for maximizing net sale proceeds and creating generational wealth through these strategies.

Key Takeaways:

• Structured installment sales allow business owners to defer immediate capital gains tax obligations by placing a portion of their sales transaction into annuity products.
• The IRS cannot tax sellers on the funds they don't take receipt of at the time of sale, so the key is to define the amount to be placed into the annuity and ensure it goes directly from the escrow account to the life insurance company.
• Sellers can design payment schedules that meet their unique needs, including deferring the first payment for up to 40 years.
• The annuity products can be fixed or index-linked, offering different yield options and potential for growth.
• Sellers can protect and pass on their wealth by naming beneficiaries for the annuity payments, including trusts or non-profit organizations.

Notable Quotes:

• "The key to this whole structured installment sale transaction is allowing the individual to define the amount that they want to place into the annuity." - Chad Ettmueller
• "You have an opportunity to really generate and provide for generational wealth." - Chad Ettmueller
• "It's a tax-smart strategy that allows folks to uniquely design and prepare for their future." - Chad Ettmueller

Article:

Maximizing Sale Proceeds and Deferring Taxes: A Guide to Structured Installment Sales

Introduction:

In this article, we explore the concept of structured installment sales and how they can help business owners maximize their sale proceeds while deferring taxes. We will delve into the key takeaways from a conversation with Chad Ettmueller and Monty Walker from JCR Settlements, who specialize in settlement planning and structured installment sales. By understanding the benefits and considerations of this annuity-based product, business owners can make informed decisions when selling their businesses.

Key Takeaways:

• Structured installment sales allow business owners to defer immediate capital gains tax obligations by placing a portion of their sales transaction into an annuity product.
• The IRS cannot tax sellers on funds they do not take receipt of at the time of sale, providing an opportunity to defer taxes and potentially amplify net sales proceeds.
• Sellers can design a payment schedule that meets their unique needs, deferring their first payment for up to 40 years if desired.

Understanding Structured Installment Sales

Structured installment sales are a tax-efficient strategy that allows business owners to defer capital gains taxes by placing a portion of their sales transaction into an annuity product. This concept is based on the 50-year history of the structured settlement industry, which has been used to provide long-term financial security for individuals. Annuity products play a crucial role in structured installment sales, as they provide a reliable source of income for sellers while deferring tax obligations.

According to Chad Ettmueller and Monty Walker, the concept of "constructive receipt" is essential to understanding the tax deferral benefits of structured installment sales. The IRS cannot tax sellers on funds they do not take receipt of at the time of sale. By structuring the sale as an installment payment, sellers can defer taxes and potentially amplify their net sales proceeds.

Implementing Structured Installment Sales in Business Transactions

When implementing structured installment sales in business transactions, it is important to differentiate between asset sales and equity sales. The process of allocating the purchase price in asset sales has a significant impact on tax deferral. Sellers must consider the entity type (LLCs, S Corps, C Corps) and how it affects the structuring of installment payments.

Non-qualified assignment agreements play a crucial role in transferring future payment obligations to life insurance companies. These agreements allow sellers to offload the responsibility of making future payments to a third party, providing additional security and flexibility in structured installment sales.

Benefits and Considerations of Structured Installment Sales

One of the key benefits of structured installment sales is the potential for tax deferral. Sellers have the flexibility to design a payment schedule that meets their unique needs, allowing them to defer their first payment for up to 40 years if desired. This can be particularly advantageous for sellers who want to spread out their tax obligations over an extended period or take advantage of potentially lower future tax rates.

Structured installment sales also offer the ability to protect and pass on generational wealth. By structuring the sale as an annuity-based product, sellers can ensure that their wealth is preserved and distributed according to their wishes. Additionally, sellers can address liquidity needs through personal loans using annuity contracts as collateral, providing access to funds while still benefiting from tax deferral.

Planning and Timing Considerations

Proactive tax planning is crucial when considering structured installment sales. Working with a settlement planner early in the process can help business owners navigate the complexities and ensure that they maximize the benefits of tax deferral. Addressing working capital and depreciation recapture issues is also essential in business transactions to avoid any unexpected tax liabilities.

Structured installment sales can also be leveraged in ESOP transactions, allowing business owners to defer taxes and potentially amplify net sales proceeds. Additionally, sellers can leverage excess gain on the sale of personal homes by structuring the transaction as a structured installment sale, providing further tax advantages.

In conclusion, structured installment sales offer business owners a tax-smart strategy to defer taxes, amplify net sales proceeds, and design a payment schedule that meets their unique needs. By working with professionals like Chad Ettmueller and Monty Walker, business owners can navigate the complexities of structured installment sales and make informed decisions when selling their businesses. It is important to consider the benefits and considerations of structured installment sales in order to maximize sale proceeds and defer taxes effectively.

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