The Smarter Way to Sell Appreciated Property

The reason they're selling could be that there's a family farm that the family doesn't want to continue using as a farm. The kids and grandkids aren't interested in it, and it's time for the property to sell, or they've been approached by a developer and they think this is the way to go. I'm Leigh Brown. This is Real Talk with Leigh Brown. Today is a heavy and complicated episode, so you need to stick with it, especially if you're in real estate. Or if you own a house or land that have appreciated more than you realize, we've got some tax solutions for you and some solutions to keeping your family satisfied after you're gone. So take some notes here as Chad and Monte bring us some heavy-duty information, and I'll see you on the other side. Well, I appreciate you guys coming on the show because I was so floored by the information that you shared at the National Land Conference. And of course, I'm still trying to get you connected to my sibling group that really needs to talk to you. But before we dig into the conversation, let's start off by letting you tell our audience your names, your company, your location. Give them a tiny bit of a thumbnail sketch on you, and then we'll talk about the product in a minute because you're very interesting stories too.

My name's Chad Eppmüller. I am the Senior Vice President of JCR Settlements. We are based in Scottsdale, Arizona, but I actually office and operate out of Atlanta, Georgia. So I'm close to you. Lee here on, on this side of the country. We operate nationally as a national settlement planning firm. What that means for most of, well, I'd say half of our day is that we're dealing with folks who've been catastrophically injured or lost loved ones to tragic accidents. We will help them settle their litigation and then invest their settlement proceeds into different financial vehicles. So that they have well-established income over the remainder of their life to deal with the injuries and the new circumstances that they found themselves in. That's a 57-year-old industry led by, by leading life insurance companies, which have then now jumped into the structured installment sale game, which we're going to discuss today. But I've been doing this now for 26 years prior to that. I was a national fundraiser for the American Red Cross and their national disaster relief efforts. And so I know you're heavily involved in disaster relief there in North Carolina with a lot of recent activity over the past couple of years. I know that reality very, very well also.

Well, good. Then I can get some fundraising tips from you for my nonprofit. That's a different conversation.

Right.

All right, Monty, you're up.

Monty Walker. I'm based in Texas. I practice nationally. At any given point, maybe 5% of whatever workload I'm involved with is in Texas. The other 90% is somewhere else in the country. My practice area that I focus on is in the merger acquisition field. So I provide advisory support services essentially to people who are transitioning ownership. Will often serve as a fractional kind of ad hoc CFO for some of these companies as they're encroaching on that day when they would lock to sell or in their new startup phase when they're trying to get their hands around their financial issues. I work heavily with organizations such as the International Business Brokers Association, Merger Acquisition Source. I'm their subject matter expert on issues related to ownership transitioning. I'm, often referred to by clients and colleagues as a, like, transaction CPA or a transaction architect. This particular solution that we're talking about today has been a part of what I've seen as a viable solution since it originated back with Allstate when this thing started. And we'll get further into that, but I was there with that process when that was developing, and Chad and I actually connected back in that window of time. So, Chad and I've had a long-running relationship and what, for what we do and our work backgrounds and our specialty areas cross over perfectly for what needs to be done in this particular area of practice. But I do have 35+ years doing what I do. So I guess that's the thing about aging. You can actually look back in time and when you say back in the day, you know, we all, it actually means something.

Except that you realize now we are past the year in Back to the Future Part II that they were taking the car into the future. And if we were to go back in time, the amount of time Marty went back, that was 1996. And so we're not going to mention any of those things because that's craziness. So what I'll tell you, audience, is that you're probably thinking this looks big and heavy, and this is a big heavy subject because Right now, especially with the inflationary prices that we have as a country, there are people that need to sell property and they're facing insane capital gains numbers. And the reason they're selling could be that there's a family farm that the family doesn't want to continue using as a farm. The kids and grandkids aren't interested in it, and it's time for the property to sell, or they've been approached by a developer and they think this is the way to go and We're not gonna go down the data center road, but the data center buyers are paying astronomical numbers. And the family that's thinking of selling is trying to figure out what to do if they say yes. Well, when we were at the National Land Conference, we were having a session with this team about the alternate to the 1031 tax-deferred exchange. And for anybody that's in real estate, you already know that's the part of the tax code That allows you to sell a piece of real estate and move it into another like kind of real estate and defer your taxes for later, which works if you're still in your productive years and you're moving your money from one vehicle to the other. But if you're at the end and you don't want to buy more real estate, are there ways to avoid giving the government the money that you've worked so hard for over all these years? And that's where y'all come in with a solution that I'd never heard of. And frankly, it was so exciting to me because I'm working with a sibling group right now that is selling the last piece of the family land. And it is many multiples in the millions of dollars, but none of these siblings need the money right now. And so their concern is less about cash in their pocket today and more about How do we not give the government something if we can avoid it? And it was a very interesting way to look at things. So I'll let y'all kind of talk to my audience about the high-level piece of this, because my audience for this show is primarily realtors. And there's also a bunch of consumers that watch the show because they're very interested in the inner workings of real estate. And this is a space that I think a lot of agents need education on, and so does the public. So you can go a little bit. I've set you up there for the high-end bullet points.

Well, appreciate that, Leigh. And yeah, you're exactly right. So I, I know I started off in left field talking about settlement planning with personal injury cases, which has nothing to do with real estate.

Well, actually, I'm gonna interrupt you there because it does. Every realtor in their career has to go through the gauntlet of buyers, and we always have that buyer that's waiting on a settlement. And so agents will show them houses for 3 years, the settlement never appears. So it's kind of a running joke, but it's, it's real world that a lot of people think they're going to get really big money from this imaginary accident they had and it doesn't materialize. Whereas real people who are harmed in real life, who have the right attorney, do actually get settlements. So I kind of joke, but it is absolutely a rite of passage in real estate. So a lot of my audience is like, mm-hmm. I had that person.

That's funny. Well, I'm glad to know that because that, those are waters that we swim in every single day. But why that was important is that's a 56-year-old industry with a track record of perfection. There are millions of Americans across the United States that hold structured settlement annuity contracts. Not one payment has ever been missed to any of those individuals. It's those same life insurance companies that are offering the structured installment sale for the sale of appreciated property or businesses or other appreciated assets. And that's what Monte and I are here to talk with you and your folks about today. And to your point, it's a tremendous alternative to 1031 exchange or deferred sales trust, or just taking cash. Paying Uncle Sam a massive amount of money and being liquid. The beauty of the structured installment sale is it allows a seller or sellers in your situation where you have multiple owners of a particular parcel or business. It's not an all or nothing scenario. If 3 of your siblings want to take advantage and the other 5 say, nope, we don't have any interest. That's okay. But it allows the seller the opportunity to place a portion of his or her sale proceeds into a structured installment sale annuity with a leading life insurance company. And this all transacts at closing. The money is sent directly from the escrow account to the life insurance company with whom the structured annuity is placed. And in exchange, they will get an annuity contract. With a future payment schedule that they design unique to their needs. They can begin to be paid as early as 30 days post-closing, or they can defer that first payment up to 50 years. And it's just going to sit and accumulate compounding interest for that entire period of time. No tax obligation is due until the future year or years when the annuity payments begin to be received. And so then the seller will owe a tax obligation on the amount that he or she receives in a given future calendar year. Though a deferred capital gains portion and an ordinary income portion on the interest earned through the annuity investment.

So first and foremost, so hang on a second. So when I received my payment from the annuity, I'm paying regular income or I'm paying long-term cap gains. Is it short-term cap gains? What taxes am I paying on that annuity payment?

Well, that's a trigger for me. I like that. I like that segue. The, the answer is yes. Now let's just break that down. When a payment is occurring, the annuity itself is underwriting the payment obligation. So the recipient, the seller in this case, or possibly a beneficiary if that seller maybe have passed away somewhere along the way. That the payment itself is underwritten by the annuity. The amount of income, earnings, gain, all of those things, whatever is taxable is coming through the note, the initial transaction. So in the real estate, when the real estate is sold, this is brought into the structured installment sale through an installment arrangement, which is simply an installment note. And that is there to lock in how the payout arrangements will be done. And it also locks in how income is going to be recognized. So as each payment is occurring via that annuity, there will be some portion of that, which is a return of the original principal that they would've had involved, but it will also have earnings. So whatever is earnings, we're talking about money being made during the term of the annuity contract, that earnings amount. Is ordinary income, which everybody would expect. If you're getting interest or if you're making earnings on something, it would be that. Now, if a portion of that is the gain that was deferred, that portion is long-term. So you're really going to have a blend. You're going to have a long-term gain for the long-term capital gain, and you'll have ordinary income for earnings that are occurring during the process. And really relative to real estate, which most any of the, all the parties here that would hear this as they've studied their real estate requirement, there is depreciation that occurs on improvements, the buildings, not the land, but the buildings. When that depreciation is brought back in as income, it's called an unrecaptured Section 1250 gain. For an individual, that gain is subject to 25%. Of a tax rate. That too is brought back in through these payments. So now you've got it. You've got 3 components, 3 taxable components that could show up in a payment: earnings that are occurring during the annuity window, the long-term capital gain that was originally deferred, and the unrecaptured 1250 gain that was originally deferred. And another point on the gain, many people think that unrecaptured 1250 gain cannot be deferred under an installment arrangement? The answer is yes, it does get deferred under an installment arrangement. So there's your 3 items. And so the answer to your point was yes. Unfortunately, you just gotta break it down.

So the difference becomes really, instead of paying all the taxes upfront at closing as one big chunk, it can be stretched out over a payment period and started whenever they want. So for example, if a seller of the property is 75 years old and they don't want any revenue, they can start the payments in 25 years and they assume they'll be gone at 100. So when the children then inherit the annuity, they're also inheriting some tax obligations. What would they inherit as a basis when they become the beneficiary of the annuity at that point?

The annuity itself being the underwriter and the guarantor essentially of the payment, the tax issues that you're talking about hinge on the installment arrangement. So when there's unrecognized income that moves from one generation to another, it creates what's called income in respect of the decedent, IRD. And that IRD moves over to the beneficiaries and you nailed it. They're, they will have an income tax obligation under these arrangements, but they will pay the same kind of tax that the decedent You know, that most likely a parent, right? That would have paid. What can happen here is the parent may have had such a high income amount that the long-term capital gain may have been at the maximum amount. For example, 20% under the current regulations. But if it's received at a point where the income is lower, such as maybe beneficiaries receiving it and they maybe have lower overall taxable income in a year, they could pay 15% tax. So this is an actual way to not only get long-term guaranteed payout and get great returns, it's a way to shift money into future tax periods where you lower your tax rate. So the beneficiaries will have income respective of a decedent. They will pay the same kind of tax that are the, the tax requirements, the attributes, the type of income. They'll recognize the same thing, but their tax loads may be different, likely lower actually.

And actually now's probably a good time to tell the audience if your head is swimming because of all these different levels of taxation, this is an idea podcast for you. And so if you're talking to a client about this or looking at it for yourself, we highly recommend that you talk to professionals like your CFP, your CPA, your tax attorney, your estate attorney, or guys like this, just FYI. So my big asterisk, I just brought 'em here for y'all to listen to. We're not experts in your situation. Okay. So with that being said though, the annuity itself is returning its own, returning its own return. It's got a rate of return built in. So one of the advantages of the structured settlement is that the underlying proceeds are appreciating themselves while this process is going on. Can you tell my audience that doesn't have a lot of background in annuities how annuities work.

Yeah, I'm happy to. And so we have two options with the structured installment sale. We have traditional fixed-rate annuity options. That is exactly what you think it is. The rate of return is set at the time that the annuity premium is received by the life company. Right now, that's somewhere around 4— well, 3.5% to 4.5%, depending on the length of time or the term that the seller puts their payments in place. That's a fixed-rate annuity. It doesn't matter if we are at war in Iran or if, you know, the stock market is going through the roof. It's a fixed rate. It will never change. We also have an index-linked annuity option as part of the structured installment sale, and that provides a guaranteed floor payment that is designed to return your seller's invested premium as a worst-case scenario. It assumes, let's say that they have payments over 20 years or even over 50 years. And let's assume that there is no positive gain over that 20 to 50 year time period in the stock market ever. Well, their worst case scenario is they're just going to get their money back over time. They've spread their tax obligation. Worst case scenario. However, in years where the indexes or indices perform with a positive yield, The seller gets 100% of that growth, their floor payment rises, and it can never go down from there. So you have complete security that you're not going to lose anything with uncapped growth potential on the high end. So for sellers who are aggressive and don't mind a little bit of risk, the index is tailor-made for them. For those who say, This is my retirement income, Chad. I've worked hard. I'm selling the farm and this is what's going to carry me for the rest of my life. Well, the fixed rate is probably a little bit better suited to them. Most of our clients end up doing honestly is a combination of both. We all budget our lives on a monthly basis. We all have a monthly nut that we have to cover for our mortgage, our car payments, our insurance, our utilities, our groceries, all of those things. So most of our clients will say, this is what that monthly figure is for me. Let's cover that with guaranteed fixed-rate annuities. So as I lay my head on the pillow every night, I know without a question that check is going to roll in month in and month out for as long as I'm alive. Then with whatever's left over, let's be speculative. Let's put that into the index. Let's let that index go hog wild. And that's our slush fund. And that's our family vacation fund. That's our, design an extravagant wedding for the daughter or granddaughter fund, right? It's, it's the fun money. It's the payoff for all the hard work and sweat equity that they've put in over a lifetime of managing the property, managing the farm, managing the business, and now cashing in and selling it. So again, two different options available. The fixed rates are 3.5% to 4.5%. The indexes are performing anywhere from 4.5% to 10%. Rate of return.

Okay. So let's just say that Mamaw and Papaw want to sell their property for $5 million and they love their children very much, but one is a complete deadbeat. When they put the proceeds into an annuity, does that keep the deadbeat child from cashing it in and going hog wild with this very well-earned money so that the deadbeat only gets the monthly annuity payment and That way, Mamaw and Papaw can go to their great reward knowing that they've provided long-term for somebody who wouldn't have done it for themselves. Is this a solution for that family?

It absolutely is. And it's a great question and one we face all the time. Apparently that family exists all over the country. So, um, you know, there's a black sheep in every family, Leigh, you know this.

And we love them. They're the favorites. They're always the favorites.

Right. So your scenario is exactly on point. If that is a concern, this is a way to put guardrails up and be assured that generational wealth has been produced, but it's controlled and it's coming on a scheduled basis. So when the original seller does pass away, his or her beneficiaries will receive all remaining payments as scheduled. If they had great vision and said, We know that deadbeat here is going to waste this money if he or she gets it in one fell swoop in a lump sum form. They'll be here today, gone tomorrow. And they say, nope, we want it to come in monthly or quarterly or semi-annually, annually, or we want to drop lump sums on pre-identified future dates or any combination thereof. They can truly design the future payment schedule in any manner that they would like. I would venture to guess. That your sellers could not throw a payment scenario at Monte and I that we cannot accomplish for them. So long as, as they are being paid within the first 60 years after closing, we can accomplish just about anything. So it's a great way to create first and foremost tax efficiency, but secondarily financial security and generational wealth if designed correctly.

So then what's the difference in setting your proceeds up from this farm that just sold for $5 million? And let's assume there's no payoff. It's a straight $5 million proceeds. They're considering putting it into a trust so that they can legally protect everything, or they can look at a structured annuity. What's the difference and pros and cons on that front?

Yeah, so that's a great question. First and foremost, there are no fees for our product. Now or ever. There's no fees to set it up, no fees to manage it. We are compensated by a one-time commission from the life insurance company with whom the annuity is placed. So there are no fees, right? That is, if you're putting money into a trust, there's a manager involved there, and every time he or she moves money, they get paid. So, you know, depending on the fiduciary responsibilities there, there's some savings. But our product is so flexible that if they do want to further preserve it by making the structured annuity and installment payments into a trust, they can absolutely do that. We see that all the time where families are selling the farm. They have 30 members of a family trust and the payments are coming into the trust where they're, they're further insulated, further protected. They're earning additional interest inside the trust investments. Let me say this. I'm a huge fan of 1031. I love it. It's a fantastic solution. I'm not such a fan of DSTs and we can get into that at a later date, but—

I'm not either, so you can talk badly about them anytime you want. They're so complicated for no reason at all.

Well, there's a lot there. We could peel that back. But what I love about our product is the flexibility that it lends. It can actually also be worked into a transaction in conjunction with a 1031 exchange. So, Somebody could still roll a portion of their sale into a replacement property and then put the balance of the funds into a structured installment sale. We're not an all-or-nothing scenario. We are incredibly flexible. I think that we could provide a solution in almost any sale context. And that's what I love about our product. All that being said—

Okay, so hang on a minute. So I've got this $5 million in proceeds., and we're gonna sell the farm because we wanna buy a, a nice little small house in the mountains on 2 acres. And we're gonna use a portion of our proceeds to buy this nice little Airbnb that we could use for family retreats. And so it's not, we're not buying primary residence with 1031. Don't get excited about that real estate people, you know better. And so they're buying this small little family retreat, but they've now got $4 million left over. So they can do a structured annuity with the $4 million and spend $1 million in the 1031 and use both. I didn't know this was possible. That's crazy. Who, what accountant understands this? It cannot be every accountant.

No, that's, that's exactly true. As a matter of fact, all the training that accountants receive, none of this is discussed. When you start dealing with advanced tax structures and things that happen in the transfers of real estate. The depths of farming, the depths of ranching. There's not a class out there other than specialty classes. As a matter of fact, it's likely that the training that happens within the real estate industry may be some of the more advanced that sometimes some of the, even some of the accountants can get to.

Well, that's scary.

But you have to look for specialty, specialty training. And as you're looking at this thing, just back, back, backing up just slightly on the points that you were making regarding a trust or the black sheep of the family. There's no training on how to prepare and plan for that. It, that's all of these trainings happen with experience for one, but it's done in the planning arena for advanced planning that people would seek. But even on a trust, you can bring this type of a solution into such as a living trust. So it could be a part of how things transfer. It can be a part of the legacy planning where a grandparent says, I've got 10 grandchildren. I want each one of them independently to have benefit without anybody corrupting that. They can set this up specifically for that child to pay out at age 30 if they want, each one of them individually. So the planning options here are really unlimited. So my point on really these things is the accounting world, the financial advisor world, is not necessarily specifically trained on all the elements. You have to bring a magnitude of different disciplines and begin to apply them. And that's what this is about. How do you apply this planning solution to the need of the specific fact pattern of the client?

Okay. So speaking to those specific situations, what about the gold digger scenario? Because in the family farm that I grew up a part of, we have a corporation. So we became an incorporated family farm where we had shares, but it was very specifically set up so that only blood kin could own shares to the farm, which we call all of our spouses outlaws. And we say that with love, but the outlaws don't have a stake in the family farm. And it was structured that way just to protect everybody from gold diggers. And so no gold diggers had any reason to get involved in our family because they weren't going to get anything, which protected everybody. We don't have any because of that. And so if you think about that kind of a scenario, how does that apply in setting these up? Can the structure include language that says, all right, our 10 grandkids are all going to have a share of the benefits here. However, it can't go to the ex-wife if she decides to kick up a fuss.

So that's all managed by the, by the trust or the will that's in place. And it's further defined through the beneficiary documents. That the seller will produce as part of his or her structured installment sale. So keep in mind, the seller is always the primary payee, whether that's an LLC that is selling the property, then it's the LLC that would be the recipient of the future structured annuity payments. If it's an individual or a husband and wife team, they're the individuals receiving those future payments. And they will define that each of the 10 grandchildren are the beneficiaries in their will, in their trust, in their estate documents. But that will be reinforced through the documents that they produce with the life insurance company, pointing to those estate documents and providing reassurance or confirmation that those who are supposed to get the money are indeed the ones who are getting that money. So they can eliminate the gold diggers or the black sheep or anybody that they would like through the beneficiary designation forms. And then of course through their own estate documents.

But the one of the things to piggyback on what Chad was just saying, when you're dealing with the outlaw, I like that. It's been a while since I've heard the term and I agree with you. Matter of fact, I'm going to go home today.

I'm going to use it anytime.

Yeah, that's great. The idea here is that the payment is not controlled specifically by the structure of the structured installment sale. It's handled through the legal documents. But if a structured installment sale arrangement is set in place, such as a grandparent specifically for a grandchild, that one structure can be linked directly to that grandchild and nobody can foul that up. If you've got your scenario where it may be a family farm wrapped in the middle of a corporate structure, and if the corporate entity sells, well, now the challenge is we have a structured installment sale between the seller being the corporate entity. And so anything that happens from there is if the, if the corporate entity is closed down and the assets are distributed. At that point, there can be provisions that would require that the structured installment sale be broken into pieces so that each individual is going to receive their own, or better yet, in advance, that planning would've already happened. There would already be multiple structured arrangements in place. So when the distribution happens, each gets their own. Once again, that cannot be filed.

Okay. So I think now's a good time to point out, audience, if you haven't watched any of my earlier videos about per stirpes being in your will documents, Make sure that's in there because if you're not a corporation, the per stirpes sets it up that if the recipient of your will dies before the will kicks in, it tells you what happens with their shares because things happen between writing your will and the execution of that will. Okay. So this is all really complicated stuff. At what point do you think a property owner should be talking to professionals? And ideally they're picking a realtor who knows enough to introduce them to somebody like like you, at what point do they look at these as the solutions for their proceeds? Can you do this quickly enough after they've secured a buyer and they're 30 days away from closing? Or is this something that needs to be set up in advance of putting a sign on the property? What is the ideal scenario?

That's a great question. I'm really glad you asked because we are put behind the 8-ball way more often than we would like.

Yes, you are. We're closing tomorrow. Can you fix this for me?

Oh, I get that call quite often, believe me. So this is the earlier that we can be involved, the better, right? We would love to be involved with a family or a seller before the sign goes in the ground, ideally, right? So that they are thinking about this. And I say that because, you know, and you tell me, Leigh, you're the real estate professional. But I think there's a misconception amongst sellers that COVID prices are still available today, right? That people are still paying over asking price and there's a bidding war on every single property out there. And while that was the case 5 years ago, it's not necessarily the case any longer. And so there can be some disappointment on behalf of the seller that they aren't fielding offers like they thought they were going to feel. And so if we've had conversation with them in advance of the offers coming in, we can pacify the lower offers that they're receiving because they've already looked at the numbers. They've already seen that the combination of tax deferral savings and annuity growth is going to far exceed, sometimes by tens of millions of dollars, the asking price. And so, Who cares if I'm taking $700,000 less in, in a sales price or $1 million less for my property than I listed it for? Because ultimately I'm going to make $10 million more through the growth of the structured installment sale, and I've spread my tax obligation. So to that end, we want to talk to folks as early as possible, and the fact that there's no fees. Associated with our services, it just makes sense to at least have the conversation on nearly every sale where there's a capital gains problem that the sellers are going to face. Now, all of that said, how quickly can we move? As you can appreciate, when you start to see the numbers, and I know we haven't gone through any of the numbers here, but it is not uncommon. If you were to put $1 million into a structured installment sale, and receive payments over a 20-year period, that million's going to turn into $6, $7 million through the index or a combination of the fixed and index. So because of that, this is a product that would be ripe for money laundering if you were a person with nefarious intent. And because of that, the insurance companies are federally federally required to do suitability on the buyer and the seller. So we do need buyer cooperation in this process. That suitability process takes about 10 days with the life companies. It requires that we get the buyer and seller's driver's license. The buyer's going to have to fill out a one-page document regarding the source of funds. Is this a cash transaction? Is it financed? Is this a combination of both? The life companies need to know where the money is coming from, and they need to be assured that there's not a laundering situation going on. Now, since 2004, I've never had a red flag come up. I don't anticipate that I ever would, but that process takes 10 days, and then it takes us another 2 to 3 days to prepare the documents that get executed at the closing table. And ideally, Leigh, we want to get those in front of all parties, buyer and seller and closing office, at least a week in advance of your closing. We want everybody to see the documents, have an opportunity to call us, ask their questions, be comfortable with what they're being asked to sign so that at the closing table, everybody is familiar, closing runs smoothly, and there's no hiccups that, that come on the day of closing. So that would necessitate ideally 15 days before closing would be the absolute minimum that we could shoehorn something in there and, and make it work.

So you've referenced multiple times that the original principal is safe. That's the floor. So very similar to a CD where the money that you're using to purchase the CD is safe. What are the underlying companies or who are the underlying companies that are providing that kind of assurance? Because we all know the only two things in life that are certain are death and taxes. And since we're going after one of those, I want to know who we're talking about here, because we all saw what happened in the financial meltdown, which was a really fun time to be in real estate. And the dot-com bust, also a good time to be in real estate. And so now that we're in this world again, where we knew AIG was too big to fail, who are the companies that are too big to fail to protect people in this situation?

Yeah, great question. So we have currently 3 life markets offering the product: MetLife, Metropolitan Life, Independent Life, and American General Life. All 3 excellent companies. And if we hearken back to my original comments that the structured installment sale is built on the chassis of the 57-year history of structured settlements, which has a perfect track record, no payments missed. This is built on that chassis, right? And so consumers, sellers can have a great deal of confidence that if I engage in a structured installment sale, I'm about as assured of a return as I could hope for in anything. And if those companies are failing, Leigh, we're fighting for—

Everything's gone all to hell.

We're fighting for clean water at that point, right?

Well, that's kind of the fight of our data centers. That's a different rabbit hole.

Yeah.

Yeah.

Well, and I'll tell you, you referenced that a couple of times. I'm in discussion with so many landowners who have been offered ridiculous sums of money for these data centers. I mean, 5x multiple of what they ever on their best day could have gotten. And it's hard to ignore. And so those folks are staring at, you know, some of them hundreds of millions of dollars in sales. Here's a neat thing about the structured installments that the IRS has provided, that if you are selling a farmland, a piece of farmland, there is no cap on the amount that you can put into a deferral. Scenario. Monte, correct me where I may be misspeaking from a tax legality perspective, but there are limits to deferral with other products that are out there. But if you are selling farmland, you can— there is no cap and you can put the entire amount into an SIS and spread your tax obligation and grow those funds. In a significant manner.

Yeah. What, what Chad's referring to is their non-farm or non-ranching, better yet, both in that same area. Anybody outside of that, the IRS will impute certain tax, certain interest factors on them for deferring. If it go, if the amount that they're deferring exceeds a certain amount, a certain limit, that doesn't apply here. So people in the real, in the farming and ranching industry, They're unlimited in how much that they can defer out, and the IRS will not impute any kind of effect on them for doing that. And when you think about the longevity that somebody's using, just piggybacking on the point of the security of this, of the industry, AIG you referenced was one that couldn't fail. Well, amazingly enough, AIG is one of the backing groups here, right? You also have Metropolitan Life and Independent Life super strong companies, but the, but the, the foundation of this stuff is those companies. We have insurance guarantee groups in for each state. So you got state funds that sit there, plus there are reinsurance companies that reinsure many of the portfolios. So when you really look at this, somebody's making a choice to do a direct investment into something versus this, which one of those has the likelihood that they could actually lose it? Well, in order for that to happen with what we're talking about here, you've already said it. We've got something bigger happening. We're trying to figure out how to eat and drink water because something dramatically happened in our country to cause one of these operations to shut down, or all of them. I mean, we're really in a bigger situation than simply somebody losing a little money.

Okay. So since we're already providing education you don't get anywhere else, and since I have you guys here who know more than anybody should know, Speaking of fractional things, so you mentioned the unlimited ability if you're a farm or ranch operation. So what if somebody has 400 acres and 100 acres is in timber contract and under an ag exemption when it comes to property taxes, are they going to qualify that parcel as completely open to whatever they want to invest, or is it only going to be restricted to the portion that is Parceled off for ag.

Now you've got a uniqueness there. The timberland has its own unique area, way of being handled.

And does timber count as farm and ranch? Because I think it should count as farm because farming trees is very important.

Yeah, you do get into farming. So you get into farming and then there's actually tree farms, right? So I mean, there is all that stuff. So when you—

Hey, that's Western North Carolina, man. That's the Christmas tree capital up there. And in fact, The guy who has supplied the White House multiple times with the National Christmas Tree, personal friend of mine, not to brag or anything, but what's up, Larry? I know people. That's my kind of contacts.

Well, in that area, the farming, I mean, the timber side is somewhat unique. When you get into farming and you're dealing with what could be considered inventory versus not inventory and how those things get taxed. Farming's got it, uh, farming's got a unique situation different than the uniqueness of timber. So when we move into timberland, the way that you structure your contracts on the, on, on taking that timber off, it could be considered inventory, but it may not be. But the uniqueness about the way that the cutting contracts are set up for timber, if it's set right, all of that would be considered a 1031 exchangeable item. And so what we do is we look at timberland and we look at the timber farming and those things and say, am I going to be able to qualify what I see there first and foremost as a 1031 exchangeable item? If I can do that, then I know I've got a structured installment sale opportunity for deferral into the future without immediate taxation. For what we would normally have as being considered inventory for sale. So yes, this can be broken into its separate components and there's a different approach that's available uniquely for timberland that's not available even for farming, while farming's got a unique thing that's not available for any other area. So it's, this is all very unique stuff.

So long story short, if you are in this scenario, you need to be talking to people who speak these languages and not just calling the next real estate sign that you see and assuming that they know the intricacies of the options and can introduce you to the professionals who can walk you through what option A, B, and C are, because you've worked really hard for what you have and you want to protect it for what you've done for the next generation. And sometimes you're just looking to protect the land itself and protect the assets, and that's That's why I brought these fellas on here. All right. I do have a question for you because a lot of my audience works residential real estate. They don't work farms and land and they have no relationship to timber contracts or family farms or any of that. However, they're working with a different grandma and grandpa who have been in their same lovely brick ranch for the last 60 years. And that house that they paid $12,000 for is now worth $1.2 million. As a teardown, they're outside of their capital gains exemptions when it comes to federal law, and it's not an investment, so they can't do a 1031. Is structured annuity available to residential people who are also looking to protect and preserve their assets?

Yes, it is actually. When you deal with residential property, and that would include any residence, You just name it as a residence. The first thing you would have is your exemption. So whether that be a single taxpayer or joint taxpayer, so you get past that exemption, of course, for joint, you're talking about $500,000. So once you, you coordinate that, and once you're past that, you're moving into capital gain territory for any growth. All of that is available for use with the structured installment sale. So that's a planning option that really applies to anybody, the entire country for those who are homeowners. And of course, this planning thing happens heavily in places where the real estate has grown. So your example of somebody who bought $12,000, paid $12,000 for something, and now it could be worth $1.2 million. That's a common scenario. But the first thing that would happen is you look to see what is the exemption amount, because there's no, you do not need to defer something that's already got an exemption on it., and then the difference is what we're looking to in, in terms of the structured installment sale. So it's a great planning opportunity for people in residential property.

Okay. So you said any residence, this applies to a second home too. So if their beach house that they inherited from their parents has now appreciated, that's qualified, their mountain property doesn't have to be primary.

That is correct. Now, you know, uh, good clarity point. And I say, you know, a lot, I think a lot of people in the real estate would probably already get that they know from their, from their professional experience that a primary residence benefits from the exemption. A secondary doesn't get that same benefit. So we're only looking at the difference between the two as one of them gets this exemption as a primary residence and the other one does not, but both will benefit from the, a deferral if capital gain is occurring on that transaction from the, from the sale. Then that, then that piece of it, that layer of it is available for deferral and planning under the structured installment sale.

And Leigh, that's a real-life example that you've brought up that we are talking to folks about every single day, right? The unfortunate reality of human life is that as we age, our health diminishes. And, you know, many of us face a dilemma where we may have to consider institutional care and the, the, later years of our life. I, for one, have no interest in that. I do not, do not want to be in that situation. And the beauty of a structured installment sale is you can coordinate the payments and set your payments at any amount you want so that you can create the financial freedom and, and financial dignity to have home healthcare, right? I can sleep in my bed. I can drink out of my coffee cup. I can watch my TV. I can sit on my sofa because I've got the income source every single month that allows me to bring somebody into my home rather than having to go and be institutionalized. So we're having that discussion on that very scenario that you brought up almost on a daily basis with folks who are staring down that reality. Trying to figure out how they're going to move on in that portion of their life. So it's a great question.

Thank you so much for that clarification. And I'm stealing that phrase, financial dignity, because that's a really good one. So if anybody that watched this episode and heard a little bit more wants to learn more, bring you into their brokerage operation for an educational opportunity, or talk to you about what's happening with their land and their family, what is the best way for them to make contact with y'all?

Yeah. Uh, well, I appreciate that. So if they want more information and they want as detailed a canvas of information that they could possibly hope for, and not only comparing information on installment sales, but comparing that to other deferral options, I encourage them to go to our website. It's sisresource.com. They'll find the Structured Installment Sale Resource Center. They could spend hours and hours on that site and it's state-specific so they can go into details depending on which state they are in. And there's a real-life calculator there where they can put in their exact details of their transaction and compare it side by side by side to a 1031, to an all-cash transaction, to a DST, and they'll see how their scenario plays out in real life. Using real numbers and where the structured installment sale fits into that. So sisresource.com. And then of course, they can call us at JCR Settlements. That number is 770-886-7400.

And as usual, all of the contact information for these gentlemen will be in the show notes for this episode. So if you're in real estate, highly recommend that you reach out and get yourself further educated. If you're a consumer in North or South Carolina, you can reach out to me directly. And in fact, if you're not, you should reach out to me because I got people who understand this stuff nationally. And I guess I should also say that if you did get hit by a school bus, you should probably call Chad here and find out what to do with the settlement that you get from the school board. I mean, I don't know what happened in your world, but they can probably help. Gentlemen, I really appreciate you coming on to talk about a very weedy but very important subject that I really hope my listeners will sink their teeth into so we can help some people avoid paying taxes wherever they legally can.

Sounds great. Well, Leigh, thank you for having us. It's a pleasure to be with you today, as always.

You bet. Thank you. It's been a pleasure.

All right, guys, say something in the comments that's nice about these fellas or something you learned. Hit the bell to subscribe, and most importantly, come back. We'll see you next time. And hey, if you've got a story too wild to keep to yourself, send me a message because you just might be the perfect next guest. Thanks for hanging out with me. I'll see you next time, right here where real estate gets real.