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There are a lot of real estate podcasts out there, most of which focusing on the residential fix and flips or wholesaling, but Kevin Bupp believes there’s a smarter way to build wealth.
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Episode 190 Another Way to Defer Your Capital Gains Taxes:
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“Brett is the President of Capital Gains Tax Solutions, LLC, located in Sacramento, CA. (www.capitalgainstaxsolutions.com) Together with his team and in partnership with the Estate Planning Team, Brett provides trustee services which helps real estate and business owners gain tax deferral, freedom, liquidity and diversification with their funds so they can create and preserve more wealth.
As a trustee, Brett is passionate about educating his clients about capital gains tax deferral with a Deferred Sales Trust, how they can divest from real estate investments without a 1031 exchange and then invest back into and back out real estate at their own timing all capital gains tax deferred.
Brett and I dive deep and uncover the intimate details of this little-known capital gains tax deferral solution known as the deferred sales trust, which offers an attractive and flexible tax deferral alternative to the commonly used 1031 Exchange. In addition, a properly implemented deferred sales trust can dramatically decrease or eliminate the capital gains taxes that would otherwise be recognized in the year of the sale.
Additionally, I’ve personally found that after being involved in hundreds of real estate transactions, one of the biggest concerns that sellers face when they contemplate divesting of one of their Real Estate investments, is the significant capital gains exposure that might come as a result of the sale. In fact, I’ve seen firsthand many situations where owners of investment property feel somewhat trapped between a rock and a hard place and feel hostage to the outrageous capitals gains that they will pay in the event of a sale.
And so, in today’s show, we’re going to go into detail on how the Deferred Sales Trust might just be the miracle alternative solution to help you keep more of that wealth in your pocket when entering into a sale of a highly appreciated asset.”
Alright, ladies and gents, it’s my honor to welcome Brett Swarts to the show. Brett, how are you doing today, my friend?
I’m doing just fine, Kevin. Great to meet you over the zoom webcam.
Yes, absolutely. I’ve been looking forward to this call. I know Brett you’ve been a long-time listener of the show and you reached out to me a few weeks ago about this topic of the Deferred Sales Trust. So, I’m excited to have you on the show to dig deep, I’ll say, I’m all about adding value to the audience. I know that you feel the same way. You love giving back. You love helping others. And this topic I think is going to resonate with a ton of our listeners that are out there that own real estate today. So, I’m excited to dive deepen into this Deferred Sales Trust, understanding what it is and how we can implement it to our business. But before we get into the main potatoes but if you would, maybe take a few minutes to just tell our listeners more about your background and how you got into this business.
Absolute. Thanks, Kevin. Yeah. So, I originally grow up in the Bay Area of my dad building in single family development homes in the hills of Mission in San Jose. And so, kind of learn the sticks and bricks of real estate and cash flow rentals from when I was really, really young. Went to college and study the business and also decided to dive into real estate as a career. I started as an internship of Marcus & Millichap when I was still in college. And got licensed. And got trained and became a fulltime commercial real estate agent in some apartment buildings and that was in about 2006. And from there, just grew my career and learned how to underwrite properties, how to invest in properties, try to value every day in a very competitive marketplace to be the young broker especially when the marketplace dropped like it did in 2008, 2009 and 2010. It was challenging to be a lot of bills. So, learned through the fire, I would say. And I mean, you better because of it and also, when you think outside the box, you’d be more creative with how to actually win this as in help clients out when they face such things as capital gains tax.
So, that’s quite interesting. And I want to dive into the capital gains side of it. But you got started in 2006. And so, probably took you a year or so to get roll on your business, right? I mean, you’re an intern at first. And then 2007, 2008 comes rolling around, right?
So  has an immediate stop right you hit the brick wall.
Exactly. I’m two degrees and a minor and I was playing basketball on college. Actually, I graduated on May 2007 but I was still working at Marcus & Millichap the whole year and got licensed. And so, by the time you’re officially allow you on the phone is after training, which is many months. Is just getting go on with my database and calling, and underwriting properties and everything kind of keep . So, yes. It was a challenge, but it kind of helped me learned through the fire.
Real quickly. How did you push through that mentally? How did you push that challenging time? I mean, you didn’t know any different at that point, right? I mean, you were brand-new to the business. How did you think that very challenging time and stick with that industry, that career choice of yours?
Sure. You know, all my other friends are telling me go get a real job and it was tough because it was 100% commission. No benefits. No safety net bare. You know, I had this love for business. Everything apart of it, the mentors I have, the training I have at the company when I was learning, the best part was meeting with clients and hearing their stories. And it seemed that these folks are not what you really think that the top 3% of wealth in America owns commercial real estate would be. Humble, hardworking, creative, greedy folks. And I just love hearing their stories. They’re growing and learning and just a passion for the business, I would say. I think of going to college. I didn’t know it was going to be in sales or in consulting or resign real estate you know. You study certain things and you think you might find a job somewhere. But it was in time was in fulltime that I knew this is what I wanted to do and I would do whatever it would take to just stay in the business and to grow.
Yeah. I had to say I agree with you. That’s one of my favorite parts of this business is meeting the very humble folks that are in the industry. The owners, the operators, the ones that drive, be the pickup truck that are worth $50M and probably got a car worth $500, right? Greedy, greedy folks.
That’s exactly right. There’s nothing more inspiring than seeing them and seeing how they care for their communities, their tenants, and they care for their properties. They’re providing immediate service, immediate service especially in California where it’s tough to build and it’s tough to make sense of a lot of value here. So, it’s really inspiring. I guess that’s the biggest – good built strong mentors and then just inspirational clients.
Yeah, fantastic. Well, let’s get on to the topic of the discussion which is Deferred Sales Trust. That’s what we’re here to talk about today. I know that we’re going to be you know, we’ve got a said amount of time so, I want to make sure that we cover all the basis here and make sure that our listeners have a very firm understanding of what a deferred sales trust is and also, how they might be able to apply to their own business or whenever they’re looking to sell a property. So, for those who aren’t familiar with it, Brett, take a few minutes and tell us what a Deferred Sales Trusts is. Give us a definition.
Sure. So, deferred sales trust is just a manufacture installment note. So, be better known as a seller carryback that your clients and listeners probably know about or at least the brokers and CPAs do. The foundation is IRC 453 which you can exist seller carryback law. The deferred sales trust itself is just a made-up name. It was made up by the tax attorney who created the structure along with my business partner founder Robert Binkele. He also made the structure 22 years ago. It’s just a manufacture installment note, 1920s tax law, CPAS, everyone knows about it. It is just how you apply the law, and that’s what our tax attorneys or experts and maybe a creed that admits for this trademark proprietary deferred sales trust.
Okay. Give us an idea of what it looks like in a typical sales transaction. How one might actually utilize this area of tax code to benefit them during a sale.
Well the first thing to understand is constructive receipt, okay? And so, constructive receipt happens when if there’s extra or 1031 companies sends money directly to a client and therefore, that’s what the IRS considers constructive receipt is taking close and attacks his oath. And so, on a 1031 Exchange, the funds are sent to a 1031 Exchange company and then from there, they sent to a property. And they go from a property to 1031 company and as long as they continue to do that over multiple transactions, no constructive receipt has been taken. So, likewise, a seller carryback also works the same way. And then if I say, “Hey, Kevin. I want to buy a deal from you.” And let’s say it’s a $10M property. And I’ll say, “Kevin, I’ll  frankly. I’ll give you a million dollars down. Would you carry a note for $9M?” And you say, “Sure.” Okay? You carry a note back for $9M, well how much constructive receipt did you take? We want to take $1m. Therefore, the 9 have not been taken. Therefore, you don’t hold taxes on the 9.
Now, let’s say another hypothetical scenario. I came to you and say, “Hey, Kevin. I’m a really good guy. You trust me. I’m going to do a great job on your community. I’m going to give you zero down, would you carry a note for 10?” And you say, “Sure, Brett.” If I, I wouldn’t do that in real life because I have no , hypothetically, you did that. I give you zero down, you carry a note for 10. How much constructive receipt did Kevin take?
It’s zero, right? And then  for 10. So, that’s the basis of the structure. And so, what we do with those – our company, Capital Gains Tax Solutions, act close of  when the buyers’ ready to buy for 10M and Kevin, you already to sell for 10M, we come in right in between, right at close and we buy it for 10 from you, we’ll do a regular seller carryback deal with you to give you zero down, we’ll send you a note for 10 and then we immediately sell it to the cash fire, by the way, they can get a long  cash. And maybe passed if it’s 10 into the deferred sales trust. So, think of it sort of like we’re 1031 company, although we’re not. The money is sent to deferred sales trust therefore Kevin is taking zero constructive receipt of any of the cash therefore the taxes still defer. And since the trust bought it for 10M, sold it for 10M, they have zero capital gains tax owed.
Does that answer the question? I hope I-
Yeah, no. Absolutely, it did. I think the real benefit of this situation, this scenario or this tool is now what happens with that money that’s in the trust? How can one leverage the seller that sold that carryback? How can he leverage that capital of $10M using your hypothetical situation? How can he leverage that $10M and continue to reinvest those gains into additional real estate or whatever it might be still tax deferred?
Sure. Big question. So, let’s talk about few of the benefits and let’s talk about how we can actually go back into real estate and maintain that tax deferrals you think what you’re getting out there.
So, the key thing is – remember, this is not a 1031. This is a deferred sales trust. The 1031 came around in the 1980s and it was almost also taken away, okay? The deferred sales trust is the tax all since the 1920s completely separate tax . So, the deferred sales trust is not have to follow the 45/180 timeline. It also didn’t have to follow the light time, okay? And so, when the funds are in the trust, the funds can be directed to where the client wants, whether that be to stocks funds, a mutual funds of their choosing base upon their risk tolerance that they fill out before getting the funds’ note. Now once the funds are there, let’s say you find a deal tomorrow Kevin or Day 181 or five years from now, you feel like, “Hey, this marketplace is too high. It’s too hot. I rather just wait on the sidelines and find a deal when it makes sense.” Let’s say you find that deal but you Kevin, you probably do this now at your current deals, you form an LLC, and your department, I’m managing member of it, and you’re looking for partners. And there’s certain partners that commanding you should form a deal. Maybe do a 90/10 split, maybe do an 80/20 split. All these DST can become a partner of yours. You can choose your partner with your deferred sales trust. So, you care about the managing member, you form an LLC, and you maybe want to partner with Brett, Joe, and oh, maybe distribute deferred sales trust. So, you can direct the funds from the deferred sales trust to your LLC, or stake about it in 1031 like this kind of the same thing. The 1031 companies send it to your LLC which buys the property. So, you have not taken constructive receipt. You just partnered with your trust which also by the way gives you a new depreciation schedule which the 1031 does not. 1031 depreciation just get the travels which takes away eventually if you own long enough and have done enough 1031 exchanges, it takes one of the number one benefits of owning real estate which is depreciation offset against the income.
So, that’s kind of the assurance of how it works, and the tax attorneys every particular situation is little different but essentially, you just partnering with the trust just like you’re partnering with anybody else.
Okay. So, we’re talking about the advantages of a deferred sales trust over a 1031. What are some instances where a 1031 makes more sense than a deferred sales trust? Because to me it sounds like it’s really advantageous just to go at a deferred sales trust. That way you don’t feel pressured into a property unless you absolutely have that replacement property identifier. You feel confident that it’s going to close. Otherwise, what would be the benefit of a 1031 versus a deferred sales trust?
Sure. So, a 1031 Exchange if you can find a deal and by the way, I still do 1031 exchanges today. My company is called Capital Gains Tax Solutions and we like to provide all the options and let our clients decide what’s best for them or what fits their needs, their external motivation which is deferring capital gains taxes and all of their internal motivations which might be retirement, which might be liquidity, which might be diversification, which might be timing the market, which might be having a new depreciation sched or which might be estate tax, trying to get some property tax out of their estate before they pass or high network individuals.
But the 1031 is good if you can find a deal. If you can find a deal that makes sense, that cash flows, that has low fees, right? It’s very simple, everyone knows about it. It’s about $750 on an average to be with 1031 Exchange. You, staying in real estate my primary love and passion with real estates, our love towards real estate. I’m not a big fan of stocks farms and mutual funds although I do have holdings there, too. So, I think you can stay in real estate, you get low fees, everyone knows about the 1031 Exchange and so they’re very comfortable with it. Also, you maintain what’s called the stepped up basis, which is important, right? So, if I can maintain a stepped up basis in what I has, my property goes to my heirs and then they can sell on it and they can get out if they sold it the same time with no additional depreciation. They can get up sort of capital gains tax free so, that’s important to notice. Well, I sort of like the 1031 especially in a buyer’s market where you feel you can find deals and add value makes a whole lot of sense.
You talk about the cost dissociate with a 1031, they’re talking about deferred sales trust and we know 1031 are, they’re quite inexpensive, pretty straight forward, how about deferred sales trust? What is the normal cost dissociated with forming one but also even maintaining that trust as well?
Yes. So, what are the fees? So, there’s three sets of fees. The first set of fees is to the tax attorney which includes audit defense and it also includes I believe on-tax structure. The audit defense will cover you for the life of the trust so, if the IRS  audit, your particular trust, it will defend you on no additional cost. Their fees are 1.5% on the first million dollars and then anything above that, 1.25%. So, it feels they get really big, they give another break two of them some really, they’ve done some really large deals.
So, let’s say their $3M deal, the first million would be 1.5%. The next two million that’s leftover will be 1.25%. Okay so, that’s a one-time fee to the tax attorney.
The second set of fees is to our company which is Capital Gains Tax Solutions with a trustee in order to maintain the integrity of the trust and have a third-party unrelated trustee. And we charge about 50 basis points, which is about half of one percent, recurring every year as long as the funds are just invested with the financial adviser. So, how to base this point should be 1%, 50 base this point is half of 1%. So, we’re going to charge about 50 basis points recurring every year as long as the funds were at the financial adviser.
So, let’s talk about financial adviser. They typically charge over between 50 basis points and about a point. Just depends on where the funds are invested and what the client wants. And so, all in if you’re just going to be with the financial adviser about 1 ½ percent recurring. Now, if the deals get larger, those fees do drop a little bit for the trustee. We have a break in about 5M in a break, about 10M or we go a little bit lower than 12.
So, let’s say the client actually wants to go back into a real estate. What happens? I mean, you can direct the funds whenever you want into a real estate deal. At that point, the financial advisor if you go to zero for those amounts of funds, but the trustee fee will double. So, let’s say it was 50 basis points and now it goes to one point plus a 1.5% one-time fee to exit. So, I know that’s a lot and so I already encourage listeners that if they’re interested, you go to our website and just look out at what we have on the frequently asked questions portion of our website and we break that down.
But also, I also want to know, too, we’ll look at capital gains tax as a fee. So, the client has a couple of options. They could pay the fee to the government which is gone forever, let’s just take a $5M example and a $1M basis, about $4M gain and the state of California it’s about 37% with state federal and Medicare tax, and so it’s about 1.5M in tax. So, we look at that scenario is, well, client has an option to pay that $1.5M fee to the government gone forever, or hopefully move into the deferred sales trust, defer all of that and only kick-in the rule of 72 which states “If you can earn 7% on any given amount and leave that 7% compound on top of itself, that amount will double. So, in the scenario 1.5M in tax that you can earn in 7, that’s 7% going top of 1.5, that 1.5 in 10 years becomes $3M. Also,  notes that the financial adviser manages they earn about 8 and after fee they pay about 6 ½. Okay? And then hopefully our client can buy back, renew a deal of their own time and you maybe make more than that, therefore hopefully double what they would have paid in capital gains tax upfront.
So, hopefully that makes sense.
Yeah, no. It makes sense. So, the beautiful thing about this, I think one of the things I’m extracting from this conversation is here is that unlike what the 1031, it’s going to be a light kind of exchange, right? But with this deferred sales trust, you can really diversify. I mean, it does seem that’s why we have to be back in the real estate, correct?
Yes. So, let’s talk about that. According to the American Bankers Association, about $17 trillion will pass from one generation to the next on the next 20 years. This is not as the Baby Boomer generation okay? And is the largest amount of wealth transfer in the history of the world that we know of. So, what they’re facing is wanting to retire, wanting to get out of toll of trash in my ability. You know, wanting other options, maybe liquidity, maybe not wanting to go to the highest loads of like an 08, 010 market, right? Made their wealth, they work hard for 30, 40, sometimes 50 years to get where they are at and they don’t necessarily want to be tied just to one single asset or one single asset class or and/or not have liquidity. So, what’s unique is you can get out of real estate, all tax deferred and give diversification but what’s even better is that they have trusted advisers or partners like yourself, they can turn around and invest funds into your next deals as it is indicated, they can partner with someone else. They don’t have to deal with all of themselves. So, they can still be in real estate, they can still be tax deferred, but they don’t have to worry about the strenuous timelines and feeling pressure or having to overpay for properties that otherwise they wouldn’t buy. If it wasn’t for the tax, if you think about it, it was all so  all over again and you know in what she know now and you can sell the peak and defer taxes, defer all your equity all tax deferred and wait for the market to shift. I know that’s kind of like paying money more than quarterback but that’s what you can do to deferred sales trust. You can start additional weight and see and diversify and stay tax deferred and redeploy if and when you want it.
Hmm, very interesting. So, you know, with our fund structure probably at least once every other week I get an interested party that is in a 1031, entering into a 1031 and wants to see about potentially investing in one of our mobile home park fronts. And up into this point in time, I’ve always turning them away, Brett. And so, what you’re telling me is that this could be a tool for them. This could be an opportunity for them to essentially sell their property not do a 1031 but defer their capital gains but also reinvest into a syndication or a fund type structure, is that correct?
Absolutely. And there’s probably reasons why you don’t allow a 1031 and there’s probably reason why when you do sell a deal, you just pay back all of the investors and let them deal with their individual capital gains tax. In my clue, they’ve done a good job for them when they’re probably going to go onto the next deal which pretty about the deferred sales trust when it comes to flexibility is the fact that we can defer all of those taxes for each individual based upon their own risk tolerance and the whole, we call it the partnership can severe, okay? So, you can severe the partnership and let’s say it’s capital plus 10 other partners and 5 of the wannabe of the deferred sales trust, the other 5 is want to cash out. Well, for those 5 that maybe saved $100k or $200k in capital gains tax, they’re really happy, right? Because they have an extra $200 in their estate and the next thing for you, you’re probably pretty happy, too, because they’re more likely to send those funds to you and also, they have an extra 200 to send you. So, it becomes a win-win. We define winning as not paying the tax or deferring the tax. We define losing is paying the tax to the government. So, hopefully, all ships rise with the strategy because we have an extra let’s say 37% because it’s on average about 30-45% if they include depreciation recapture tax. So, the key is what’s the capital gains tax? Would you like to defer? Where would you like the money? And how would you like it to invest it and we can view all of those tax.
Okay. I’m assuming this is probably also a great strategy for those that are entering into a 1031 that have their property, a replacement property selected that  can fall apart. I’ve had a few fall apart in the past, can this be brought into play during – if they’ve always selected entering to a 1031 by the looks that the 1031 is going sideways and it’s not going to happen. Can you enter into a deferred sales trust simultaneously to ensure it’s a backup solution?
Yes. This is the beauty of it. This is what change my approach to commercial real estate. When I heard about the strategy in Marcus & Millichap about 10 years ago, when my business partner came in and give this presentation and he said, “Look. We can only defer the tax and get them diversified and move fast forward.” About a year and a half ago, he said, “Look. Now we can go back into real estate all tax deferred. And we can save to avail a 1031 Exchange.” And I said, “I’ll ask my partner.”  Well, can you do that before?” He says, “Yeah, we can do that before. We were financial advisers and we were trying to build our business. We weren’t trying to you know, as a seller you go back our clients into real estate. But we see the need and we want to provide more value so, we opened up that . So, I said, “Okay.” Before I was just passing new leads, now, I’m all in because this is going to change the way everyone approaches every real estate deal just like the 1031 Exchange did.
So, I know it’s kind of a long answer, but the answer is yes. So, because of that  we can give it deferred sales trust or basically Day 46 or Day 181. Now it’s important to know that we want the 1031 intermediary who we’re working with to be familiar and educated with deferred sales trust or they’re not caught off guard and they don’t try to put a hope to it. But yes, we have exchange companies who did this and have done it and as simply as in settle the funds being directed to a new property, they go back to the client’s personal bank account, they’re sent to the deferred sales trust. So, yes. Day 46 or Day 181 we can say  1031 exchange but also doesn’t have to be one of the identification deals. So, making do their free deals and most folks choose the free deal method and make them go for those deals and we wish you the best to find that. And we also, by the way, those fees that we talked about before, we don’t charge any fees unless the deal closes. There’s no obligation to do anything with this. Our tax attorneys, CPAs, trying to  with education or provide the registrations, the tax turns as well so, they all do the legal work without charging any fees unless the deal closes. In fact, we have what’s called the conditional agreement of the tax attorneys and that was to the client. And it basically just states “Look, you have no obligation to do it. You don’t owe us anything now but if we close the deal, we’ll get paid.”
So, I hope that answers the question.
So, no upfront hidden cost whatsoever? I mean, to consult with you and your team?
Okay. Fantastic. Tell me a little bit about the Delaware statutory trust and how that is different than the deferred sales trust.
Right, great question. It’s good for you that, because a lot of times this was both knew as DSTs and they get confused.
So, the Delaware statutory trust tax is sort of like a mutual fund for a 1031 exchange. So, there’s probably out there, they’re very large companies, very long, strong track records that buy maybe 2, 3, 4 property portfolio and they close all the deal and they  folks to do a 1031 into the property. What’s unique about them is typically they’re not recourse debt so that’s very, that’s good for the client. Obviously 1031 exchange so that’s nice and it’s real estate so that’s good, too. So, I  clients to Delaware statutory trust and fast and it’s a good option for some folks depending on their circumstance.
Some of the challenges though that can be high in fees, they all sort of giving really all your control that they desire when they’re going to sell, it’s typically a 7-10 years hold. But you can also go back into another 1031 after that when they do sales so that is also nice. So, really that’s all real estate and it’s 100% real estate and it’s a 1031 so that’s good but the returns could be you know, we’re knocking the average around 5% or so maybe a little bit lower. And so, you just have to compare it , see what’s best for the particular client’s circumstance.
Is that something that your company provides as a service as well?
It is part of that. He’s a financial adviser and he’s on Forbes’ top list and he can  the Delaware statutory trust. In today’s marketplace, we’re not want to recommend it because you’re really buying in a highly appreciative seller’s market. So, we would just say, “Hey, look at the deferred sales trust as an option, diversify and wait for this you know, whether it be a real estate in 2 or 3 or 4 or 5 years and buy back in at that point and maybe get a discount of 20% or 10% from the market fee that we feel like we’re in right now.
Got it. Got it. Yeah, that makes sense. But I guess what was going with that question is your company and your team can access a one-stop shop as far as ?
Yeah, we’re not a 1031 intermediary but yes, I have my brokerage company to help clients buy and sell mainly apartment buildings but they don’t really tell us well so we can do the 1031 exchanges but we partner with QIs, we’re not a QI, and they close the deferred sales trust and then my other partner who’s part of the estate clients CEO, he can do the Delaware statutory trust but yes. So, yeah. That’s absolute. We can do all of them.
I’m assuming the IRS or the IRSC internal revenue code has some qualifications standards to determine whether or not your sales qualify or not qualify for a deferred sales trust. Can you give us some idea what they look like?
Yeah, so, well let’s talk about the audits first. So, we have 14 IRS audits in the 22-year track record and so, 13 – all of them were no train change audits, all completely clear and clean with the structure itself. And 13 were random audits for the clients that just for high net worth folks and the audit included looking at the deferred sales trust. And so, the last one was a formal audit in ’08, it was a 2-year review and it looked, they sent them all back to DC and they went through everything and talk to clients and it really  good. And they just say, “Hey, look. You guys are just doing it in installment note because you’re being creative on how you’re doing it but that is there.” So, we stand on the track record of 14 audits. They’re no change audits, it’s 30,000 plus trust that would been closed. If I’m in a new client’s position and I’m looking at this for the first time here, the questions I would ask, well 2 of these answered, “How many have been closed?”, “How many IRS audits have you survived?”, “Are there any pending litigation of your structure versus the United States government or any pending IRS audits going on?” It was all very important that we could say we’re all on the other side of those things now.
So, does that answer the question or that-?
Yeah, it did. Absolutely. I appreciate that. What else haven’t I asked you. I mean, I’m sure there’s  that I’ve missed. Tell me what else we need to know to better understand this deferred sales trust?
Yeah, we’ve talked about legality, that’s using the first biggest question, “How do we know this thing is legal?” The second one is, “Well, how would I know my funds are protected? Where are these funds held?” Well, the funds are held at some of the largest banks in the world such as Bank of New York Mellon, TD Ameritrade, Charles Schwab, probably a lot of some of the banks that you maybe your clients have their funds held now at their current financial adviser. Second, they have 24/7 access  funds. Third, we have what’s called data account protection which is a fancy way of saying “You’re extra protected. The funds won’t move without certain steps in line.” And the last one would be the funds only move with the client’s signature. So, the funds do not move without your signature so, you have all the same protections that you have with us that you would have with your current financial adviser. And so, as well,  did a full review of what was structure as well in our overseas financial advisers, he talked with the DRE is to real estate agents and brokers. The DRE is sort of like or real estate is sort of like the wild, wild west in comparison to the amount of regulation that’s  overseas for our protection of consumers. So, he also reviewed it, too, and still on business so, that’s good. So, how would I know if my funds are protected? How do I know it’s legal? And the last one would be it sounds too good to be true, why haven’t I heard of this, you know? And I would just say get to know us. Get to know us. Realize that we’ve broken our track record with 3,000+ case closes, look, talk to our clients. If you are a client, you’re an individual who maybe owns a business, you’ve done deals with veterinarians, with dentists, apartment building, retail, high-end park, high-end collectibles, anything that already has capital gains tax we can defer using deferred sales trust.
So, we would say get to know us but more than that, talk with those who probably are in your shoes or had battled the same questions. The next part would be the fact that we want your CPAs, your tax attorneys to get their blessing. We view our role as a kind of a guide to help you in this process and we realize that you have trusted advisors, be it your tax attorney, your CPA, and we call those folks the brain surgeon. And that’s as a guide in this scenario, we’re like the nurse. We’re just going to check you into our brain surgeon before you get surgery, make sure your brain surgeon talks to our brain surgeon and gets their blessing on the structure in who we are and what we do. We’re not asking clients or anyone to be – I’m not a CPA, I’m not a tax attorney, we’re going to ask you to be . But we do want their blessing, we want your own. So, get their blessing, we’ll take it slow  also audit defense and also, we don’t charge unless you close the deal. And also, just repairing the 1031 and the Trump tax by the way was a big challenge. It was almost taken away. And it might be taken a  to sale in three years, a new ministry can come in and doesn’t get rid of it. Because a lot in congress see that’s a tax loophole or just, it is a tax loophole, but they see it as they never get their amount because we go defer, defer, defer, defer, tax on and get stepped-up basis. The good news again with the deferred sales trust is it’s not a 1031, it’s a separate part of the tax coding. They’re not even looking at a  point. Hopefully, they won’t because there’s such a small amount of transactions.
So, get to know us, get the blessing of your tax attorneys and yeah – then, hopefully you would sign. You look at the risk versus the reward and paid the tax or not, again, if you feel like. If you pay the tax, it’s gone forever, you lose. If you can defer it, we feel like you can win.
What does that initial conversation look like for those that have an interest in learning more? If they reach out to you and your company, what does that initial introductory call look like?
Great. Thanks for asking. So, the first thing when you go to my, log on the website, capitalgainstaxsolutions.com and just schedule a call with me, if you want a little west formal, you wanted just kind of I guess  seat from the outside, you can see our no cost live webinars every Friday at 10 AM Pacific standard time. Just log on the website, register for the webinar, we’ll send you a link there. Assume you like or you maybe have a live view right now, you can go to our deferred sales trust calculator, also go to my website, you can access that calculator and I would give a side-by-side comparison of doing the deferred sales trust for  the tax, so you have that option.
So, let’s say you put information in there, you enter 12 questions. Second step, we jump on a hall of tax attorney, CPA, myself and the founder of the estate planning team, and we all discuss and we find out if it’s a good fit for you, if it’s a good scenario. You can also invite your own professionals on that hall as well. Assuming you like it, step three, is you draft the paperwork, you sign the conditional agreement and I guess step four would be you actually close on the transaction and you direct the funds from estro or from the 1031 company to your trust.
In a typical scenario, what does that time frame look like from beginning to end?
Yeah, our tax attorneys are, they work really hard and they’re pretty  as you can imagine with this marketplace. They didn’t deal as little as 72 hours, but nobody likes to work under that fire drill. Ideally, we’re educating people well and advance before they’re going in the escrow, before you’re listing the property. We want the deferred sales trust to be as comfortable with you and your professionals at the 1031 is now. And so, our  is just the guide to educate, to give me information, and as early as possible, it’s what we’d like. But again, we’ve done deals where they haven’t even heard of us until we’re with the 1031 company and then they failed on their three properties and they have no other option and it’s Day 175, and they’re scrambling and then, we help them out. I’ll give a few deal stories, too, which also might bring the listeners a little more like the strategy so, there’s also  for high-end primary homes capital gains. So, a traditional home 255, 100 exclusion if you’re married if you live two of the last five years. But for high-end homeowners, we own that. They do not have a 1031 option. And so, we can defer capital gains tax on the sale high-end primary homes. So, that’s an example. There’s a deal in New Port Beach, there’s a couple getting a divorce, bailed $6M above their $500k exclusion. There’s some in the house for $26M. And so, they have no other option but for the deferred sales trust that we’re aware of, and so instead of paying that 6M to the IRS, they deferred all of it.
Another closed deal was with 2 veterinarians selling multiple practices and buildings for $9.6M and they owed about $3.4M in tax. And so, they may or may not notice but our business does not qualify for a 1031 exchange. So, they have no option except for the deferred sales trust that we’re aware of.
So, with the deferred sales trust they defer that 3.4 and then again, the beauty of this, they can go right back into real estate or if they found another veterinarian practice they want to go into, they can partner and do a vet business as well. And so, search for high-end homes, search for businesses, and again, artwork or you might have owners now who’ve been seller carrybacks, right? And they have mobile home parks and they really in this scenario where they said, “I don’t want new toilets, new trash, new liability, new management. I just don’t want to pay the tax.” So, although a seller carryback, all of the delay of the laid deferred for five or ten years, and I know a pay of that point but at least I get some interest about in the meantime, so, those seller carryback notes, we can move to the deferred sales trust. So, we can buy the note, do the DSSC reseller carryback notes which is also again, we would say if you’re going to pay the tax, why not defer it and earn interest on it for as long as you want.
The other thing to note is it passed along to kids. Okay? Their kids are there so, make them defer for as long as they want particularly 10-year notes and at the end of 10 years, they’re going to renew it for another 10 years and then renew for another 10 years. And then it got passed along to their kids and they could continue to do that. Now, at any point, they could cash out. They can say like, “You know, I just want to cash out. I want to cash out, all of it or some of it. I want to travel the world, I need a couple hundred thousand dollars”, no problem. We’ll send you that with distribution now you pay the capital gains tax on that amount, but you have that options just to point.
Can a note can be renewed indefinitely for 10 years  the time?
Yeah. So, at 9 years 6 months is where we make the calls typically, our clients have been already done that. At any point, you can renew the note but most of our notes are in 10-year notes and then, yes, you renew it in 9 years 6 months and then you’ll do that again, 9 years 6 months. And do that again. So, the answer is yes, you just keep renewing it.
Okay. Fantastic. Well, Brett, this has been a lot of fun man. I mean, very informative for my side. I hope as well for the listeners. Definitely something that we’re going to be implementing and diving into deeper in our very own business. I know that we’re going to spend some time with you on the phone here on the future and your team and determine how we might be able to leverage this option and both our personal portfolio as well as our company investments, and how we might build help our investors as well. I mean, it’s all about adding value and giving options to folks that were prefer not to pay capital gains.
Exactly, yeah. The way we see is when real estate investors or business owners, when they sell, they struggled capital gains taxes. And so, we use the deferred sales trust to give them tax deferral, liquidity, diversification, flexibility to how, when and where the funds are invested, all tax deferred so they can create and preserve more wealth. So, we can help you or anyone else. Please reach out to us. We’ll love to get to know you and try to help you out.
Okay. Fantastic. Well, I’m going to switch gears real quick and then we’re going to wrap up the show here, Brett. I like to enter what I like to call the golden nugget segment to show and you share a ton of great information, lots of golden nuggets already but if you had just one final golden nugget advisers wisdom that you can leave our listeners today that may inspire and motivate them, as progress in their real estate investing career. What would that one last final golden nugget be?
So, I’ve read numerous books and one of my, I call them my, I guess virtual or book mentor is Jim Rohn. He mentioned something that kind of change my mid-career, a personal growth, a leadership growth. And so, this quote is “Learn to work harder on yourself than you do on your job. If you work harder on your job, you’ll make a living. If you work harder on yourself, you’ll make a fortune.” And the idea is not about money, although money is a part of it. The idea is the more we become as leaders, as whatever, fathers, we were business owners with a real estate brokers, the more we become as an individual and grow our character in leadership, the more value what we become to those around us, the more we can give. And so, when I start to shift my focus from, okay, being the best real estate broker instead of hey, how do I grow my leadership and be the best that God’s created me to be, I felt like I really succeeded or grew so much more than I was before.
I love it. I love it. I love every bit of it. Just  working in your business versus on your business so, I kind of say my idea working on yourself versus just being an employer and grind the way day in and day out, work on yourself first. First and foremost, you are the most important and I love that. I love Jim Rohn. Read a lot of his books. In fact, I think I still have a few of the cassette tape programs. He’s awesome.
I’m born in the 80s, but I was listening to Jim Rohn.
I’ve got some dusty ones on the shelf. I don’t have a cassette player anymore so I can’t listen to him. Well, fantastic Brett. This has been an absolute blast. Really appreciate you come to the show. For those that want to learn more about Brett and his company, you can go visit him at capitalgainstaxsolutions.com. Again, capitalgainstaxsolutions.com. I’m also going to put that into the show notes for you. And Brett, that’s all we have, my friend. Really appreciate it. Look forward to staying in touch with you and I wish you the best, my friend. You take care, okay?
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