I was reading Expert Secrets by Russell Brunson when I came across a fascinating story about Tim Ferris, author of the 4-Hour Workweek. In the book, he gives a speech to 120 millionaire entrepreneurs, and one woman stands up and says, “Hey, Tim, you seem to get so much done. What is it that you do all day?” Tim paused for a moment, then gave an awkward half-smile and said, “If you watched my daily routine, you’d be bored out of your mind. Most people wake up every morning with a task list of a thousand things to do, I do things differently…instead of looking for all the tasks that I could do, I try to identify the one Big Domino-the one thing that, if I could knock that down, all the other dominos would either fall down or become irrelevant.” 

When it comes to serving your clients, a financial advisor may be asked to serve in a variety of ways such as: 

  • Help your clients clarify their current financial situation.
  • Help them in assessing their projected financial needs.
  • Help them evaluate their risk tolerance level for investments.
  • Provide options and solutions for achieving their goals and objectives.

 

However, have you ever asked yourself, what is the one big domino, that if I knocked this over for my client, all the other dominos would either fall down or become irrelevant? 

 

The One Big Domino: Clients with a High Net Worth and large Capital Gains Tax Implications


If you serve high-net-worth individuals, you are likely aware that one of their major concerns is paying long-term capital gains taxes on assets that have increased significantly in value such as cryptocurrency, real estate, or a business. 

 

2022 Long-Term Capital Gains Tax Rates

Tax filing status 0% rate 15% rate 20% rate
Single Taxable income of up to $41,675 $41,675 to $459,750 Over $459,750
Married filing jointly Taxable income of up to $83,350 $83,350 to $517,200 Over $517,200
Married filing separately Taxable income of up to $41,675 $41,675 to $258,600 Over $258,600
Head of household Taxable income of up to $55,800 $55,800 to $488,500 Over $488,500

 


Short-term capital gains are taxed as ordinary income according to federal income tax brackets. Done forget to add an additional 2.9%–13.3% state capital gains tax and 3.8% for net Investment income. Collectively this can be around 25%-37% of your clients gain. 

What if you could provide your high-net-worth clients with a capital gains tax solution to defer paying capital gains taxes and solve estate tax challenges (40% estate tax savings)? You can now with the Deferred Sales Trust (DST).

 

What is a Deferred Sales Trust?

 

The answer is, “a specialized installment sale.” Installment sales are allowed under Section 453 of the Internal Revenue Code and go back over 90 plus years. You may know this as a “seller carry back.” A Deferred Sales Trust is a creative and proprietary installment sale that can be set up for your clients and where you can manage the DST funds all pre-taxed. This gives you a unique opportunity to solve your client’s capital gains tax challenge and manage more wealth so you grow your business. The DST funds can be invested into:

  • Investing in real estate
  • Investing in a business
  • Stocks
  • Bonds
  • Lending Business
  • REITS
  • Annuities
  • Life insurance

 

 

Three Questions to ask your clients to determine if the DST is a Good Fit for them

 

  1. Do you have any highly appreciated assets that you’d like to sell, delay the tax, diversify the money, and then invest in tax-deferred real estate or securities?
  2. What would it mean to you to convert your highly appreciated asset — which may or may not be providing any or enough cash flow — to cash flow from passive or active real estate or other investments?
  3. If you could sell your asset(s) and move your equity outside of your taxable estate, how much would that save your heirs? 



Here is to helping your clients knock over the Big Domino and you grow your business! 

Have clients who have highly appreciated Bitcoin or other crypto assets and want to learn more about the DST? Be sure to check out the below blog posts: 

  1. Can I save capital gains tax when selling cryptocurrency? The answer is, “yes.”
  2. Using a Deferred Sales Trust to Sell Bitcoin.

 

About the Author:

Brett Swarts is considered one of the most well-rounded Capital Gains Tax Deferral Experts and informative speakers in the U.S. He is the Founder of Capital Gains Tax Solutions, is an exclusive Deferred Sales Trust Trustee, host of the Capital Gains Tax Solutions & eXpert CRE Secrets podcast, and an eXp Commercial Multifamily Broker in Sacramento, CA.

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