Is The Deferred Sales Trust Too Expensive With David Young & Brett Swarts



The DST’s is too expensive, but the ongoing fees David, or I guess maybe could even be for wealth managers like yourself. Your fees, they’re so expensive. Give an example of someone selling and we just did a deal in like the Santa Cruz area was a $7.9 million sale, and they had about 2.6 million of liability of tax. They paid off debt, by the way of about 2 million, and they put about 6 million or so into the trust and deferred the 2.6, and they go, how can you charge, this and that deal? I think it’s somewhere around 1.3% or 1.4% on an annual basis, recurring and the setup fees about one and a half percent of the sales price, you have a little bit of a break over a million. But that being said, just the give us from the fear of the forest or the tree versus the forest. How would you how if someone’s in the shoes right now thinking it’s too expensive? What would be your response to that?


Here’s what I would do is I would take a step back and think about the expenses related, I would do three things I would do what we call a basically a holding period return analysis. One investment says, If I understood you properly, you make the transaction you defer 2.6 million in taxes, you’re left with 6 million. Then I say, “Well, what are 2.6 million in taxes deferred as a function of the initial sale amount.” That percent divide by 10. Assume a 10 year holding period, we can all do that math, do that right now. That’s gonna be a number, and I would compare that number to the original initial setup fees. I think you mentioned, maybe is it one and a half-ish percent set up? Divide that by 10. Because even though you pay it upfront, the reality is it’s buying you this 10-year long transaction, divide that by 10. That’s like, a fraction, that’s 15 basis points is very little in the grand scheme of things, and then I would add that to your annual running costs to manage the money and have the trustee oversight and all that, I think when you compare those, I think you will find out that the the the breakeven rate, the amount of time it takes you with some reasonable rate of return, whereby the upfront fee, set up the trust, plus the running fees over that breakeven period of time compared, as a percent of the taxes you save, spread out over time.

Your breakevens look like a couple of years, not even I mean you’re and then after that, you could argue. I’m not saying it’s free, but you could argue all the time, after that breakeven where expenses, cross tax savings, that’s free that the trust and the transaction are in effect free to you the investor, and so that’s the way I would look at it. I don’t think you can say, I would have to write a check for this for legal a check for that for accounting, and then pay ongoing management fees and Trustee fees, you have to pick a period, make it five years, 10 years is the normal trust period, and just do that very simple back of the envelope. Math doesn’t have to be rocket scientists. Don’t worry about compounding of interest and all that just use simple straight line arithmetic, and I think you’ll find that breakeven is really very early on in this in this transaction type.


Let me see if I can encapsulate that, and that was just so articulate. Well said, and I love the way you broke that down. You take the liability, we’ll say 2.6 million, and you divide that by the price. The 7.9 million or the asset sales price, or even in this scenario two, I would also maybe wonder if you do it by the net proceeds, because they’re going to pay off about, a lot 2 million of debt, so let’s just put it at six, and you divide that by 10, that gives you a number, and then you can take the 1.5% let’s say that’s the number and you divide that by 10. You go Guess what 15 basis points are a period of time, and then we’re going to do that plus the annual running cost, and a certain point, you’re going to compare and contrast those two versus just paying the tax and you’re gonna get a break-even rate where essentially you can, this 2.6 that I would have paid. I’m earning interest on this net of the recurring running costs fees, and it breaks even at two or three years, and then after that, it’s all free or it’s no longer costing me write it my return on my investment on this if you will, is now infinite returns. Is that fair? Fair summary?


Your First summary, a couple of things, some caveats. We know whether or not you do the 2.6 in tax savings on the original sale amount of the base that can be debated. You could do it both ways. It wouldn’t take long, it’s just a pencil and a calculator, excel. You would want to assume some rate of return for the monies that you didn’t pay on taxes, but in fact, invested. Here’s the very simple point. Just just in a simple snapshot, assume you have an extra 2.6 million cut right to the heart of the matter, you would have had the other money anyway. Assume marginal only assume you have 2.6 million more than you would have because you didn’t spend that on taxes. Now 2.6 million, taking into account, call it one and a half percent per year, that’s on 2.6 million. I can do the math in my head, but you could assume that 2.6 million earns, something very conservative 5% a year. I think we could all figure out that, 5% on the 2.6 million savings is clearly more than one of all of what other startups and running fees are on the total amount. That’s kind of the breakeven analysis.


Very well said and for those who want a full analysis, We can customize that for you, but we don’t charge anything in it for anything unless and if you close the deal, and this deal actually closes. it’s no cost, no-obligation due diligence period.




Closed Deal Story


Selling Bitcoin, Ethereum Capital Gains Tax-Deferred Using the Deferred Sales Trust


I believe that is where we’re at with cryptocurrency’s current marketplace. We closed the first Bitcoin and Ethereum case for $5 million and helped the client defer around $1.5M in capital gains tax. Now we’re getting a wave of individuals who are finding us. You might be finding us right now.

One of the biggest challenges with folks who are selling cryptocurrency is they want to be able to diversify, they want to be able to time the real estate market and or even the crypto market, they want to be able to have some liquidity, some cash flow, and so part of this vision is taking helping our clients who are in cryptocurrency, buy an investment, real estate, all tax-deferred, using the Deferred Sales Trust, also invest with Jake Mellor as the financial advisor to in a diversified investment grade security or start a business. Whatever the outcome that you want to do. Why is it that you’re investing with any type of asset? What if you could sell high, diversify, and buy back in whenever you’d like to? This is what we’ve already done and we’re doing, we’ve already proven it.

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