Learn How the Deferred Sales Trust Works Step By Step
Let’s learn how the Deferred Sales Trust works. This is kind of the meat of this presentation, you got to understand how it works, you got to be educated in it. Then once you already have this tool. The first thing to understand is constructive or actual receipt of a sale of a property for the fund. Kumar selling a property, let’s just say it’s for $10 million. I want to buy Kumar’s property. If I give you $10 million, and we close escrow and escrow send you that $10 million. How much actual receipt did you receive of that 10 million?
In that scenario, you’ll owe tax based upon that amount. But if I come to you with the seller carry-back and I say, “Hey, Kumar, don’t do that”. How about we do a seller carry-back deal, you carry a note for 9 million I’ll give you a million dollars down payment. Because you want to defer that tax. You don’t want to take it all in one given year. In that scenario, if I gave you $1 million down and you carried a note for nine, how much actual receipt did you receive? $1 million, minus the closing costs would be your actual printed structure receipt, and you would owe tax based upon that number. That’s how we maintain how 1031 maintains non-constructive receipts. Kumar, you may just say, “You know what, Brett, I kind of like a solitary, but I don’t like it as much as the 1031”. Some of the reasons are, you’re gonna pay me back probably in the next couple of years, I’m still gonna owe the tax. And, it gets me to first base. But really, what I want to do is 1031, meaning, I’m going to have escrow sent to a QI company, that $10 million, and I’m going to go do another 1031 Exchange, I wish you the best of my deal. And that’s where most Deals Go Down.
Because of that reason alone, because 1031, they can be almost an indefinite amount of tax deferral, all via certain rules to go up. But that’s how it maintains a non-constructive receipt or actual receipt. Understanding that that’s the basis of our structure, okay, we’re going to walk through the Deferred Sales Trust right now. The Deferred Sales Trust is just an instalment sale. It’s kind of like a seller carry-back, okay. But there are a few nuances that make it unique, and creative, that make it work, and take away some of the downfalls of a traditional instalment sale. Let’s do this. Let’s walk you through it. And let’s talk about it. So this is the $10 million sales here. A traditional deal, again, they would sell it directly to the cash buyer, and the cash buyer away can have a lender to doesn’t have to be all cash, and they would send the 10 million here. AIn that scenario, they receive 10 million in constructive receipt. But the client doesn’t want to do that, because they don’t want to pay let’s just say this scenario is 3 million tax liability. Instead, we say well, before you do that, let’s jump in this trust the same escrow simultaneous close. Let’s sell the assets to the trust for 10 million. He’s going to immediately sell it to the buyer that’s already lined up for 10 million. He’s going to put the 10 million into the trust. Now, why would the seller do that? Well, the seller is going to get a note for 10 million. The trust is going to give them zero down payment.
Because the trust bought for 10 million and sold for 10 million. So Kumar, how much is the trust bought and sold for the same price, the answer is zero. Now, the note holder, this the seller who now becomes the note holder, receive zero constructive receipts. The tax they owe right now in this given year is nothing. It’s in a deferral state just like a seller carryback. At the end of 10 years, you renew for another 10 and then renew for another 10. Most of our clients like to pay the tax the second data never and they can pass it on to their kids and their kids can take their position and do the same thing. Is this a revocable trust? Depending on how you set it up. Yes, it can be. And let’s walk we’ll walk through that depending on which one you use if you go inside the taxable estate or outside the taxable estate, but let’s just focus on this page right here. Want to make sure you understand this too.
The key is the trust to give a zero down payment in exchange for a $10 million Note to buy the property. This first part of the transaction is just a seller carryback. The difference is we already had this buyer lined up right here ready to go with 10 million. And so the trust immediately sells it. It’s like bang, bang, bang like the final thing is close for 10 million. The 10 million gets put into the trust that the trust bought and sold for the same price. It has zero gain. Thanks. The note holder took zero down payment it has zero that’s due right now. It’s in a deferral state is three million and a deferral state. The smoke clears the buyer goes away. The 10 million in the trust and where’s that? Well, thank American Mellon, Charles Schwab, TD Ameritrade, some of the largest banks in the world, your own financial advisor can manage the funds that are where it’s at earning interest. So in this particular benefit, again remember I said most of our notes will earn for the next six and a half percent after fees earned about an over 10 year period. Pay net about six and a half. So aren’t the clients are getting about six and a half on 10 million of which there’s an extra again 3 million that they would have paid in tax. Benefit an enormous gives you an extra six and a half on this 3 million. So I want to focus on this page alone though.
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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Want to learn more? Check Out The Blogs Below!
- Can a Deferred Sales Trust Be Used for Mergers and Acquisitions?
- How to Defer Capital Gains Tax When Selling Your Cryptocurrencies
- Need An Exit Strategy? The Deferred Sales Trust Might Be the Answer