Selling a High Priced Bay Area Home Using a Deferred Sales Trust With Jessica Lanning
Brett:
Let’s dig in a little bit about a recent deal that we work together on and even before we go there, I want to touch on just some of the foundational challenges you see with high net worth individuals, especially in San Francisco in the Bay Area, who own real estate, who own businesses who are considering selling. Its part of the baby boomers, one of the largest wealth transfers in the history of the planet is happening right now, in the next 20 years. It’s $17 trillion, right, and it’s tied to high-end primary homes, businesses, commercial real estate and other assets. with that, what’s the biggest frustration you’ve seen? Jessica, when it comes to capital gains, tax deferral options, and or lack thereof for your clients?
Jessica:
Look, the biggest one here in the Bay Area is these people who bought their houses for 20 bucks, and they’re now worth 2 million. I’m exaggerating to make my point, of course, but they’re in these four-bedroom, three-bath homes that they bought for a song way back when they don’t want to be in these big houses anymore. They need they want controlled simplicity. I want my house to be smaller, want my life to be smaller, I just want to know the income is going to come in so I can enjoy my life. I don’t refer to retirement as retirement, I call it to phase three. First, you’re a kid that’s phase one, then you’re working. That’s phase two, and now you’re in phase three, what has heart and meaning for you, and typically, people are not into their things anymore. They’re not into their big houses or cars, they’re things that it’s not what lights them up, they want something else in their lives, and they go to look at selling the house, the primary residence where they’ve raised their kids, and they’ve got this $2 million gain on it, and what in the world, now they’re going to have to fork over all this money and capital gains taxes, and they’re going to have less to spend on other things in their lives that do have heart meaning for them, and that makes them stay in the four-bedroom, three-bath house that their kids are telling them to get out of, because it’s too big, and it’s too much to manage, and there’s no reason to keep it.
Brett:
Why don’t most people believe there’s no option? And we’re going to talk about the Deferred Sales Trust here and an option. But before we as the solution for that. But why do you think most people just feel like there’s just a ceiling there and they feel like, “Hey, I don’t have any choice”, I got to hold on to this thing forever die and give it to my kids on the stepped-up basis because they believe that’s the only way or I got to rent this thing out and try to do a 1031 exchange. But I don’t really want to do that. Because I’ve never been really been a landlord, per se, and so walk us through what’s the biggest challenge with folks when it comes to education with options?
Jessica:
I think one is people just don’t like paying taxes, and I think they see a tax impact coming in, they sort of shut down. They just don’t ever they are it’s almost as if they are incapable of seeing other possibilities. They just hear taxes, more taxes, and they just sort of shut down. I think that’s like to get them just to open up a little bit and explore a possibility sometimes, that’s the biggest sometimes challenge. they’re so shut down around possibilities that they can’t see or are open to seeing them, that’s one thing. I think around primary residences, the law changed, what was it 20 years ago, it used to be that if you sold your primary home and bought another one an equal or lesser value, you got to take all the game and not excuse me had to be equal or higher value, you got to take all that gain and put it in the next house and there were no capital gains ramifications, and lots of people are still thinking that that’s the law, and what hasn’t been the law for a really long time. When they find out what do you mean, I can’t sell my house and take all the equity and put it into the next one. They just don’t like well, “what do you” mean, like, “well, the law changed”. That’s not That’s not what’s available anymore. The 121 exclusion allows you to take $250,000 of that gain as a single person or half a million dollars as a married couple, and exclude that is still available. But when you’re talking about a $2 million sale and a $500,000 basis, you’ve got a million and a half a game that you can only shelter maybe half a million of and now you’ve got a million dollars of gain that’s going to get taxed, and then you know, that’s a 40% tax implication, potentially and $400,000 sounds like a lot of money to most people.
Brett:
Let’s dive into the deal that we recently closed together because that’s that’ll give some folks some context and also hopefully open up their minds to what’s possible. Would you just share a little bit without giving any particular details of your client but just hear a little bit about what they were facing what they were selling and what was the challenge for them before they found the Deferred Sales Trust.
Jessica:
Their challenge again, San Francisco Bay Area, high levels of real estate appreciation they had bought this. It was a multi-unit building. Many years ago they’d gotten it for a song they are now wanting to sell. They were looking to simplify their lives. It was a couple of one of them who had some health challenges. The other one was kind of done working. I think there’s a lot of ageism, that goes on in the employee and employer environment right now, just getting hired sometimes is really challenging, and they have this phenomenal opportunity, we have all this equity in this house, we could restructure our lives and we could just get access to it, we could live the life that we really wanted to live again, phase three, what has heart meaning, and so when they were looking to sell this, and realizing that there are options on using that 121 exemption, right getting that $500,000, sheltered and there is a couple of units, so maybe they could move into one and then get the same exemption that three years later. Yow you’re risking the real estate market not being strong, and you’re risking, not moving into Phase Three, and if my health gets worse, there was a real desire to move into Phase Three, and to start to enjoy a life that they loved. How do we make that happen if you’re going to sell this property where most of their net worth resided, and then pay a huge chunk in taxes, that was that much less money that was available to them to generate income to help meet the expenses of their cash cow farm. Using the Disable Deferred Sales Trust, allow them to hold on to those, those assets. I mean, obviously, they’re, the legal structures around them, they’re not in their names. But now that chunk of money is a cow and their farm, a really nice cow that does some really amazing things tax-wise, and allows them to get the income that they need, in order to meet their expenses, it’s going to extend the length of time that they’re going to have income by a pretty wide margin.
Brett:
It truly is transformational Exit Planning because it’s not just about the money, it’s about allowing somebody to move from one phase of life, phase two into phase three, without having to hop through all these hoops. I think I like to use the analogy, the blockbuster way of doing things versus Netflix, and blockbuster was the old 1030 Want to change is really the old way you were used to driving to Blockbuster show up, walk inside to see if the movie is available. If it’s available, you go to get a ride before you get it, somebody grabs it. But even if you got it, you have to take it home, you probably have to rewind it, and then you have to return it. But if you don’t return it within three days, then you’re looking at a penalty. If you don’t rewind it, on and on and on. It’s very cumbersome. Whereas Netflix, you could just click, it’s never sold out. You can pause it, you can rewind it instantaneously. There’s some ongoing fees, the ongoing monthly thing, but it’s seamless, right from the comfort of your own home, I try to use that analogy with the Deferred Sales Trust, because folks are moving from one thing that can be very complicated to and I like your cow analogy, right to seamless, seamless cash flowing, cash flowing producing income stream, and then obviously saving all that money at the same time or deferring all that money. Walk us through besides that, what else did your clients like about the Deferred Sales Trust?
Jessica:
Look largely, I think it’s always about the people, surrounding yourself with good people and making sure that they felt secure about what was happening. I think people have a tendency to overcomplicate this concept. It’s so not complicated, and maybe that’s just the lawyer aspect of me, just understanding an instalment sale, and what does it look like to put trust in the middle of that? It’s really not that complicated, and as soon as I think I got them to the point where they understood its simplicity, they were like, it almost became a no brainer that way. I think that was an important piece for them.
Brett:
Knowing that is simply a law, it goes back to the 1920s. It’s just an instalment sale, and you’re just adding a trust, and by the way, that’s what we do at Capital Gains Tax Solutions. We provide the third party trustee services, and then we work with financial advisors like Jessica, who manage the trust funds, and together as a team, along with the tax attorney who provides the legal services for this, we’re able to accomplish this amazing transformational Exit Planning. I think that’s really well said, was there anything is a part of that that helped that what was the moment where it clicked for them when it was, that is pretty simple. Do you remember that conversation or how it went?
Jessica:
I want to say that, I think when they realized that it was pretty easy to implement, that the conversation then became about what we could do this or that, and when you see that you have the ability to exit from this property and be done right. I don’t have to wait three more years. I don’t have to worry about tenants. I don’t have to worry about getting somebody in there. I don’t have to worry about somebody hurting themselves on the property. I don’t have to worry about fixing it. The stove or the toilet breaks in the middle like I get to be done. It starts to become more and more attractive. I think once that because we even just the way you said it right? Well, we have this attacks attorney, we have this and we have that, and we have to do that it starts to sound really complicated. But when we get it down to its simplest form, and people start to realize the benefits of being able to exit a property, get life simple move into Phase Three, they’re like we could do simple. We can do more complicated. That would work too. But why put this off when we know exactly what it is that we want?
Brett:
Well said yes, that is a great coaching point. It’s sometimes we’re stuck between, giving everything or saying so much that it makes it more complicated versus just saying it’s actually just really, really simple, and we’ve done a couple 1000 of these now with the tax attorneys collectively with the estate planning team, and so it works right and it’s amazing.
Closed Deal Story
Can I Save Capital Gains Tax When Selling Cryptocurrency? The answer is, “YES.”
Silicon Valley Technology Expert Finds A ‘Deferred Sales Trust’ To Break Open A Clear Path To Sell Cryptocurrency To Defer Capital Gains Tax
Can I save capital gains tax when selling cryptocurrency? The answer is, “yes.” About 7 years ago, Peter and his wife purchased their first Ethereum. Who would have anticipated that the value would have increased by thousands of percent in just a few years? Peter, who has worked in the technology field for more than 20 years, saw a great opportunity to sell in late 2017, however, without a clear legal plan to defer the large capital gains tax, found himself feeling trapped by the consequences of selling.
Peter held on to his belief in the fundamental value of ethereum and the potential business opportunities it brought to end-users during the 2018 crash when the value of ETH fell from $1,432 to below $90. “That was a tough pill to swallow,” Peter continued. Fortunately, everything returned in 2021, and much more. In early 2021, Peter met Jessica Lanning of Lanning Financial who told him about the Deferred Sales Trust and introduced him to Brett Swarts of Capital Gains Tax Solutions. Then in May of 2021, ETH reached an all-time high of $4362. “I knew it was time to sell at least a big portion of my stock since I didn’t want to miss this opportunity again. Let’s just say it’s been a long three years since the high in 2018.”
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