EP 566 – The Deferred Sales Trust: Avoiding Capital Gains Tax With Brett Swarts

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Now, here's your host, CEO of We Close notes, Scott Carson. Good morning, good afternoon, good evening everybody. Welcome this episode of the nope Closure show. As always, Scott Clarkson. Excited to be here today. Really excited to have our guest on today. And you know, I'll tell you this guys and gals out there, we all, as I say, we're all in the marketing and media and real estate aspect of things and this guy is going to share some great knowledge stuff because I know we're always evolving, we're always adding assets, whether it's not the property side. And as you grow, it's great to grow, it's great to level up, but oftentimes it can lead to some different tax consequences and issues that you don't want to pay. Uncle Sam, all of your hard earned work down the drain in taxes. So excited to have our special guest. He's the founder of Capital Gains Tax Solutions and host of the Capital Gains Tax Solutions podcast. Each year he equips hundreds of business professionals with a deferred sales trust tool to help them save and help his high net worth clients solve capital tax gains deferred limitations. And so I'm honored to have our buddy and really looking forward to how his show is growing and what he's doing. Our buddy Brett Swartz joining us today. How's it going, Brett? You doing all right today?

Going great. Thanks so much, Scott for having me on the show.

No problem. So how did you evolve or get into what you're doing now? Let's talk a little about your background and kind of how you got into being a capital gains tax solution expert.

Yeah, so most, most commercial real estate owners, business owners, high end primary homeowners, they struggle with capital gains tax. And my story goes all the way back to 2006 and helping those types of owners. In particular, it was investment. Real estate owners buy and sell investment properties via 1031 exchanges mostly. So I sort of learned the sticks and bricks and the financing side of it between 2006 and 2011. And during that time period, it was, you know, one of the biggest, you know, events in financial market history. 2008 crash. And we were looking to figure out ways to help our clients never have to face the pain of losing all or Some of their equity through that crash. And a lot of it was because of the 1031 exchange. To be honest, we were brokers who were helping people do that and that's how we get paid. But we found that it, you know, it doesn't fit every situation and people were overpaying and that's kind of how they got hurt when they sold in 05 and 06, 07 and up legged into a bigger properties with equal or greater debt and oftentimes overpaid. And so 08 hit, 09 hit, people started losing properties. Especially here in Sacramento, California where I'm from, we kind of set out on a mission to see what would we do different if this happened again and what could we change. And at that time, my manager at the time brought in a gentleman to speak on this deferred sales trust. And like most your listeners right now you're going to say what is that? I've never heard of it, you know, and I've heard of a Delaware statutory trust, I know about a 1031, but what is a deferred sales trust? And they started to tell us that you never have to do a 1031 ever again. In fact, you can do away with the 1031 if you want to. You can use this to defer taxes. It's kind of like a 1031 for a, for a business sale or high end primary home sale. And essentially it's, it's an installment sale that allows you to defer tax and you can get out of debt and you could actually invest into notes. Right? You can invest into stocks, bonds, mutual funds, different real estate syndications. It's just so much more flexibility versus the 1031. And so that really started me down this journey of how to add value to clients. At the time I was just married, we just had a baby making next to nothing in real estate because A the market had crashed but B, I was just kind of new to it and I didn't really have a lot of value to add to clients. And so just trying to make a deal work, trying to add value, trying to be creative and look for solutions into the deferred sales trust. It changed the way I approached every deal. And I started to win more deals, win more listings, add more value and really connect with more people because indeed it can solve certain challenges that just the 1031 really can't do.

So why don't we, for our listeners, we'll just touch base back a little bit. Let's go into when somebody would consider this I think maybe talking about what's at 1031 exchange, just for our listeners, they don't know, let's go with the nuts and bolts and kind of work our way into that. How's that sound?

Sounds great. 1031, you want to do the 1031 or me?

Let's see you do it. You do it. You're the expert, man.

All right, so the 1031 exchange is part of the tax code IRC section 1031. And it allows someone to buy an investment property and then sell that investment property. And if they have a gain, they can buy another investment property. Essentially, you're trading up. There's certain rules you have to follow. Equal or greater value, you have to identify within 45 days, close within 180 days. And as long as you follow these rules, you can defer 100% of the capital gains tax, essentially kick the tax down the road, and then use that equity to earn interest and more cash flow and buy bigger properties. It's one of the best ways to build wealth. That being said, it has some inerrant limitations, such as we call it the sell high, buy higher 180 days later. So the intent or the, the goal for us is like our parents taught us, sell high and buy low, don't sell high and buy higher 180 days later. And unfortunately, that's what the 1031 forces too many of our clients to do and too many of the listeners right now. And so what can you do? You want to buy at optimal timing? What does that mean? Well, that means buying when you find a deal, right? Maybe diversifying outside of your deals. And so with the deferred sales trust, this is the solution. You can move all of the equity into the deferred sales trust at closing, get rid of all your debt, and then literally the next day you can go purchase investment real estate or wait until day 181 or five years from now. And here's the key. All tax deferred. Okay, all tax deferred. But even better, you could diversify. You might say, you know what I'm tired of the toilets, the trash, the liability, which is where a lot of our clients are right now. They're the baby boomers. So the older generation, they're getting older and older and they're looking for ways to retire out of all of these toilet's trash and liability. In fact, according to the American Bankers association, there's about $17 trillion that will pass from one generation to the next in the next 20 years. And this is the largest wealth transfer in the history of the planet that we know of, and it's by the baby boomers. And the American Bankers association has found that there's about 77 million in the US alone. And every single day about 10,000 of them are turning 65. And they've built wealth for 20, 30, 40, 50 years. And they are tired of the toilets, the trash, the liability, but they can't stomach paying 30 to 50% in capital gains tax and depreciation recapture upon the sale. So what do most of them do? Well, a lot of them will just hold on. They'll hold on to their business, they'll hold on to their real estate. They held on from the 08 crash and they're backing up again, but they feel trapped because they don't want to sell and trade. What I like to say, a deal story. Peter, he sold an apartment complex in Sacramento about a month and a half ago, and he sold his property for 1.75 million. He's a baby boomer. And he said, brett, I didn't want to trade my 18 units for 36 units. In other words, I didn't want to trade 18 problems for 36 problems. I've done this all my life. I'm tired of this. He goes, I just want to be out of debt. I love that. I want to be out of debt, I want to be tax deferred, and I don't want to have to deal with any more evictions, tenants, toilets or trash. And he goes, brett, this is the first time anyone's ever brought this to me and he loves it. Right? He closed the deal and he's very happy. He goes, I've never had so much time and energy. So back to the baby boomers. They're struggling with this and some of your listeners may not know, but basically a business sale, it doesn't qualify for a 1031. You can't sell a business and move into. Unlike kind, real estate doesn't work. So most people just sell businesses and pay taxes. So that's the first, most obvious candidate for this. If you have a business, if it's worth a million dollars or more, if you have tax, $500,000 of liability, then you want to talk to us. Okay, the second one is the high end primary homeowner. If you live on the coast or maybe you have farmland or big property on a big piece of land, we can use it for that. The 1031 doesn't work for that. And the last one would be for the investor who actually is just looking to be what I call smart in this environment, Being very cautious not to overpay for a property. And in fact, we had a client do just that in 2006. He, at the peak, put all the equity into the deferred sales trust, waited five years to redeploy the capital back into investment real estate. And here's the cool thing, that property he sold, the buyer who bought it was foreclosed on by the bank. And what happened? He used his deferred sales trust money, kind of like a self directed IRA to purchase that same real estate that he sold. But here's the cool part. He did it at 60 cents on the dollar. Okay? So he called the Monday morning quarterback, he dropped back, he made the perfect play. He sold at the peak, got out, diversified, put it into very conservative, conservative allocations of stocks, bonds and mutual funds. So even when the market shifted, he wasn't hurt there. And then he bought the real estate back at a discount. And so that's what we do. We help people create and preserve more wealth. But more than that, we help them build an optimal timing wealth plan and we design it around what they want and what their needs are. And it can be different for different people in different stages of life. And then all of this helps them create and preserve more wealth.

That is awesome. I mean I'm hearing sounds going off in my head all the entire time. So let's go through some of the mechanics because I'm already hearing questions from our audience are going to be thinking about this. So you sell your property, you set up an entity, you set up a trust, obviously, right? Can anybody set up that trust? Any attorney or any estate planning attorney or. No.

Great question. So we say don't try this at home. Okay. So this is a specialized installment proprietary structure of which 24 year track record, thousands of closes, 14 no change IRS audits, which is the most important thing, whatever tax deferral strategy you go with, you want to make sure that they've been tested with their own clients against the IRS and then they have survived those audits and or thrived. We have thrived. We have had zero change audits in 14 deals of which the largest one was $125 million commercial real estate property in San Diego. So we are batting a thousand with the irs. The IRS knows who we are, they know what we're doing. You guys do note. So you know this for sure? It's just an installment sale, right? It's IRC 453. Okay. That is the tax Code, it goes back to the 1920s. It's a way to carry paper. And when you carry paper you're in a tax deferred state. So Scott, you own a $10 million property. And I say, Scott, I want to buy your property, which is me. And you imagine and if I gave you a $2 million down payment today, you would receive 2 million, you'd pay tax on that, but the other eight would be in a deferral state. Right. It's tax deferred until. And if I pay you now, if I gave you a zero down payment and you carried back the full 10 million, same thing, except you haven't taken the two. So you have zero tax due today. Nothing's triggered today. The 10 million is in a defer. Same way a 1031 works, you can send the 10 million to the Qi company. Therefore Scott doesn't have it in his hands. Now the difference is we do it at the business trust. And this business trust can go for 10 years at a time and just keep renewing every 10 years for 10 years and keep going and pass it on to your kids. Whereas a traditional installment sale typically goes for three to five years. And typically there's not a lot of prepayment built in. And typically means, by the way, you've forfeited the 1031 at that point because you're past the 180 days and now you just owe the tax. Whereas ours you can go for as long as you want. And that's what the IRS said. They said, oh, you guys are just doing an installment sale now you're being creative with this third party trust, which, this is our role, we're the third party trustee, we're non related, we're in it for business purposes. Certain rules you have to follow. Yeah, and you guys are doing this. But as long as Scott hasn't received that 10 million right now he's just going to live off the interest payments. And that's where most of our clients do. They receive somewhere around 6 to 8% depending on how the return goes in the note. And then they pay an ordinary income on that, but they keep the principal intact. And so instead of, let's say having 6 million, you would have paid the tax. You have a full 10 million minus some fees from us, and then you're just living off that, creating and preserving more wealth. But again, now the ocean is blue, meaning you can go and invest wherever you want, however you want and diversify however you want without having to do a 1031 exchange.

So what happens that 10 million, you said it's an installment loan, is it just balloons in five years or 10 years and then they can take the cash and do whatever they want with it. They just don't receive the capital. They just stay in the truck.

Absolutely, totally flexible. So most of our clients like to pay the tax the second day to never. Scott. So what does that mean? That means they're going to keep the 10 million principal intact, live off the interest and at the end of 10 years, renew for another 10 years. Kind of like a refinance. You just keep doing that. But here's the nuance here, which is really powerful and where it really takes off here for the investor, you can use up to 80% of the funds the next day, like a self directed IRA to go buy into an investment real estate or put it into notes or put it into alternative investments with a brand new LLC which establishes a couple things. One, it's a brand new basis if you happen to buy property, okay? Two, you are 80% owner of that LLC, 20% to the trust which then owes you the money back. But here's the key. That means you get after the preferred return, you get all of 80% of the upside of that. So let's just say you found a 20% cash on cash return investment and you bought into that deal with a partner or somebody else, either the debts in your name or someone else's name, essentially you can get most of that upside, okay, through that llc. And that's the beauty. And then when you sell, you can move all the funds back in and you just keep going and this kind of becomes, it compiles into one trust and you just keep buying and selling properties in and out of the trust the whole time at optimal timing. Okay. And this is the part where the listeners might be saying, well, my head's spinning a little bit. And we understand that it's like riding a bike for the first time until you ride it, until you have a team who guides you with this and has done thousands of closes. This is our role. It's not just the structure. It's not like just forming an LLC with a random attorney. You are hiring specialists in US Brain surgeons is the way I call it. I'm just the nurse and the brain surgeon is the tax attorney who's the number one installment sale attorney in the nation doing it for 24 years. He's a tax genius. And this is he's a CPA and tax attorney. And this is what he does. And so he's done and that he's the one who puts it all together, he and his law firm. And then we execute this plan with you. But it's all 100% legal and we've already paved the way. It just. Most people don't know about it because they haven't connected with us yet.

Wow. Mind blown in a good way. I am loving this. I am loving this. Who would this not be for? If somebody's looking, looking to 1031 Exchange or to do this? Who's this not for, Brett?

Yeah, so just to remind you, the number one person is the business owner, high end primary homeowner, because they have really no 1031 option. The next best person, I think is the commercial real estate owner. And it breaks into two camps. The first one who is a, let's say an active commercial real estate operator owner who can find value adds. And this is key. If they can find value add opportunities that make sense, they're not just buying it because they're deferring tax. They're buying it for the intrinsic value of the opportunity itself. The location, the forced appreciation, the cash flow, all of those things. Okay, if you can find that deal right now. And right. I'm in California and I don't know how it is in Texas or different places, but right now. But values to me are just through the roof. And to me, It's a lot like 0607 again with these values. And it just doesn't make any sense, you know. And so what I'm finding. And by the way, I own commercial real estate of my own. Senior housing, multifamily mixed use, retail office. I'm an investor myself too. And we're having a hard time making sense of, I'll tell you a deal store right now. We just sold seven units. I did for a client. I'm a commercial real estate broker here in Sacramento for $270,000 per unit. This is a 1965 property. Flat roofs, had some two and three bedrooms. Rents are pretty good. $1,300 to $1,600. You know, pretty solid. But $270,000 in a 4.3 cap. The buyer was borrowing at a 4% interest rate and 4.3. He ended up buying it all cash. He was in a 1031. It was the perfect scenario. We were selling to a 1031 buyer. But guess what, my seller, we were looking at other properties. We're looking at a 21 unit property, but it was also about a 4.3, 4.5 cap. And he goes, brett, why Am I selling this and buying this with all this debt and overpaying? And I said, exactly. He says, hey, tell me about that deferred sales trust thing again. I said, great. And we walked through and he goes, okay, so I can get a better return. I have none of the toilets, none of the trash, none of the liability, none of the rent control. I can wait for the market to shift. I mean, we talk about 10 reasons on the right side of why they do the deferred sales trust. And what are the reasons why he wouldn't. Well, he wouldn't have if his tax liability wasn't big enough, which is getting to answer your question. If his tax liability had only been, let's say, $50,000, we say just pay the tax. If it's 75, just pay the tax. In fact, our minimum is $100,000 of tax liability for about every four to $500,000 of equity. In his scenario, he's selling for 1.9. Had to pay off some debt. He also had a partner on the deal, which we'll dive into here in just a minute on that. But essentially he got out of debt. He deferred about $300,000 in liability. So he was big enough there. His proceeds were above 500, which he was good there. And so he was a perfect, perfect scenario because he's going to increase his cash on cash. He has no more liability. He's a full time working career businessman. So he doesn't have a lot of time to chase tenants. And he didn't want to overpay. He learned in 08 what happened. In fact, he bought in 09 this property for $685,000 and sold it for $1,900,000. So he has seen it all. But it wasn't easy for him because he comes from a real estate family. He grew up with his dad. They own about 20 to 30 million in apartment complexes in the Napa, Northern California region. And so they're very wealthy and have done very well for 1031 exchanges. So it was very difficult for him to what's called let go of the 1031 and jump onto the deferred sales trust, which this goes answers to your question too. Who is this not for? Well, it's for the person who would like to say real estate is like a rel. And one of the doctrines is the 1031. And by the way, I love commercial real estate. It's my number one choice for investment and earning wealth. And I love 1031 exchanges, but I don't love them all the time. And I know when to break free from the 1031 and go to the other one, which is an installment sale. It's probably kind of like your industry, Scott. You go, look, you guys make a lot of money in multifamily, but you can make a lot of money in notes too. In fact, you can make even more, right? Yeah, yeah, sure. They have the depreciation over there. But look, why don't you balance your portfolio, do some different things rather than just always just doing this one thing. So that's kind of the shift there. So as long as you can be open minded and shift and be coachable, we're going to guide you with that. But if you're not open minded, not coachable, then it wouldn't be for you. Right. Because it is a bit different than your traditional 1031.

Wow.

Yeah.

I love it, man. I'm a numbers geek and I love that stuff. With what you just shared, it's such valuable. You compared a little bit to an ira. What are some things you can't use inside of your trust with that as far as investment or things you're buying?

Great question. So for example, you can't put it into a primary home. It's the same reason you can't 1031 into a primary home because that's considered private property and therefore it's considered constructive or actual receipt. So it can't be that if you're going to go spend it on a fancy car or something else, just cash out of that amount and go buy that fancy car or travel. So anything that's like personal use, so backing up one step. The reason the government gives us these options, Scott, is the study of macroeconomics. They say, look, if we can incentivize the money to flow in and out of the economy in a pro business, pro investment way, it's actually going to spur economic growth, which is going to spur more jobs, which is actually going to spur more tax revenue. Right. More taxes. It's actually going to get more. It's the study of macroeconomics. This is why they put these laws in place. That is one thing that it can't go into as a primary because it's not really spurring economic growth. Everything else is pretty much fair game. So you can put it into notes, you can put it into stocks, bonds, mutual funds, investment, real estate, syndications, operations as an operator, commercial real estate operator. It's a great way to attract wealth right from those who you're looking to invest into your deal Right. Or your fund, because you're going to save them 30 to 50%. Here's another stat for you. So remember we talked about that $17 trillion that's going to pass? Well, half of that $17 trillion, let's just call it eight and a half, that's in investment, real estate, primary homes and businesses. Okay. Private equity that represent in illiquid assets. 50% of that 17 trillion is illiquid. And so what does that mean? Well, if we can unlock this illiquidity into a deferred sales trust, now they can put that into a syndication. So we think it's the number one way to attract high net worth individuals and help them unlock all of that capital that's just sitting there. We just did a deal in Cupertino. It was a $3 million home sale for a single lady who had lived there for over 20 years. And this is three miles from Apple headquarters. Okay. And so she saw her house just skyrocket through the roof. So she had her 121exclusion, which is only $250,000 for the capital gains. But above and beyond that, she owed over $300,000 in tax. So she was able to use the deferred sales trust to not only be able to free herself from this house and be able to move and relocate, but also live off of a passive income stream now. Right. Versus having to take a reverse mortgage or do something crazy with her house. She's now diversified debt free and now it's producing cash flow for her. And so that's the power of the deferred sales trust.

Wow. I love it. I absolutely love it, man. This is the first I've heard of that though. That's the beautiful thing about what you're doing is that some opportunities out there, man. And you're right, there's a lot of people that are facing taxes in the next, as you would say, 10,000 people turning 65 or older a day. Right. Who's an ideal referral source for you, Bret? Commercial realtors, estate planners. What's a good referral source for you?

Great question. So part of our passions here is actually equipping business professionals with this tool so they can add more value to their clients. Especially in business day of automation. Right. Where automation is challenging the value proposition of every single business professional. Okay. Especially high end realtors, especially commercial real estate brokers, financial advisors. But when you can bring a value add strategy that's beyond the automation, that is a bit complex and it is, it takes a team to execute this. You've set yourself into a different realm. We call it the blue ocean versus the red ocean. The red ocean is where all the sharks are at and all the bloods in the water because everyone's competing for the same thing. So commercial real estate broker, cpa, financial advisor, estate planning attorney. We're in a train and partner. In fact we have thousands of them across the US who are still in their industry, still doing what they're doing, but they just jump into the membership of what we provide and then we help them to market and educate their client base. Anyone who's dealing with the top 20% of wealth in America, any ultra high net worth individuals, that is the ideal business professional that we can help again because if the tax is not big enough, then we can't help. Our fee out just eats up the tax savings. So it's got to be typically highly appreciated assets. Our average deal is about 2.6 million and we're deferring somewhere around 4 or $500,000 in tax. We're closing a 1.4 million dollar deal, a million dollar deal. And then we're also closing like a $40 million deal. So kind of all ranges, but that kind of, that range 2.6. Make sure they have enough equity, then we can really help them all out.

How can people screw up their, their trust? What's the things that can really kind of shoot themselves in the foot? I'm sure you're smiling. You've seen it done a few times, I imagine, or people screwing up, huh?

Yeah. So not so much on our side or even on their side once the trust is in place. It's kind of like clockwork. As long as we follow the rules and we've yet to have any of them fail at the IRS or even any of the advisors not return the amount they need it. But you can shoot yourself in the foot by not being there early enough. So in order for this to happen, we have to schedule it basically before close of escrow and even more than that, schedule it before all contingencies are removed. Okay, so let's walk through the first two. The business owner who's selling like say a professional practice, a veterinarian or dentist, orthodontist, optometrist or a big tech business, whatever. They don't have a 1031 option. So we really need to get to them before the buyer removes all contingencies. Okay. So that's the first thing and you can contact us, you know, capitalgains taxsolutions.com and we can give you that language it's option language. It doesn't cost anything to get all that. But once you put that one sentence inside of your contract, it's just an option that you can execute on that, and therefore, you're good. Now, if you don't put that in there and then the buyer moves all contingencies now you've shot yourself in the foot because the government says no, you're already going to close. Scott, you just jam this thing in here, the strategy in here beforehand. And so we'll say, no, sorry, we can't help you. We've gotten those calls before. Or the other call is this, hey, I just closed last week, and I just found out that I'm going to owe a million in tax. Can you help me? We're like, sorry, it has to happen at close of escrow. Now, for the commercial real estate owner, they can. We can save a failed 1031 exchange. Okay, so imagine I got the call and they said, now they remove all contingencies. It's closing next week. Can you help me? We'll say not at close of escrow, but if you use a QI company that we partner with. Not all QI companies are the same. Okay, you want one that's going to give you both options for the 1031 or the deferred sales trust. Now, if you use that one, you go for your 1031. Doesn't work out great on day 46 or day 181. We can save a failed 1031 exchange. Doesn't cost you anything. Again, nothing extra, but it gives you all of the flexibility as long as you put this language in there.

Wow, that's important for everybody to know. You gotta find them before the contingencies end. It's interesting that. So the IRS is going back and looking at the contracts and looking at the dates and things like that, too, I think. Wow.

Yeah. On the irs, audit's exactly what they're doing. And just like, if they were to do an audit on any of us, they're going to look at, you know, basically the verification of dates and verification of what actually happened. And the story needs to match up. Otherwise the tax man is going to say, nope, you didn't follow the rules. Pay us the tax.

Wow. I mean, obviously we have an aging crowd, but also talking about some of the markets that we're seeing going on right now, multifamily being overpriced and. But also being one of the hottest markets out there. I mean, I'm just seeing stuff that's being overpaid. For people, people flocking to invest in syndications and apartments and things like that. How can those owner operators or the people that are putting those deals together, they can benefit from this as well too, correct?

Great question. So the owner operator, by the way, or any, any listener who's buying multifamily or any property, you ask yourself, who is the ideal seller to buy from and who are they? They're the baby boomer. They're older, they've been very nice to the tenants, they've kept the rents low, they're a bit sleepy or a bit tired, meaning they haven't done a lot of upgrades because they just got to know the community and they're really nice people. They've only 100 unit proper for 20 years and it's just cash flowing like crazy. And by the way, they haven't sold it yet. Why? Because they don't want to trade 100 problems that they know for 200 problems that they don't know, right? They don't want to do a 1031. They don't want new property tax to reassess, depending on what state you're in. They don't want more debt. Like, they don't need any more, right? So when they get the call from the broker or the syndicator saying, hey, why don't you just 1031, 1031, 1031. Or why don't you just. Delaware statutory trust, which is just another form of a 1031, by the way, the deferred sales trust is not a Delaware different, okay? They already received those calls. So when you call them and say, no, no, no, this is something different altogether. And they say, what do you mean? Well, you don't have to go into debt, you don't have to buy a property. In fact, you can get rid of all of your hundred problems right now and just put it into a diversified portfolio. Oh, well, tell me about that. Now all of a sudden you've just added value because you solved their problem, right? Not just the external tax problem, the internal problem of their time, their energy, getting out of debt, feeling secure in their investments, right? Getting diversified, that's actually what they want. The 1031 doesn't provide that liquidity too. That's the other part of this. At any point you can cash out of this trust, all or some of it, and just pay the tax on that given amount. Whereas if you stick it another illiquid asset, it could be seven to 10 years with the Delaware statutory trust or whatever. So that is, I think, the best way to actually market to these sellers who are selling, because you're providing that solution. Now. Second, the commercial real estate broker, all the time, they get this, I would love to sell with you if you give me my up leg, right? Or what if we can save a failed 1031? Well, we can now. Or what if we can get rid of the up leg altogether? So those are the dots that I would connect for them. And then of course, again, if any of your client base right now who's already accredited investors who already are probably high net worth, they have other assets that they actually want to sell, they may be selling a business. And what you don't want to do is get the call that the person sold a $5 million business and just paid $2 million in tax and says, hey, I have 3 million to invest with you. That's the worst call. You want to tell them about the deferred sales trust now so they can say, hey, I sold my $5 million business. I deferred all $2 million in tax. I have 4 million to invest with you. The other million would stay in stocks, bonds, mutual funds. It's kind of like a reserve account still, their money still earning interest. But you can't put all five into that one deal. But the four can go in. So the syndicator gets an extra million. The client's happy because he has an extra 2 million here. Okay, and then what does he do? He goes and tells all of his other friends who are in that same business, and they do the same thing. So to me, a lot of operators, if they don't know about this, they are missing a huge, huge opportunity. And the last one is, is when they actually go to sell the operation. In fact, we're doing a deal right now with two syndicators, and they're selling a $22 million apartment complex in the Nevada, and they are facing a large capital gains tax. What they're going to do is all of the other investors are going their own way, but each of these two investors are going their own deferred sales trust, meaning they can go into their own individual one separate from the other. It severs the partnership interest. And then guess what, they're going to use those funds to go invest in their next deal together. But they just saved, I think collectively, they're saving around a million dollars. Right? And so that's the power of the deferred sales trust. The keys to get with this early, let us map it all out and tell you, A, here's the math on this side. B, here's the math on this side. You decide what you want to do.

Wow. So this would be a really good tool if you're an apartment investor looking for deals to be educated on this as a way to reach out to people that deals that you want. Like you said, you know, mom, pa or somebody's got this looking, but it's afraid of 1031 to set this up on the owner financed the property to you in this trust then as an opportunity. Correct. An option.

So key here. Yeah, here's the key. They're not owner financing to that buyer. Right. Because a lot of mom pops, they think that's the only solution. So they have to find this perfect buyer. But that buyer is neither an investment grade, he's a single individual. Right. And he may also not be actually even financable. That's why he's asking for owner financing. So the question is, Scott, do you want to entrust, let's say a 10 million dollar note to this one single person that you may have to foreclose on your property or would you rather take that 10 million and say take the whole property, you're gone. And let's put it into 10 different syndications over here across five different product types. One of them is a notes, one of them is multifamily. One of those multi mobile home park. One of them senior housing. Let's diversify within the investment real estate world versus that one single person. So that's the difference. Trading a traditional installment sale and the deferred sales trust installment sale both have the foundation of the installment sale. One gives you diversification across as much as you want, go for as long as you want. One does not give you diversification. You're only tied to that property and you're tied to that particular buyer who may or may not be, you know, nice to deal with.

So okay, so you lost me there for a second, Brett. Where does that 10 million then come from? From the diversified. If I'm the owner, If I'm a 65 year old owner, I'm wanting to sell my property, but I'm afraid of 1031 exchange. So we set this up for sales trust. Am I still selling it to somebody and get the 10 million but that just goes into the trust or am I or can I do an owner finance to somebody if they bring some money as down payments?

Let's walk through it. Let's walk through this scenario here. Yeah. And we'll connect the dots here. So you have the $10 million property you're selling here and you have the buyer who has 10 million. He can come with cash or he can come with a loan, doesn't matter. But he has the full 10 million. He's ready to transact. And you're about to do the deal. The escrow is about to close. But remember, you put the language in there so you're already prepared for this. And what happens? The trust jumps in right in between, right before close of escrow. What does it do? It actually buys your position by giving you a zero down payment. Scott, it gives you a zero. So it gave you zero and you carried back the full 10 million.

Okay.

Bought your property immediately. Okay. It turns around and it sells it to that cash buyer for 10 million. If the trust bought it for 10 million and sold it for 10 million, how much gain does the trust have, Scott?

Zero.

Zero. Right. Zero. And Scott, if you received a zero down payment and you carried back the note, how much tax is triggered today?

Zero.

Zero. You got it. Buyer takes title the same way he would have. Doesn't affect him at all. He's gone. He takes the property, takes title, he's gone. Where are the funds? The funds are sitting at some of the largest banks in the world. Charles Schwab, TD Ameritrade, bank of New York Mellon. Where are they invested? Well, Scott, where would you like to invest it? Well, I'd like, you know, a mixture of this and that and this and that. Okay, let's map that out. Great. Let's assign a rate of returns, typically around eight. Great. But Brett, I have all of these note deals I want to fund immediately. Okay, well, Scott, 8 of that 10 million, the next day you form that brand new LLC. The 8 million gets wired to that bank and that LLC. You're off doing the thing you've always done before, which is one of the biggest misconceptions about this thing. Okay, the biggest misconception is, well, I lose control. I have to put it all into this. No, no, no, no. You could technically save that 2 million, you know, because it has to stay in stocks, bonds and mutual funds. You could technically say that for that. But for this other 8 million, you're often running the same thing you would have done and you're buying whenever you want. Now, that other 2 million is still earning interest. And most of the financial advisors we work with are able to ear an 8% over a 10 year period of time. But it's like a reserve account. It's kind of like saying, scott, I'll loan you this 10 million, but you need to keep 2 million at our bank. It's still your money, Scott, but we want to make sure that you can service the note, okay, who you're servicing, the tax return, the trustee fee, the financial advising fee, okay? So that's where you go, you're off and running. You go add tons of value to those properties and you sell and you're facing another taxable event. What do you do? Move all the original amount back into there. Plus you have a second note that goes into your same trust. So now let's just say there's 13 million in there. Now. Now imagine you have 25 single family homes spread across two different states. And you're like, oh my gosh, a 1031 is a nightmare. Great, let's form one trust and let's slowly sell one property at a time and just keep building up this total value. And then what do you do? You get all up to 5 million, 80% can go buy one big property if you want to. So it's really flexible. And the key is, what do you want, Scott? It's your money. How would you like to receive it? And how do we together build this wealth plan that creates optimal timing, that gives you diversification, that gets you out of debt if you want to be out of debt, and gets you liquidity if you want liquidity so that you can create and preserve wealth? Now, most commercial real estate brokers won't tell you about this. Here's why they want to keep you in the 10:31 race. They want you to sell the million dollar property for the 3 and the 3 for the 6 and the 6 for the 12. Why? Because they get these huge commissions. Hey, I still do 1031 exchanges, okay? I get paid more if I do a 1031 than if I do a deferred sales trust. I've been there, I'm still there. But here's the difference. I walk in And I say, Mr. Client, what do you want to do? You can do a 1031. Here's the pros and cons, and I'm going to go out and look for a property. Or you can do a deferred sales trust. Here are the pros and cons. What would you like to do? And let them make the decision. And sometimes, by the way, it's both. Hey, I like to take some chips off the table and I like to do, you know, some 1031. We call that a bifracture. 1031, we can do both. Hopefully that answers some of the questions there.

Totally did. Now the light is on. The light is on at the house. That's awesome there. For those that don't know, can you, can you explain what a QI is?

It's qualified intermediary. So that's what a 1031 exchange. Qualified intermediary. They basically hold the funds. We're kind of like a QI in the sense that we help you maintain what's called non actual receipt. The funds go to the deferred sales trust, never co mingle with anyone else. Single entity trust. Or they can go to a qualified intermediary. Both of them maintain taxpayer from taking actual receipt, which would trigger the tax.

There you go. For those who don't know, I didn't want people think it was a qualified investment out there. So where are you, you having so much experience, stuff like that. Where do you see the opportunities are you seeing in the real estate market that you're kind of salivating or looking at? Right. Because you're seeing it from both sides of the equation.

Absolutely. So especially for someone who has zero basis or next to no basis. Okay. One of the number one reasons to own investment real estate is for the depreciation that you can offset against the cash flow. Okay. But eventually, 27 and a half years for multifamily, 39 for commercial. Eventually you own long enough and do enough 1031 exchanges, your depreciation goes to zero. And at that point you need to buy something much bigger or even bigger than you know to get more depreciation, which is very difficult. So the number one is those who can sell high right now, put in the deferred sales trust and then use those funds to buy new property. Guess what? You get a brand new depreciation schedule. The math on this just. It kind of explodes. So that's the number one opportunity. But here's the key to buy when it makes sense. Okay. You're the expert, right. You've been in real estate. You see the deals want to take that away. We want to just. We want to enhance that. Whenever you find that deal, and that could be tomorrow, that could be day one, it could be five years from now. But again, you may want to diversify into multiple places. So I like senior housing. That's my favorite right now. Especially with the baby boomers and all the health challenges. The demographics are amazing there. I think multifamily is overpriced. I'm very cautious on that. I love mobile home parks. I think that's a good value play for the cash on cash return. So those are my three favorite. If I had to put an order. It'd be probably senior housing, mobile home parks, and then it would be multifamily, just because I know multifamily, that's kind of my bread and butter. Now, the key would be the geographical locations, of course, and then with a proven operator. So I have five kids, so I actually, when I invest, I'm actually a passive investor. And then I educate everyone on the deferred sales trust, and I broker deals. I also raise funds for operators, too. That being said, my scenario is I don't have time and energy to be running these deals, so I partner with those who are buying them and I raise the capital and such because I want optimal time with my kids and my family. Right. I just can't have too much on my plate. So it all just depends on what your lifestyle is. Right. We can do the financial part. You have to pick your personal lifestyle, and let's schedule, let's map out that plan, and then let's all just execute that together. So those would be the biggest opportunities that I see right now.

That's awesome. Brett, what is the best way for people to reach out to you, to connect with you and see if they're fit for what they've got going on in their life with you? Brett?

Absolutely. And actually, let me mention one other one before I get to that one. And this is the estate tax. This might be the one I'm most excited about. For any listeners right now who are ultra high net worth, what does that mean? That means you're married and you're worth more than $22 million, or you're single and you're worth more than 11. Although in 2025, those are set to expire and most or a lot of people think they're going to go back down to the 11 million married and 5 million single collectively. So that being said, anything inside your taxable estate is going to be hit what's called the 40% death tax. So let's just walk through a scenario. Let's imagine you're worth $52 million and you're married. The first 22 million is exempt, so you're good there. But that next 30 million, if it's inside your taxable estate, is going to be hit with what's called a death tax. 40% of that is $12 million that is due within six months of you passing. So what do you do? Well, the intent is to get it outside of your taxable estate. The problem is it takes too long to do it. Meaning you do these FLPs and you do these gifting things, but you run out of the amount per year and you can't get it out fast enough. Kind of throw your hands up and you say, oh, maybe I'll buy some life insurance or maybe I'll do this. But most can't get it out fast enough. The solution is the deferred sales trust. And literally the deferred sales trust can save on one single deal and move all of the funds outside the taxable estate. It has to be a sale. You'd have to have a buyer. Let's imagine you had a $52 million buyer for a $52 million asset on that sale. All 52 million would move outside the taxable estate, defer all the capital gains tax, and not only would you save that 12 million we talked about before, but all of the growth from here until the time you passed will be outside your taxable estate. So we're talking about generational wealth of which you can use to fund charitable causes. Your grandkids, Grandkids, Grandkids, grandkids, college education, whatever. It's your trust, you can put it in your living trust. But that is the amazing part and that's really at the heart of what we're about. We're about not only helping people and families get freedom from capital gains taxes, but also have freedom for their funds and liquidity for their funds so they can fund charitable causes for those most in need. And so we encourage you, we think there's single handedly, there's nothing like this that does this. There's the CRT stands for Charitable Remainder Trust. But you have to give 100% of away to charity. Ours, we're like the CRT, just no C is required. You don't have to put 100%. Most of our clients are charitable, they're just not 100% charitable. So we want to map this out and show you what you can do with that. And whatever you're passionate about, let's do that. Rather than just paying the tax, not doing estate planning, not taking action, not having a plan and giving it to a government which I don't think is any secret, both sides are going to waste it away in about 10 seconds, right? That 23 trillion in debt is wasting our tax dollars away every second. So let's keep it in our communities, let's keep it for funding charitable causes so that we can spread more good works around the world. And that's what we're about. So that being said, you can find us at capitalgainstaxsolutions.com youm can schedule a one on one consultation with me. You can search me on LinkedIn. Brett Swartz. You can also search us on YouTube. We send out videos, you know, three to five minute videos a couple times a week. And then we also have a free guide. If you go to my website, you can click and you'll get a free guide. It's called the Escape Feeling Trapped by Capital Gains Taxes. And that'll give you a good introduction to everything. Yeah, that's the best way to connect with us.

Awesome, man. Well, I've enjoyed this. I've been educated and I think I got a couple referral sources for you right now to spend some time with you today. So that's beautiful stuff.

So thank you.

Thank you guys. Gals. Wow. What a great, great episode. Hopefully you've learned some things. Definitely go back. Instead of listening to it double speed, maybe you need to listen to it in half speed because there's so much great knowledge on there. What Brett said, check them out. Reach out to him if you fall into the categories he described or if you know somebody, hey, make the introduction today. Don't wait until it's too late to take action. So go out, do some great things out there. Reach out to your people, with your friends and we look forward to seeing you all at the top. Everybody. Bye.

Sam.