2471 - Why Every Seller Should Understand Trust-Based Tax Strategies with Capital Gains Tax Solutions' Brett Swarts

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0:46Visit podverified.com if you'd like to be featured as a future guest. I'm Josh Elledge. Let's get into it. With us right now, Brett Swartz. Brett, you are the founder and CEO of Capital Gains Tax Solutions, your website, capitalgainstaxsolutions.com. Brett, it's great to have you. Josh, grateful to be here. Thank you for having me. You are just up the road from me, from St. Augustine, now Jacksonville area, which we love to go visit St. Augustine. It's a great town. And Jacksonville's great. jacksonville's got surprisingly i got really great beaches for that side of that coast because if you go to coco that's you know the sand's a little grainy it's it's a little rocky it's not but uh yeah jacksonville i don't know if they imported all their sand up there but it's it's got some great beaches it's an amazing place yeah we love it been here about three and a half years moved from california we do miss the california big waves you know it's a little little flatter out here but uh beautiful beaches not crowded you know gorgeous eight months of the year.

1:49I think it's San Diego weather is what I call it. And then, you know, a couple months, it's a little bit humid, a little hot. But other than that, you know, we love Florida. As of when we're recording right now, we are in that hot season and probably have a few more months of it. Not until October does it start to mellow out, which that was kind of shocking when we moved down here a while ago. And so, you know, I always love finding out what, you know, great leaders do for fun on the outside, what hobbies they have, what things they're passionate about. And you have been into jujitsu. How long, when did you get into that?

2:23Yeah. So about two years ago. So I had all my kids going, right. And so I was like, well, I'm already taken and then I'm just watching them. Like I might as well jump in and do the night, you know, the night class with the kids on the, on the other side of the, of the jujitsu gym. And so, yeah, I started about two years ago. I'm still a white belt. I keep telling my family, I want to stay a white belt as long as I can, you know, because I feel like the underdog is always a better story. But it's as fun and exciting and it's challenging of anything I've ever done before, all the good ways. And, you know, it's never a dull moment when you're rolling with, you know, either a purple belt or someone who's twice your size or, you know, all of the above.

3:02But yeah, I have five kids and they are all doing great in it and they love it. It took them a little while to get going and then they just kind of taken off. And so it's, yeah, it's definitely one of my passions these days. I love it. So you're your kids less than you're watching your kids do. It's like, man, I could do that. I could do it way better than my kids are driving. I could whoop their butts. You know what I love too is that your contentness with staying on white, it's almost like the equivalent of playing a cozy game. You know what I mean? I'm just going to play on easy level. I need, you know, I need some good dopamine here while I'm, while I'm doing this, but, um, what is something practical that you gain other than fitness?

3:45Um, what's something practical that jujitsu gives you in your non, like you're, when you're not in class, like, you know, in your, just your day-to-day life or in business that you're like, you know what, that, that came because of jujitsu. Oh, for sure. I mean, the, just the, the calm under pressure, right? I mean, you play certain sports and I played football, basketball growing up, played basketball in college and such. And, but I think jujitsu and certainly probably wrestling, a few other ones, you know, it's a certain calm when you're in a combat type of sport. Right. And, uh, I mean, I'll give you an example.

4:15There's one guy, he was like, you know, 275 pounds. He was huge. And I remember him being on top of me, you know, and like, I'm like, am I going to die? Like you're like, your, your body starts to go that way. Cause he's just, it's so heavy, but I, I survived. You calm your, calm your breathing, you calm your energy. I ended up tapping him out, right? He was a white belt too. He was newer than me, but he was a monster and like the monster in a good way. I mean, he was big and he was strong, but he wasn't probably a little more out of shape, okay? But he was huge. And, but yeah, just overcoming things that you think are kind of impossible.

4:46And I think that jujitsu does that for with you within a few minutes of a roll at times. And you can take that with you to the outside world and continue to hit huge goals. I love it. Thank you so much for sharing. Now, let's talk about capital gains tax. On that note, tell me and just if you could maybe just start really, you know, you know, explain like I'm five and then we'll kind of go from there. What capital gains is. Yep. You buy, let's just say a Bitcoin, a stock, real estate, and you start a business and you go to sell it. And if you sell it for a profit or a gain, the government will tax you and the states will tax you depending what state you're in.

5:29So coming from Taxifornia, California, it was somewhere around 33 to 37 percent of the gain. So let's say you bought, you know, a piece of real estate for a million and you sell it for two million and it's a million dollar gain. You're going to be taxed about three hundred and thirty three thousand to three hundred and seventy thousand would be the tax. And so that's the painful, painful lesson that, you know, if you don't have solutions to solve for, that could be challenging. Yeah. And so how do we how to redo how do we reduce our tax liability through capital through capital gains? Yeah, so there's lots of different ways.

6:12Some main ways your audience may know of, like a thing called a 1031 exchange that works for investment real estate. There's things like bonus depreciation to offset taxes if you buy certain equipment or certain properties and you depreciate. Really, I think even a better question before for the how is really the what are you trying to accomplish on the exit of your asset? Even before that, why are you even selling the asset to begin with? Oftentimes that helps to reveal what you're trying to unlock. And if you've ever read the book, and maybe you have, most probably have, if they've listened in real estate, it's the Rich Dad, Poor Dad book.

6:49That fourth quadrant is known as the freedom quadrant, if you will. Most people never get to that quadrant, Josh. They're stuck in two and three, and they don't get to what's called truly passive income, where we like to define that as no shoes, no shirt, no problem. The cash flow is showing up 20, 30, 40,$50 ,000 per month and you don't have to do anything for it anymore and you truly get financial freedom and you get time freedom, location freedom. And it kind of is a game changer. And so what I like to start with is what are you selling and for what purpose? What was the purpose going into the asset that you invested into and what are you trying to accomplish?

7:24And I find that 99 % of the listeners out there, whether they're in business or investors, they want that truly passive income, right? They want to be able to say, hey, 50 ,000 or 40 or 30, whatever the number is, is coming in and I don't have to trade any more of my time or energy for it. I can spend time with the family. I can travel. I can give more, or I can start that business. That's going to be something that's very I'm passionate about. You know, you find that a lot of tech entrepreneurs as well. They're looking for the big tech company and eventually they hit it well on a big SpaceX or IPO exit.

7:52And they're like, wow, well, I'd like to start my own business and give back in a way and make a difference in an impact in a creative way. Well, that's when you, when you have that clear vision then you say well what strategy to defer tax can help me get there there faster and that's where we we come in and we will compare and contrast different strategies but we have one in particular that's a trust strategy that allows you to sell stock businesses bitcoin real estate defer all of the tax then use it as a is capital all tax deferred to start a business to invest into real estate to uh diversify into the stock market to get passive cash flow it just kind of It depends on what you're trying to accomplish.

8:29We'll determine what strategy we use. Do you mind just maybe explaining the elements of setting up the trust and how that works? And again, just, you know, in a very kind of accessible language, if you could. Yep. Very, very, actually pretty, pretty simple. It's a couple steps. We set up a individual trust. It's a business trust. It's an irrevocable trust. And let's just say it was for you, Josh, and you're selling your business. And let's just use a hypothetical of a$10 million exit. and let's just say you lived in New York. Oh, it's way more. No, I don't know. At least that's my target, but yeah, I'm just kidding.

9:03Yeah, yeah. Let's say 10, because that's a nice, easy to work with number. It's a good number, right? And let's just say, yeah, you're in New York, New Jersey, California. And let's just say the estimated tax liability is, I'll just call it 40%, okay? Just keep it simple. So it's 4 million. So you could have six or you could have 10 in the trust, right? So the first question is, you know, do you need or want all of the money right away? to spend on your personal use. And you're like, no, I don't need it all. So I can actually just live off the cashflow and invest it into businesses. And so great.

9:33Then the trust is a good fit because the government will allow you to defer tax and using an installment sale method. Most people know it's like a seller carryback where Josh can become the bank for the buyer. So in a traditional installment sale, a buyer can say, Josh, I'll give you a million dollars down. And would you carry paper for 9 million, assuming you own the business free and clear. And that scenario, you'll be in a referral state on that$9 million because you haven't received that$9 million, but that million you'd pay tax on. So the installment sale method is very common. It goes back over 100 years.

10:02The difference is we don't actually ask you to finance the buyer, meaning the actual cash buyer. We ask you to finance the trust that's the buyer. So you sell it first to a trust that gives you a promissory note, so you became the bank. And the trust sells it to the buyer. And the trust receives the capital. $10 million and$10 million means it has no gain because it bought for$10 million, sold for$10 million. and you receive a promissory note for 10 million, let's say at 9 % interest rate, and you're only gonna pay tax on that interest that you receive in the given year. And that's the power of this.

10:33The full 10 million, it can be working for you, invest it with you, alongside of you, or your financial advisor. And let's just say it earns 9 % or so on average per year. And let's say you live off 9%, you only pay tax on 900 ,000, but you got an extra 4 million working for you to earn that, you know, part of that 900 ,000. So that's the, that's basically the compounding effect that we unlock. And it makes sense if you think about it, Josh, right? You probably spent 10 ,000 hours building your business, blood, sweat, and tears, all the risk, all this stuff. Why would you want to just give, you know, 20, 30, 40, 50 % of it away if you could build a plan that helps it to work for you long-term?

11:10You can pass it to your kids. You can use it to start your next business venture, all tax deferred, by the way. The only time you or your kids pay taxes as you get a personal payment and you're using it on your primary home or your living expenses, which is fine. Our clients do that, but they don't need all of the millions all at once. Most of them just want that passive income to be consistent and durable. Okay. So this sounds great. This sounds like a no brainer and someone who exits without this, who mama, they're going to pay a whole lot more in tax, which begs the question, the IRS when you do this are like, yeah, you know, absolutely.

11:49We're, we cool with that. Yeah. The number one question to ask is the, and it's a great first question for anyone who's, who's proposing such a, any kind of tax strategy is, is what's the IRS track record? Like what's your guys' track record, right? So first of all, this goes back about 30 years, thousands of transactions and then about 35 audits, state level audits, formal audits. Most of our deals done in California, which is one of the most strictest states for these kind of type of things that they're trying to find ways that you're not doing it right. But we've never had a change in the audits, right?

12:17So we literally are batting a thousand for the audits and the track record, billions of assets sold using it. The tax attorney and CPA is a business partner who, you know, we work as a trustee to set these things up for individuals who are exiting, again, businesses, stock, real estate. And so that's a track record. There's also, most people don't know, there's about a two to four year audit window when you sell something, depending on what state you're in, maybe like three to four years. So it's not as if this thing's going to chase you forever. But at the end of the day, it's just an installment sale.

12:47We're fully reporting it to the IRS. Nothing's offshore. We've never been on a dirty dozen or a watch list. We're not a reportable transaction. We're just an installment sale with a trust. The second major question or objection of why wouldn't someone use this is sometimes they want to have unilateral control. You have to give up some control. So if you have an IRA company or 401k company, if you've ever done a 1031 exchange, The government says, if you follow these, basically this pathway and give up some control to a third party trustee, that's part of what you have to get comfortable with, then we'll allow, by the way, if they're 4 million, they're also giving up control of that 4 million if you do this, keep that in mind.

13:22You have 10 million in there, but it's not all 10 million is yours. 4 million is the government's, right? 6 million is yours. But the government says, Josh, I'll give you a$4 million interest-free loan at 0 % that you can go, you know, So earn interest off and pay taxes, you receive it, use it to start your next business venture, use it to buy your next investment real estate property, as long as you do it with a third party unrelated trustee as part of the rules, right? So part of it, I have to just help people with that. It's like, you can have 100 % unilateral control of the 6 million, or you can give up some control and have 10 in a trust that works for you for a long time.

13:55You decide, right? And people have to make that decision for themselves. You could also take partial payments. You could say, I want a million now, I'll let 9 million roll or 8 million. I want two now. Let 8 million keep going. So it's not as if you're stuck in just cement. It's very flexible for the entrepreneur. And that's what we do. We serve purpose-driven entrepreneurs and investors who want to compound their wealth and want flexibility with the capital and not have to suffer the consequence of a major tax bill in the year of sale. And then getting a trustee, is that something that you provide?

14:27That's something that your team does? That's what we do. Yeah, we would love to be the trustee. We're a specialized trustee for this, just this particular trust. And, uh, yeah, we're working with a strategy since 2009, working with the founder since 2009 on this. Um, yeah, you have to set up prior to the close and, and you need to make sure that the MNA attorney or the CPA or the financial advisor and the business broker you're working with, you know, that's part of what we do. We're an offensive coordinator, if you will, we're like, everyone's going to run this play and you got a football on your hand.

14:57You're trying to race for the touchdown at the closing. And it's this momentum moment that we're trying to keep the momentum on your side versus it being pulled back by all that tax. The other aspects of this, too, is there's some built-in estate planning. So you can eliminate estate tax. If we're going like$100 million deals, we can eliminate the death tax, which most people don't realize that the stepped-up basis doesn't solve for that. So there's that piece of it. And then there's the asset protection piece of it. This$10 or$100 million that's in the trust is asset protected from creditors.

15:24So there's some other ways to add value to your overall estate. And if there's one thing I want everyone to hear, if you're selling stock, business, Bitcoin, real estate, at that point, there's an opportunity for momentum that can be on your side. We like to say that momentum is hard to build. It's easy to lose and it's priceless to keep. right and if you can get it on your side on the exit this sets up the legacy in a way that can that can endure for longer because you just have you know more money to work with Brett your website is capital gains tax solutions what I appreciate is that you you have a lot of great video on here do you mind maybe sharing kind of best resources for our friend that's listening right now yes so we have our book building a capital gains tax exit plan.

16:13We, we, we came out with the book a couple of years ago. Now we have Kevin Harrington from Shark Tank in the book, which is great. So it's my, it's my story of the 2008 crash and not knowing a thing about this, right? I'm a real estate wannabe entrepreneur in California, trying to make it with a new baby and a new wife. And it really literally went broke. Like a lot, we had to borrow 5 ,000 from my dad, worked at Cheesecake Factory and nights and weekends, while I was still trying to sell real estate to keep the lights on. And then I learned about this And I don't want people to go through this painful lesson that a lot of people learned that lost millions because they didn't have a capital gains tax exercise.

16:48So I would say that book is a great one or just capital gains tax solutions dot com where you can watch the videos and client testimonials. Yeah. Brett Swartz, again, founder, CEO, capital gains tax solutions, your website, capital gains tax solutions. And then, of course, you know, someone who is, you know, they're approaching an exit or they know that, you know, they got some things moving and they'd like to keep, you know, have more control over the movement rather than have to have to peel off so much for the IRS. So obviously they can connect with you right on your front page there as well.

17:26Anything else that you want to share just in terms of like, I know you've got some great videos, you've got YouTube and so forth. But yeah, anything else you'd recommend? I think just from the advisor who might be listening to this, right? So you might be a luxury real estate agent, commercial real estate broker, financial advisor, M &A advisor, and you're trying to serve clients at a high level. Like we're seeing the biggest wealth transfer in the history of the planet happen right now. It's$124 trillion. It'll happen in the next, you know, five to 10 years or so. And it's the baby boomers that's transferring it.

17:56And every single day there's 10 ,000 turning 65 years old in America. and there's 80 million in the U.S. alone. And so this tsunami of wealth is going to transfer. And the question will be, will it be subject to a state death tax, which is a 40 % hit on anything above 30 million, married, 15 million, single. Will it be subject to massive capital gains tax on these exits if they're not selling and waiting for the stepped up basis? Like we have to navigate that. And then will you be able to serve them and help them steward the wealth? And so this is just a huge moment in our history. You know, 250 years, we just celebrate July 4th.

18:27We call it the reverse tea party, right? We fought for basically representation with taxation, right? So where are we now? Well, this$124 trillion, we believe if it all goes to the government, they're not very efficient with the spending of the money, okay? We're clearly seeing that. No matter what side you vote for. And so the question is, can it be in the hands of the people that create the jobs, that build the houses, to end the housing crisis, to really continue this American dream? Well, this is a big moment, right? And so we want to use every legal means that are available to help our clients.

19:03We want to help you help your clients. We're like a wingman. We come alongside advisors because advisors are really good, especially like a financial advisor for the overall global picture. We're like the Navy SEAL that comes in right at the exit moment. That advisor manages the capital. We're the trustee and we team up. And so the advisor's happy. He's like, wow, it's 100 million versus 60 million, right? The client obviously is overjoyed, right? You know, we get paid our fees, so we're happy to. Everybody wins. And by the way, the government wins too because the money does get invested and that should spur economic growth.

19:36The study of macroeconomics creates more jobs, more tax revenue. So that's why governments give us IRAs, 401ks, these strategies, right? That we're talking about, trust with installment sale methods, because it's going to incentivize the continual investment of the funds, which creates more jobs, more tax revenue. It's basically it. So that's the last thing I'll just share is just make sure you're aware and you're asking your clients the necessary questions to prepare because the opposite is true. The other advisors that are doing that, they end up winning that deal, right? And all of a sudden the advisor looks up and is like, I've been golfing and serving with your family for 5, 10, 15, 20 years.

20:16And you're like, but you didn't have a capital gains tax or state tax exit plan for me. This other person did. So we don't want you to lose out. make sure you connect with us so we'll educate you, empower you, and help you. Brett Swartz, author of Building a Capital Gains Tax Exit Plan. You've closed over a half billion dollars in deferred sales trust. And again, you're the founder of Capital Gains Tax Solutions on the web at CapitalGainsTaxSolutions.com. Thanks, Brett. Thank you so much, Josh. It's been awesome. A pleasure to be on the show.

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