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DEFERRED SALES TRUST Brought to you by Parse Financial Wealth Management.

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Presentation on theme: "DEFERRED SALES TRUST Brought to you by Parse Financial Wealth Management."— Presentation transcript:

1 DEFERRED SALES TRUST Brought to you by Parse Financial Wealth Management

2 Deferred Sales Trust Brought to you by Parse Financial Wealth Management Brought to you by Parse Financial Wealth Management

3 Sell more real estate Get clients off the sidelines Position yourself for success A Deferred Sales Trust TM – DST TM is a strategy that allows a Client to sell an appreciated asset, receive the proceeds as liquid cash and pay capital gains taxes over many years rather than immediately. The possible benefits include reliable income from the trust, flexibility in how the trust is invested (i.e. bonds, stocks, or real-estate), protection from lawsuits and creditors, and with the proper planning, the assets can be arranged to pass to your beneficiaries estate and gift tax free. Sell more real estate Get clients off the sidelines Position yourself for success A Deferred Sales Trust TM – DST TM is a strategy that allows a Client to sell an appreciated asset, receive the proceeds as liquid cash and pay capital gains taxes over many years rather than immediately. The possible benefits include reliable income from the trust, flexibility in how the trust is invested (i.e. bonds, stocks, or real-estate), protection from lawsuits and creditors, and with the proper planning, the assets can be arranged to pass to your beneficiaries estate and gift tax free. Deferred Sales Trust Tax Efficient Exit Strategy

4 Meet John & Patty… 37 year actuarial life Married, John age 54, Patty age 51 Personal Information: Taxable Gain: $2,600,000 Depreciation: $400,000 Equity gain: $2,200,000 Selling the property for $8,000,000 Mortgage Payoff: $2,400,000 Bought a hotel for $5,800,000 Their Story:

5 Normal Transaction Real Estate Sell Property John & Patty Age: 54 and 51 John & Patty Age: 54 and 51 Net Sale Proceeds $5,600,000 Sale Price $8,000,000 Mortgage Payoff $2,400,000 Sale Price $8,000,000 Mortgage Payoff $2,400,000 Taxable Gain $2,600,000

6 Normal Taxation $4,968,200 After tax proceeds $4,968,200 After tax proceeds Taxes: $631,800 Sell Property Federal and State* taxes: 24.3% *California Depreciation lowers basis which increases Gain Taxable Gain: $2,600,000 Depreciation: $400,000 John & Patty Age: 54 and 51 John & Patty Age: 54 and 51 Real Estate Sale Price $8,000,000 Net Sale Proceeds $5,600,000

7 Compare Normal vs. DST Sell Property The annual distribution and actuarial calculations are taken from a DST illustration. Assumptions: $5,600,000 compounds at 7% annual growth over a 37-year period, net of a $372,159 distribution paid annually. Results shown are after-tax. Tax liability varies with type of investment -- typically tax-efficient and tax-deferred. This scenario assumes earnings taxed at capital gain rates. Normal Transaction is using the same assumptions as the above with the exception of a $631,800 beginning tax payment. This scenario makes certain assumptions in order to illustrate the important aspects of this program. These assumptions may not and are not intended to be representative of the situation that all sellers of real estate property face. The particular circumstances which prospective sellers face exert an effect on the outcome of this strategy and, in turn, influence whether it is suitable for a client to undertake. There may also be additional considerations not accounted for in this example that may further affect whether this plan is appropriate for a particular property seller. Therefore, prior to engaging in this transaction, it is necessary that the prospective participant review their tax situation with their tax advisor to ascertain if this type of program is right for them. Real Estate John & Patty Normal Transaction:$4,968,200 grows to $ 1,058,384 With the DST:$5,600,000 grows to $ 8,698,137 Normal Transaction:$4,968,200 grows to $ 1,058,384 With the DST:$5,600,000 grows to $ 8,698,137 Both assume 7% growth and $372,159 per year for 37 years Difference is the compounding of $631,800 for 37 years Both assume 7% growth and $372,159 per year for 37 years Difference is the compounding of $631,800 for 37 years

8 Deferred Sale Trust They choose their trustee who follows their instructions (Can be a family member other than children unless they are co-TTs) They choose their trustee who follows their instructions (Can be a family member other than children unless they are co-TTs) Step #1 We have EPTs Legal Network attorney set up John and Pattys Deferred Sale Trust Step #1 We have EPTs Legal Network attorney set up John and Pattys Deferred Sale Trust

9 Step #2 John and Patty transfer asset(s) to their Deferred Sale Trust before escrow closes Complete asset retention in a tax deferred transaction Complete asset retention in a tax deferred transaction Real Estate Sale Price $8,000,000 They choose their trustee who follows their instructions (Can be a family member other than children) They choose their trustee who follows their instructions (Can be a family member other than children) Deferred Sale Trust

10 Net Sale Proceeds $5,600,000 (Depreciation increases capital gain And is deferred) Net Sale Proceeds $5,600,000 (Depreciation increases capital gain And is deferred) Step #3 The Deferred Sale Trust sells the real estate and there is no gain on the sale to the trust Step #3 The Deferred Sale Trust sells the real estate and there is no gain on the sale to the trust Real Estate Sale Price $8,000,000 $ Deferred Sale Trust

11 Step #4 Trust pays John and Patty (age:54 and 51) an annual income of $372,159 for 30 years Step #4 Trust pays John and Patty (age:54 and 51) an annual income of $372,159 for 30 years $ Real Estate Sale Price $8,000,000 Lifetime income can be increased or reduced depending on their goals and estate planning objectives Deferred Sale Trust

12 IRS receives 100% of the tax due, but spreads it over the term of the contract. Like an interest free loan from the IRS! IRS receives 100% of the tax due, but spreads it over the term of the contract. Like an interest free loan from the IRS! Step #4 Income taxes due on a portion of annual income Annual Income Recap: Tax Free Basis $ 74,799 Capital Gain $ 75,335 Ordinary $222,025 Total Income $372,159 Annual Income Recap: Tax Free Basis $ 74,799 Capital Gain $ 75,335 Ordinary $222,025 Total Income $372,159 $ $ Step #5 John and Patty pay taxes: capital gains - $18,306 ordinary income (% set by their tax bracket) Step #5 John and Patty pay taxes: capital gains - $18,306 ordinary income (% set by their tax bracket) Real Estate Sale Price $8,000,000 Deferred Sale Trust

13 Step #6 John and Patty deceased; total value of Trust transferred estate tax free to their heirs Step #6 John and Patty deceased; total value of Trust transferred estate tax free to their heirs John & Pattys Beneficiaries $ $ Real Estate Sale Price $8,000,000 Deferred Sale Trust

14 Frequently Asked Questions Can we use a portion of the proceeds to re-invest in real estate at a later time? Yes If Im in escrow right now, can I still use a Deferred Sale Trust? Yes Can we borrow from the Trust? Yes

15 Deferred Sale Trust - Advantages Income Tax Savings - When appreciated property is sold, the seller defers recognition of gain until receipt of payments Estate Tax Savings - Removes transferred property and all future appreciation from the estate without use of gift or estate tax exemptions Maintains Family Wealth - Maintains wealth within the family Estate Liquidity - Converts an illiquid asset into monthly payments Retirement - Provides a stream of income for retirement Probate Avoidance - Avoids probate Asset Protection - A DST may place the transferred property beyond the reach of potential creditors and litigants if the transferor retains no interest in the transferred property Security - Asset must be transferred on an secured basis

16 Tax Planning Alternatives Taxed Sale – pay the taxes 1031 Exchange Defective Grantor Trust CRT (Charitable Remainder Trust) CLT (Charitable Lead Trust) GRAT (Grantor Retained Annuity Trust) ILIT (Irrevocable Life Insurance Trust) It is important that your client discuss their unique circumstances with our tax attorneys to help them determine the best course of action. This service is provided at no cost to you.

17 How Is The Money In The Trust Invested? Depending your clients goals and objectives, we work with some of the largest financial institutions in the world to develop strategies for: Asset Preservation Tax Efficiency Liquidity

18 Fill out the free tax-savings illustration form today and find out what the Deferred Sale Trust can do for your client. The Deferred Sale Trust TM

19 DEFERRED SALES TRUST Brought to you by Parse Financial Wealth Management Bobby Kashani, CFP® Bake Pkwy Suite 105 Irvine, CA Office: (949) Fax: (949) Bobby Kashani, CFP® Bake Pkwy Suite 105 Irvine, CA Office: (949) Fax: (949)


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