Welcome to our latest episode! Today, we’re joined by Brett Swarts, Founder of Capital Gains Tax Solutions, best-selling author, and SUCCESS® Certified Coach. With extensive expertise in real estate, business investments, and wealth management, Brett has successfully facilitated transactions exceeding $500 million through Deferred Sales Trusts (DSTs). Brett’s mission is to empower high-net-worth individuals and their advisors to strategically defer taxes and maximize their wealth.
In this episode, Brett dives deep into how Deferred Sales Trusts can transform wealth management strategies. He explains the mechanics of DSTs, their legality, and why they offer a powerful alternative to traditional 1031 exchanges. Brett shares real-life examples of clients leveraging DSTs to defer taxes on assets ranging from real estate to Bitcoin, and how this strategy opens opportunities for diversification, cash flow, and reinvestment. He also addresses common misconceptions about DSTs, including audit risks, and discusses how his team ensures compliance and transparency.
Whether you’re an investor, advisor, or entrepreneur, this episode is packed with actionable insights on optimizing your financial strategies through tax deferral.
Tune in now to learn how Brett Swarts helps clients achieve financial freedom while creating a positive impact for their families and communities.
HIGHLIGHTS OF THE EPISODE
00:00 – Welcome to the Big Mike Fund Podcast
00:18 – Guest intro: Brett Swarts
03:21 – Deferred Sales Trust (DST) vs 1031 exchanges
05:29 – Examples of DSTs in action
08:53 – Mechanics of a DST
12:19 – Misconceptions and audit risks with DSTs
16:03 – Ideal use cases for DSTs across asset classes
19:22 – Reinvestment strategies and client success stories
24:12 – Partnering with the trust to fund business ventures
27:06 – Costs, timelines, and scalability of DSTs
30:03 – Brett’s book recommendation: Building a Capital Gains Tax Exit Plan
31:13 – How to connect with Brett Swarts
If you found this episode substantial and want to dig deeper into real estate, or maybe you want to discover better investment opportunities, be sure to check out www.tempofunding.com.
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Full Transcript:
Intro: Welcome to the BigMikeFund Podcast, where you’ll learn about advanced wealth building strategies from real estate investing to creating massive ROI and secure retirement profits. So pour yourself a cup of coffee, grab a notepad, and lean in. Because Big Mike has got the mic, starting now.
Mike Zlotnik: Welcome to the BigMikeFund Podcast. I’m the Big Mike, Mike Zlotnik, and today I’m joined by, uh, Brett Swarts. Hey, Brett.
Brett Swarts: Mike, great to see you again, sir. Thanks for having me on the show.
Mike Zlotnik: Thanks for coming back on the podcast. Your repeat guest, your great expertise in the DST Deferred Sales Trust. Uh, but before we talk about the latest and greatest in the DST space, tell folks a little bit about your journey.
You, you said, uh, before the meeting we, uh, started the recording, you said you moved from California to Florida, San Agustin area. So how has it been? How’s your journey in the, uh, Southern Agustin, Florida area?
Brett Swarts: Absolutely. Yeah, I just, just, just, just moved about two years ago now. And so it does still feel pretty new because I grew up, most of my world was California.
We call it Axifornia these days. Um, part of what we do is capital gains tax deferral. And a part of that is because of the, you know, big challenges with tax these days. You know, the government has a spending problem, which means we all have a tax problem. Um, and so I grew up helping my mom and dad build real estate in mostly the Bay Area, Silicon Valley, East Bay Area of California, and then also in Sacramento.
And, uh, from there, I studied and practice at Marcus and Millichap, a multifamily brokerage and investments. And so that’s where I kind of got the, The brain’s side of it, right. And then versus just the construction side, and then combining those all was really great for a while until the market crashed and Oh, Hey, and we saw friends, family and clients lose half or all of their wealth.
And we said, there’s gotta be a better way to exit what could give you diversification, liquidity. And I’ll have to suffer the time consequences of the 1031 exchange. And so that’s when we learned about the deferred sales trust. So what we focus on now, but really our big mission is to unlock, you know, capital gains, to multiply freedom and impact for families, for entrepreneurs, for the business owner of the person who owns Bitcoin.
And they want to sell, but they have this huge capital gains tax. And then they want to also have a wealth plan. It gives them flexibility, but they don’t want to be stuck into just one asset class, right? You’re in the big Mike, you know, funding, right? And it’s funding. Well, how cool is that? If you can sell a real estate for 10 million to for 4 million and go put it into like a big Mike fund and make excess cash on cash return, we’re just staying in the, in the, in the asset and making maybe three or 4%, right?
And this is where we come into play. And we look at cash on cash return. We look at return on equity and we look at really diversifying, right? Going into first position type of mortgages or different lending funds that give us some diversification. Versus just having to stay highly concentrated. So that’s a little bit about my story.
My wife and I are married. Uh, we’ve had, we have five kids married over 15 years and we love Florida. We also miss California too. California is a great place in so many ways. Uh, so a lot of family there. Um, but yeah, we’re really here to try to help, help people with capital gains tax exit planning.
Mike Zlotnik: That’s really cool. Thanks for sharing your, your adventure. You have a, uh, beautiful family. God bless. Thank you. And, uh, uh, so just for the quick, uh, clarification, I’ve heard of DSV used two ways. So deferred sales trust and Delaware statutory trust. What’s the difference?
Brett Swarts: Yeah, so a Delaware statutory trust. I want you to think 1031 exchange, right?
And when you think 1031 exchange, I want you to think very specifically just investment real estate. So, if you’re a real estate investment owner, you can do a regular 1031 exchange. You can do a Delaware statutory trust or a Delaware 1031 exchange, but you can also do a deferred sales trust. And the biggest difference between the Delaware and a deferred sales trust is that a Delaware is just like a packaged pieces of real estate.
Sometimes one property, sometimes two or three, sometimes a number of properties, but it’s packaged and you have no look, no control, no liquidity, no diversification. It’s, it’s, it’s what we call sleepy mailbox money. Like you’re basically just putting it with a group and they’re just, you know, returning sometimes around 5 percent is the average, I would say.
Very large fee, sometimes 10 to 15 percent of every dollar is going into fee. So very expensive. That’s the Delaware statutory trust. Now the deferred sales trust is super flexible, right? So if I wanted to go into big Mike’s fund and I’m selling it, I get a 10 million asset. I can, I can put it in. I can sell the real estate or the business or the Bitcoin.
I can defer all the tax and I can diversify it into real estate. And to real estate funding or hard assets, or to stocks, bonds, and mutual funds, or sit in T bills at 5 percent or use it to start a next business venture. Right? So it’s a nice way to, to do all of those things. I can put it back into Bitcoin.
We had one client who sold a 13 and a half million dollar, uh, uh, car wash in San Diego with three other partners. They all deferred their tax. And one of them put it into Bitcoin at 40, 000 a coin, right. For some of it. And it shot up to about 60, 000. 65, 000 a coin, right? Which is a cool way. They sold high and they, and they bought it at a good price.
They’re also buying into hotels. They’re buying into gas stations. They’re buying into apartment complex. They’re also putting into the lending fund. And so it really gives you that flexibility to defer that tax and multiply your wealth.
Mike Zlotnik: So, uh, now let’s dive into, I appreciate that, that, that verification. How does it really work? Uh, just remind the audience, because it’s a, it’s a deferred sales trust. So it sounds like you could trade in and out of assets, like, like, uh, you know, Bitcoin is an example or any, anything appreciated, uh, assets. Uh, or, uh, Be taken from growth oriented, appreciated type of investment into income focused.
So, crypto. Somebody bought a bitcoin when it was, uh, way cheap, and at this point, it’s not producing cash flow, uh, and they want to diversify not only Cashflow production would move to real estate. So it’s a, uh, just walk us through mechanically the process. Uh, how, how does it work and then how do, how do they move that, uh, liquidity into more income oriented, uh, investment?
And then also, how does IRS look at this? How do you get the, the deferral where it doesn’t say, wait a minute, this is some kind of a text shenanigans, but we, we, we want our, our fair share.
Brett Swarts: Yeah, absolutely. Here we go. So we’ll start with the legal part and we’ll talk about how it works. Right? So 1 of the biggest, biggest things to understand the deferred sales trust is how does, how does this thing legal?
Like, why haven’t I heard about it? Why isn’t the IRS just, you know, really upset about it or, or why aren’t they just shutting it down? Well, the reality is, is there’s laws on the books, right? That allow us to do tax deferral. And most of us know the IRAs, the 401ks, we know the 1031 exchange. These are all part of the IRS tax code, by the way.
There’s also IRC 453, which is an installment. Sale type of methods, reporting and structuring a sale. Whereas, you know, Mike is selling a 10 million asset in New York. And that basis is zero. If you were to sell, he’s going to pay me about 40 percent of that and capital gains tax. But if he sets it up as an installment sale, meaning he’s taking that 10 million back over time, he can defer that capital gains taxes.
So this is known as a seller carry back. So that’s, that’s basically how it works. And that’s also why it’s legal in the sense that. Government has given us these laws to do, uh, to, to, to execute. Right. And so we need to set it up before the close of escrow. We need to set it up, um, um, and have the trust in place to receive the capital before the close of escrow.
Unless you’re in a 10 31 exchange, then you can use our best 10 31 exit plan. And we can do it within a 10 31 as well, but both sales, if they’re business, primary homes, Bitcoin, we need to sell it, set it up prior to. So kind of answer part of your question for the Bitcoin seller that we helped. Uh, she had a 50, 000 worth of Bitcoin.
Well, that 50, 000 value went 50 million dollars of value in Bitcoin. Okay. So she never sold until she met us and not so much that we had a, uh, a way to, um, she, she, she never sold because she didn’t have a great place to put it. Also. She didn’t have a great tax deferral plan. So she, she met us, we gave her that great tax deferral plan and she had a place to invest it, which was back into a business venture with a, with a business partner.
So she took 5 million Bitcoin and we actually opened up a cracking account of, uh, in a trust account and we had the, the Bitcoin transferred to that trust account. And she got a exchange. She got a promissory note. And the trust sold the Bitcoin to cash. And so now there’s 5 million in cash at Kraken. And we sent that to Charles Schwab.
And then from there, she was able to invest it passively into a business venture. But she could also put it into a real estate fund. She also put some of it into the stock market. That’s the cool thing about this. It’s, it’s, it’s a legal proven strategy, uh, close to 30 year tracker, close to 30 no change IRS audits and thousands of transactions.
And, and that’s really the important part. There’s lifetime audit defense in place. And this is not something we’re, we’re trying out. This is a proven legal, legal structure that we have executed over many, many years. Um, and we, we, uh, we, we help people every single day understand what it is and how it works.
Mike Zlotnik: Yeah, I appreciate that. So it would work the same way as if somebody sold and got paid their money over, let’s call it 40 years. So DSD essentially, so let’s use an example, 50 million sale of the Bitcoin. Right. So that does she have to pay every year, some kind of a tax because it’s, it’s, it’s, it’s over time.
Right. Is that how it works? She deferred the tax liability over many years and how many years. Is that a similar concept? So
Brett Swarts: you nailed it. You nailed it. You see, it’s really that simple, right? So in her scenario, she did 5 million. So we’ll use that number. Then we’ll go to the 50 million number person.
There is 5 million. And for the 1st, I think, 6 or 12 months, she actually took no distributions from the 5 million. And we wrote an interest rate on the note of about Eight or 9%. Okay. And so on the 5 million at 8%, that’s about a 400, 000 cash flow. And so we invest the funds. We make about 400, 000 or so. And she, she, uh, she could take the payment and pay tax on that 400, 000.
I think she delayed it for a period of time. And then when she started taking payments, she got taxed. And so. She was only taxed as she receives payment. And that’s really the key here because on the 5 million, she would have paid about 1. 8, 5 million in tax. Let’s just call it a two, right? So she would have had about three.
I said, there’s five. Well, you don’t have to dip into the principle. That’s the five. That’s the cool thing. Right. And then the interest is 400, 000. Where you can just live off the interest. And most of our clients, they want maybe 2, 250 a year or so, or maybe they want 400. But the point is, they may not need it in every single year or right away.
So this gives you a strategy to defer the tax, also defer the income interest that it’s accruing. Okay, and and the trust operates typically at a no cost or no, no, no, no profit basis being it’s able to accrue the interest on the note, which expenses it on the trust tax return, which has therefore has no tax.
And so it’s a very efficient way. To build wealth because you can do income tax deferral and capital gains tax for now You do need to start receiving some money at some point So it’s not something where you can just say like well Just put the 5 million in there and just let the 400 just roll roll roll roll roll No, you do need to start receiving typically in about year two or so We’re giving about half the interest on the note that we’re paying out Um, but but the neat part is is until then you’re not paying any tax. You’re deferring all that tax
Mike Zlotnik: Yeah, and I appreciate that clarification. It sounds like you pay on distributions only, and you structure the, the note in a manner to avoid taxes within the trust on a neutral basis, because the trust in general attacks at a pretty high rate. So you got to make sure that the trust doesn’t really make a profit or where the profit is minimal. Is that essentially what I’m hearing from you?
Brett Swarts: You nailed it, Mike, right? And the trust tax levels by themselves are the highest rate, right? And so 99. 9 percent of the time, year in and year out, the trust is operating on a paper loss because it’s able to expense and the accrual of the interest, even if it’s not paying it out, it’s able to expense the trustee fees.
This is our role, right? We’re the third party unrelated trustee, right? And the trust tax return, this is like, think of it more like this. C corp trust. Right. And so it’s, it’s, it’s, uh, it’s like a new business venture that’s been set up new business trust and it’s able to expense that. So yeah, year in and year out.
And the trust also bought the Bitcoin for 5 million. And it’s sold it for 5, 000, 000, okay, so it has no gain at the trust level for that 5 and 5 and the interest. It’s accruing. It’s able to expense that right? And so that’s that’s the key here that that enables it to typically operate at a loss and therefore being very, very elegant way to to to build well.
Mike Zlotnik: Yeah, I appreciate that. So, uh, it sounds. You know, too good to be true, uh, in some ways. And, um, I have heard again, this is not by any means anything other than there are rumors out there that DSD is a red flag on a tax return. So I’m just asking the question straight up because you’re in the space and folks saying, well, what if I do DSDs is going to put me under.
An audit rater, uh, or a red flag to be audited. How much do I want that? So I’m just curious, um, how much of a red flag is it? How will, you know, what, what percentage of the, of the trust that you’ve set up have gotten audited or the, the, the owners have gotten audited? I’m just curious because it’s, it might be completely by the book, but the risk of an audit by the, by itself.
Scares people. So, you know, it’s nerve wracking to be dealing with an IRS ordered, million pound gorilla knocking on your door and saying, You owe us some taxes, we think we do, or at least let us look into everything you got, and what else are they gonna look at?
Brett Swarts: Yeah, let’s cover that. I would say this is probably the biggest myth of the Deferred Sales Trust is, oh no, it’s going to be an audit risk or somehow that we’re doing something that is, you know, outside the lines of the IRS tax code.
Let me, let me lay out some of the facts here. First of all, thousands of transactions, again, close to over 30 years, close to over 30 no change IRS audits. And the same way that you would do it in an installment sale is how you report the deferred sales trust. So the deferred sales trust has never been on an IRS watch list.
It’s never been on a dirty dozen list. Uh, it’s never been, you have to report it on your return as, you know, it’s called a reportable transaction. Never been on that, right? It’s literally batting a thousand, but there are those that are bloggers out there that would want to, you know, uh, that are misinformed or have misinformation because they want to keep you on what’s called a 10 31 exchange.
Cause that’s kind of their world, or they just don’t understand how we do this, right. And that’s the, that’s our, you know, some of our competition. And, and I think sometimes it’s also a, a good way to get someone to click on your article, right. To read, but the reality is it’s literally batting a thousand billions and billions and billions of assets sold using it over the years.
Um, and one of the bigger, better stories that helps me to bring this to life is a gentleman named David Young and David Young built a company with a gentleman named Bill Gross called PIMCO. Okay. And they built this with five other guys from 80 billion to 1. 2 trillion about 20 years ago. And they managed some of the biggest wealth in the entire world.
And you can imagine guys, uh, you know, gals come to hit and come to them with tax strategies that they should, you know, look at for their clients. And, and, and, uh, and David says that, well, he says, you know, most of them are just not worth the trouble, right? They’re not proven. They don’t have a track record.
Um, they go outside the lines, they’re offshore, all these things that are, you know, challenging for other tax deferral strategies. Um, well, we said, take a closer look at our strategy. And he did kept an open mind. He signed the NDA with his legal team and they did a two year due diligence on the structure and the strategy.
And after two years of that, and a couple of days of a little mini summit, uh, to understand it really clearly, uh, they came through two conclusions, number one. Um, The creator of the structure, uh, one of my business partners, he’s the, he’s the tax attorney and CPA who created this. Uh, he’s a genius and he is, he’s a genius.
He’s really smart. But number two, the smartest person we’ve, they’ve ever, you know, ever met are one of the top ones. Number two, they’re all in, they’re part of the inner circle, right? And, and they’ll manage capital and help, uh, help build the wealth plan for the DST clients of ours. Um, and this is something that they do and so we always say to the skeptic or the person who’s cautious out there and you shouldn’t be right.
You should ask your CPA. You shouldn’t you shouldn’t you shouldn’t seek, you know, independent legal advice on these kind of things. You shouldn’t just take it at face value off of a podcast, right? Jump in the calls with us. But if it’s good enough for David Young and his legal team after 2 years of due diligence, is it good enough for me, Mike or whoever else is listening to this right?
What we would say on the other side is. People who do not engage their CPA, they don’t pay their CPA, the money to get on there. They’re paying it to them last minute. They’re not bringing the planning involved. They’re not engaging in having a robust discussion on this. And they’re just looking at a blog and then they, they let fear, you know, grip them and they just end up paying the tax.
Well, I can tell you, like Michael Jordan said, right, you missed a hundred, a hundred percent of the shots you don’t take. Right. And so we don’t think it’s a risk. In fact, we’re a very low audit risk to answer your other question. Trust are the lowest. Audit risk. Okay. Although the highest tax rates are the lowest audit risk out of thousands of thousands and thousands of transactions.
Okay. Okay. We’re, we’re very low audit risk. The way that you report the installment sale as a deferred sales trust or regular installment sale, Mike is the exact same way. It’s the exact same form. So this is a big myth. Like people think that you’re doing something that’s odd or out of the box. Like if you do a seller carryback, Mike, for a property you’re selling, are you concerned that if you’re going to get an audit, you’re going to be outside of the rules?
No. Right. And if you put it on the same form that you put the deferred sales trust, are you concerned that you’re going to get a higher audit risk? No, it’s the same form. Right. And even when you get audited, um, um, the, the tax attorney provides lifetime audit defense at no additional charge. Okay. And they have a perfect track record with that. So that would be my feedback for anyone thinking about if it’s too good to be true, if it’s, if it’s legal.
Mike Zlotnik: Yeah. And I appreciate that, that explanation. So next question, what is this really good for? Um, uh, in other words, uh, is this good for any appreciated asset sale or is a specific asset classes? Uh, is it just generic?
Uh, obviously real estate people do 1031. It’s a very specific, uh, technique. Um, but can people sell anything, appreciated value, appreciated building, appreciate stock, appreciate it, uh, crypto, appreciate commodity, appreciate business, and then move the money into anything they want. I mean, I’m sure there are rules that you have to meet.
I’m just curious, kind of like, what does it work for, and what’s a typical? You’ve seen a lot of these cases versus, uh, theoretically you could do anything, but what do you see people do commonly?
Brett Swarts: Yeah, well, it all depends on their vision for their wealth plan and their legacy, right? And it depends on their risk tolerance.
It depends on, on how, on how aware they want to be entrepreneurial or they want to be retired, right? Passive or active, but, but, but first of all, to answer your question, what does the deferred sales trust work for? It works for any asset of any kind, as long as it has a million dollar net proceeds and a million dollar gain.
So it’s gotta be big enough, right? So. Does it have a million dollar gain? I bought it for a million. It’s worth 2 million, right? I bought it for, for, for, for 3 million and it’s worth 5 million. It’s got at least a million dollar gain plus. Okay. Number two, um, does it have at least a million dollar net proceeds?
Right? So if you’re selling something for 250, 000 and it’s got 50, 000 of debt and it’s got a hundred thousand dollars of gain, it’s too small. So make sure it’s big enough. That’s number one, but it can be any asset of any kind. It can be a business. It can be real estate, primary home or investment real estate.
It can be Bitcoin. Uh, we’ve done NFTs. It can be a, uh, stock sale. Okay. It can be carried interest. It can be captive insurance. It could be a helicopter. It could be any asset of any kind. That’s what’s so unique about this versus the 1031 exchange. It only works for investment real estate. So the Deferred Sales Trust works for any asset of any kind.
Um, now to answer your question about, well, what’s the common, maybe the allocation or investments that clients are going into? Well, For a couple of years, we’ve been in a very, let’s say, wait and see mode. In fact, we’ve been putting into real estate lending funds, like a big mic fund, right? Where sometimes it’s 6 months, 12 months, 24 month type of terms.
Um, and we’ve been making about 10 percent on our money or so, you know. And, and we’ve been, we’ve been sitting, we call it kind of on the side. And, and, and, and, and I call it semi liquid, right. Or every few months liquid, right. Uh, we’ve also sat in T bills making about 5 percent and we’ve been waiting for the real estate market to come down.
And we sold it a lot of our clients at the high, you know, high in the peak before the interest rates jumped. And so that’s been a strategy, but now what are we doing? Well, we’re buying back into real estate now, right. And we’re doing what our parents taught us to do is sell high and buy low. So now we’re buying back into hotels and multifamily mobile home parks and industrial properties and also lending.
Lending is also still a great place to be. And so the key component here is we’re diversifying and we’re dollar cost averaging. And we’re buying in what makes a lot of sense. Right. And it’s different for different clients. Different clients have different. Risk tolerances had different comfort levels of different investment allocations.
Um, we work with financial advisors across the country as well and real estate fund managers. So it’s, it’s definitely a customized approach here. It’s not a one size fits all, but generally speaking, we’re at least keeping 20 percent on what’s called, we call it semi liquid or liquid investments, right?
And the other, you know, uh, 50 to 80 percent are going into a mix of real estate and, and maybe since the securities or some lending Um, and, uh, so those are the main ways that people are investing with the Deferred Sales Trust today.
Mike Zlotnik: Yeah, understood. I guess you have some liquidity requirements as part of the structure. That’s why you have to have 20 percent liquid or close to liquid. And then income oriented strategies work better than the, uh, you know, growth or pure growth. At least this isn’t on the redeployment side, right? They can be selling anything, but they, they, they, sounds like they have to, uh, you have to follow some rules and you, you as a trustee, your company would, would, would put some, You know, some guardrails
Brett Swarts: give or take, right? So, so we do have a, a general rule of thumb, right? That you should keep about 20 percent in liquid or semi liquid investments, right? To be able to access some of the capital. Do we have some clients that maybe go above that a mark? They do. It’s because they don’t need or want to need the funds right away.
They have, you know, other liquidity other places and they’re partnering with the trust, maybe in some kind of project that’s going to take a little bit longer to really bear the fruit of the harvest, if you will. Right? So take a couple of years for the development. And so you can be a real estate developer.
You can develop with the funds. You can invest into other people’s funds. Um, it goes, it’s very flexible. Okay. And so there’s some general rule of thumbs that we do like to follow.
Mike Zlotnik: Okay. Let me ask a tough question probably people have asked you many times, but I have a good friend We were just chatting and he does infinite banking whole life insurance policy I’m curious if people can can basically overfund a whole life policy as part of the dst strategy and have access to liquidity Because these these policies are highly liquid in general. I don’t know if it’s even possible just kind of Don’t let me to ask you the question.
Brett Swarts: Yeah, it’s a question Mike. So we’re not as um, We haven’t done that a lot. Okay, and we’ve had we do have a client who who’s doing that now And is looking at that the key is that whatever funds you receive to your personal account you can’t like borrow against that The trust, right?
So a lot of people go, well, if I put 10 million, let me just borrow out 3 million bucks and get a line of credit and a margin account and just go spend it on what I want. That’s taxable event, right? So, so a lot of times people are going into whole life insurance policies because they can put it in there and they can, they can basically, um, you know, borrow against it, right?
And get arbitrage and then have the, have the debt paid off when they die, right? The big payout. And so that, that, that would be a taxable event. Now, Are there ways that we can structure where you can get a whole life policy? Yeah. And in fact, we would, we would encourage the cashflow off of the trust that you deferred on the, on the, uh, from the sale, right.
Uh, extra gains, for example, a 120, 000 deal or a 2. 5 million deal that was producing 120, 000 in NOI was in California. We helped them sell their apartment complex. We increased their NOI to about 1, 000. 190 with the trust, right? So that extra arbitrage could be used to fund a life insurance policy right now.
You pay taxes on that 70, 000 bucks, extra 70 that you’re receiving, but that can be used to fund it. So that’s kind of a way that we would look at. That is my best answer for the life insurance policy. But we absolutely can see us working with that. Just realize that. I kind of know where you’re going.
Like if you want to just borrow against the life insurance policy or borrow against the trust and have that person to do whatever you want with, that’s going to be taxable. However, you can’t partner with the trust to invest into real estate. That’s cool. Right. As long as it’s an investment or invest into a business venture, that’s, that’s great. You know, clients love that about this.
Mike Zlotnik: So explain that if you, if you just sell and the assets are going to the trust, and the trust, um, invests, as long as you don’t take the money out of the trust, you’re not paying taxes, but you can partner with the trust on a deal that generates, um, Um, that’s, let’s call it friendly money, right? The, the trust loans, the money at a friendly terms. Uh, is that what you’re referring to where
Brett Swarts: it’s not lending? It’s investing, right? And so it’s a joint venture partnership and it’s, and it’s, um, you’re gonna get the majority of the ownership, the way we structure it, the trust is going to get a preferred return, you’re going to be the GP running the deal, right?
And the trust is going to be a silent LP, if you will. Right. That’s a good way to think about it, but it’s not GPLP. It’s a joint venture, right? So it’s just, it’s just one, two, you know, one person going in with you, right? And the person being the trust itself. So the trust is typically going to put up all the capital.
You’re going to do all the work, right? You’re going to sweat equity, but you’re going to get the majority of the ownership. The trust is going to get a preferred return and some of the equity upside. That’s the way we structure it to keep it, you know, helping you to accomplish what you want to accomplish.
And yet still have the trust is the ability to have some upside. And that’s really key. The trust has the ability to make. Profit which gives it the business purpose that it needs to stay legal.
Mike Zlotnik: I appreciate that. Um, next question is How much does it cost for folks to to set it up? How long does it take just just kind of a basic idea?
I remember last time we talked i’m just called by memory This is a few years ago. Uh In the early, early podcast days, uh, I think you had a higher number than a million, if I remember correctly, unless my memory doesn’t serve me correctly. So the bigger the, the numbers, the, the more of economy of scale kicks in and minimum liquid, minimum profit, minimum liquid, uh, makes sense.
Uh, I thought the numbers were somehow higher before. Um, so just kind of comment on that as far as. How long, what are the expenses to make the numbers work?
Brett Swarts: Yeah, great question. So there’s one of the fees for the Deferred Sales Trust. And so there’s really two sets of fees is the one time fee. It’s about one and a half to two.
It’s about one and a half to one and a quarter on the growth sales price. Okay, so it’s a one time fee. So if it’s a million dollar sale, it’s like 15, 000 one time. It covers lifetime audit defense. That’s the legal fee. The second fee is the trustee fee, and that’s an annual recurring fee. Our company capital gains tax solution serves as the trustee.
And that’s about one and a half to 2 percent on the net proceeds into the trust. And so if the net proceeds were about a million, it’d be 000 per year. And that includes no matter how, where you invest the funds, whether it be. A hundred percent into a stock market, would it be a hundred percent into passive real estate or a hundred percent into your own real estate or own business venture?
It’s about one and a half to 2%, no matter how and where you invest the funds. Um, there’s the miscellaneous fees of the tax return and the, and the, and the, uh, and the p and l statements and, and that kind of thing. That’s about, you know, 1500 to $1,700 kinda that range. But our overall goal, typically, and why people love it, is we’re typically going to return 7, 8, 9, sometimes even, uh, 7, 8, 9 percent compounding net of those recurring fees, right?
So if you put 10 million in and we defer 4 million of tax, we’re typically, on that 10 million, going to earn, let’s say, 800, 000, 8 percent per year, on average, net of the recurring fees, right? So if the recurring fees are about 1. 5 to 2, we’re going to earn about 9. 5 to 10. Now on 10 million, you get a little bit of a fee break, right?
Depending on how you invest the funds. And we have the fee breaks at three, five, um, 10 and 20. So you can go to capitalgainstaxsolutions. com to apply for a no cost consultation. And then we can, you know, we’ll show you all the fees or just email us and we’ll be able to provide you for the fees.
Mike Zlotnik: Yeah, I appreciate it. So I heard it’s a one and a half percent a year, one and a half percent up front. Plus minus a little bit of a range.
Brett Swarts: That’s a good way to think about it. Yeah.
Mike Zlotnik: Yeah. It’s almost like in the, in the hard money lending space, it’s one and a half points up front, and then you pay an annual asset management fee or one and a half percent, something like that.
Brett Swarts: That’s a good way to think about it. Exactly. And you can either pay that big tax in 20, 30, 40, 50 percent of your proceeds, or you can defer it all. The other thing that we’re doing too, Mike, it’s a little bit different than it was a couple years ago, is now we’re cash flowing our fee, right? So on the close of escrow of 10 million hits the account and we would’ve made 150 to $200,000 on that deal.
We’re going to wait about 60 days or so and invest the funds and get the money churning, right? Get the cash flow coming in, and then about day 60 or so, we’re gonna receive that payment, right? So our goal is to keep that proceeds. Intact versus dipping into that as much as we can.
Mike Zlotnik: Yeah, understood. I appreciate that, that explanation and, um, yeah, I think you mentioned this a couple of times, but what’s the best way for folks to reach out if they want to learn more about, uh, DST? And I think you have a book on the shelf somewhere. Yeah.
Brett Swarts: Yeah, there it is. Yeah, absolutely. Yeah, absolutely. CapitalGainsTaxSolutions. com or Brettsports. com and to access everything that we have. But, uh, the other place that I would encourage you to start is get the book, right? And read the book. It’s called Building a Capital Gains Tax Exit Plan.
And it’s a hit number one bestseller on Amazon. We have, uh, Kevin Herrington from Shark Tank in the book. And it’s really the proven playbook for unlocking your ideal wealth plan when selling any asset of any kind. For yourself and for your clients, or whether you’re a real estate fund manager, whether you’re a financial advisor, whether you’re an entrepreneur or business owner, investor, you want to pick up the book because it can help you execute on the strategy.
And that’s the key to set this up prior to the close of escrow, unless you’re doing a 1031, then you can get the best 1031 exit plan with us. And that’ll allow you to get a regular 1031 or a backup plan into the deferred sales trust. But you’re going to want to get the book and you want to contact us right away.
Capital gains, tax solutions. com. We also have the podcast capital gains, tax solutions. You can check out as well. Um, that is a great place to start as well on our YouTube channel too.
Mike Zlotnik: Thank you, Brett. I appreciate your sharing. Thank you for, uh, sharing the book and letting folks know how they would reach out. So thank you kindly. And thanks for coming on the podcast.
Brett Swarts: Thanks, Mike. Have a good one.
Mike Zlotnik: You too.
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