Beyond the 1031: Creative Tax Solutions for Your Investment Future | Webinar E20

The secret to building lasting wealth isn’t just making money—it’s keeping it. In this eye-opening discussion, tax experts Harry and Armik from Charter International reveal sophisticated strategies used by the ultra-wealthy to protect profits and minimize tax exposure.

Starting with proper entity structuring for real estate holdings, they explain why multi-member LLCs provide both tax advantages and liability protection. Their three-tier strategy—holding companies, management companies, and lending companies—creates multiple layers of protection while maximizing legitimate deductions.

For investors seeking to defer capital gains, they go beyond the basics of 1031 exchanges, covering partial exchangesand the lesser-known reverse 1031 exchange when timing becomes crucial.

The conversation dives deeper into advanced wealth preservation tools:

• Deferred Sales Trusts – sell businesses without triggering immediate taxes
• Delaware Statutory Trusts (DSTs) – passive real estate investing with tax-deferred benefits
• Generation Skipping Trusts (GSTs) – transfer wealth to grandchildren while avoiding multiple rounds of estate tax
• Qualified Small Business Stock (QSBS) – potentially earn up to $10 million tax-free

What becomes abundantly clear is that timing is everything. These strategies require advance planning, not last-minute decisions. As one expert admits, "I wish you would have come to us a year ago" is a phrase they hear far too often.

With the tax landscape shifting, and major changes like the GST exemption reduction from nearly $14 million to $7 million, the urgency to act proactively has never been higher.

Whether you're a seasoned investor or just starting to build your portfolio, this strategic conversation shows how proactive tax planning can help you retain more wealth and protect your legacy.

Reach out for a consultation before your next big financial move—your future wealth depends on it.

Paradyme

Episode Transcript

Speaker 1 (00:00):
Everybody, welcome to today's webinar.
My name is Ryan Garland,founder and chairman of Paradigm
.
We're a private equity boutiqueprivate equity firm that really
focuses on real estate andalternative assets, but really
focused on real estate and, forthose of you that have been
following me for years, I alwaystry to add value and bring on
some muscle, and I think youguys will really appreciate this
webinar because one of thethings that we continue to get

(00:20):
asked is more tax strategy.
With inside our offerings, youknow what is it that we can get
involved in, whether it's a 1031exchange, deferred sales trust,
delaware, statutory trust andso we really want to start
opening up the doors for ourclients to understand who we
align with and then also giveyou resources to reach out to
and this is going to be my teamin which we do so that you can

(00:43):
reach out and build arelationship and start talking a
little bit about strategy andkind of separate the church and
state.
If you will, I want you guys tohave access to some of my back
office, some of the people thatI work with.
For example, this is CharterInternational.
They're out of Beverly Hills.
They're doing our audits,moving forward.
They just did our audit for theSecured Income Fund, which is
our $100 million debt fund.

(01:03):
So they just did our audit forthe Secured Income Fund, which
is our $100 million debt fund,so they're completely integrated
with everything that Paradigmdoes.
And that's opened up the doorsfor these conversations.
A lot of our investors again arelooking at figuring out a way
to retain the wealth thatthey've created over the years
and not have to pay Uncle Sam somuch.
So, really, the idea today isjust to add value.
Give you guys other vehicles toconsider, help you position

(01:29):
yourself for the future, whetherit's a deferred sales trust, a
10th or winning exchange, whathave you and I will be opening
up doors to a new offering thatis going to be in what we call a
Qualified Opportunity Zone Fund, which is a capital gains fund
where people can startaccumulating more wealth through
an equity position play.
It's another project that we'regoing to be opening here soon.
But, with that said, I amexcited to introduce you guys to
Charter International.
This is Harry and Armik.

(01:49):
These guys will share a littlebit about their background, but
this is what I would considerreal muscle.
Here.
These guys are preparing 2,500tax returns a year on average.
They manage hundreds ofmillions of dollars and help
strategize with high net worthclients, family offices all the
way down to smaller retail,small families that are trying
to offices, all the way down tosmaller retail, small families
that are trying to positionthemselves in the market.
And, without going too far intothe elephant in the room on the

(02:10):
economy, which I do believe itwill eventually kind of turn
back around here somewhat soon,but it is important that you
guys all know what is out thereand what is possible.
So, with that said, guys, youhave the floor and thank you so
very much for joining me todaypossible.
So, with that said, guys, youhave the floor and thank you so
very much for joining me today.
It is important for me tointroduce my network, my current
investors, to the people thatreally are overseeing not only

(02:32):
our compliance from our auditthat we had on our secured
income fund, but really justgive them a higher level of
exposure to people that canreally assist them planning
their future moving forward.
So again, thank you guys forbeing here.
So, harry Armik, it's all yours.

Speaker 2 (02:50):
Thank you, ryan.
Thank you for having us.
It's me, Armik Agakani, and mypartner, harry Gallumian.
I'm the founder of theChartered International LLP.
We are a 24-7 firm.
Our main office is located inBeverly Hills, we have a second
office in Glendale, california,and our third office is actually

(03:12):
an offshore outside the country, so we're pretty much 24-7.
We are a total of staff of 36people.
Majority of them are seniorstaff.
The good thing about our firm isthat every client that comes on
board, we create a team.
We put that team in touch withclient.
They have access 24-7 to ourresources and also we kind of

(03:41):
think outside the box, in a grayarea and not to be just a black
and white that we see in someof our CPAs or colleagues when
we get their tax returns and wereview them and we come up with
so many deficiencies and ideas.
The tax rules are more than26,000 pages and it's kind of

(04:11):
easy nowadays how to become acertified accountant and the
passing rate is a 45%.
Versus the year that I took myexam it was a 1.7% and I scored
top 10 in the country.
I'm gold certified.
My background was withPricewaterhouseCoopers, pwc and

(04:31):
then, after working for them fora million years.
Then I started my practiceabout 25 years ago.
Harry is one of our top gunsand now he's a junior partner.
He joined our firm about fiveyears ago and I trust him 100%

(04:51):
and when we get a new client oreven existing clients that we
like to debate and come up witha really good tax strategy, I
always ask for Harry for adviceand go from there.
So anything else, harry, youwant to add?
Yeah, I think.

Speaker 3 (05:12):
I've covered a lot of it.
We're growing at an incrediblerate and it keeps us busy.
It keeps us on our toes Withthe new tax law changes we're
expecting to come up to it.
It's keeping everythinginteresting, but I mean with our
client base we have such abroad array of clients in
different industries, differentsizes.
You know we have a lot of realestate, a lot of professional

(05:33):
industries like doctors,attorneys, and different sizes,
so we have clients that aremaking you know a few hundred
thousand a year and then 10years later they're exiting at
$50 million or $100 million withtheir manufacturing company.
So it's been a fun journey sofar.
Like I said, it keeps us busy,keeps us reading some books and

(05:54):
articles and newsletters.
But here we are today.
So thank you again, ryan, forhaving us too.

Speaker 1 (06:00):
Absolutely.
Let's go ahead and dive in andget right to the value add and
go from there.
So, Harry, if you want to takecontrol, yes sir.

Speaker 3 (06:10):
So just the topic for today protecting profits.
We'll go through about six,seven topics that we want to
really talk through and then wecan open up the Q&A or maybe
some follow up emails from there.
But some six general categorieswe think are important here.
So, starting off, we're goingto be focusing on real estate

(06:34):
for the majority of thisconversation.
Number one it's how we'regetting things structured to get
going.
So this is more for thelandlord who's managing the
property or maybe has an on-sitemanager.
They're not involved in theday-to-day but they are holding
the property long-term.
It's not a fix and flip, it'snot a quick sale.

(06:55):
They are holding the propertyfor the foreseeable future.
So there are a couple of thingsyou want to have when you're
structuring for this setup.
Number one no matter what youreally want to have a holding
company and what that looks like, it's typically going to be an
LLC.
It's a pass-through entity andreally you want to have more

(07:16):
than one member on there.
You don't want a single-memberLLC, because single-member LLCs
are quite literally the highestrate of audits in all of the tax
forms that there are.
So you avoid single-member LLCsas much as you can.
What you do is you have maybe aspouse as a second partner,
maybe kids, or.

(07:36):
We'll be talking about trusts alot.
Maybe you can have your trustas the second member, but you
need that hold co in place asthe second member, but you need
that hold code in place.
And what that does is, asidefrom the tax savings that we'll
be getting into the legalprotections you get with the
holding company.
So instead of let's say Godforbid, there was to be some

(07:58):
sort of lawsuit that arises,someone trips and falls or you
have a tenant dispute, insteadof that lawsuit going to you
personally, going after yourpersonal assets, all of your
other personal investments, youhave this LLC in place and for
the majority of lawsuits, unlessthere's some sort of breach in
the corporate veil, that lawsuitwill be limited to whatever

(08:19):
that holding company holds.
So typically one property, insome cases a few properties, but
typically one property in thatLLC and that's where your
liabilities end.
So that's holding company andfor basic investors that may be
enough.
But as you start growing you'regoing to realize you have a ton

(08:41):
of expenses that you cannotwrite off in your holding
company.
So let's say, your personal,your own travel, your own
insurances, your auto expenses,your auto leases, a home office
expense, things like that.
You really cannot deduct thatkind of stuff on a holding
company because the purpose of aholding company is again,

(09:02):
literally just to hold the pieceof property.
It's the title owner, it's notthe manager.
And things like auto expensesor home office expenses, travel,
those are related to managingthe property, not holding the
property.
So once you have your holdingcompany in place, which is a
title owner, then you move on.
You form a management company.

(09:22):
So this management company isgoing to charge your holding
company a management fee.
It could be a flat fee eachmonth, it could be a percentage
of profits.
You can get creative with thatstructure.
But you start having yourmanagement company charge your
holding company and then, onyour management company, this

(09:44):
allows you to offset, to writeoff all of those expenses I
mentioned.
Plus more, we can get supercreative here.
You can have some kids onpayroll for your management
company.
You can have spouses, friends,family if you'd like to have
them help manage a property.
You can offset some of yourauto expenses, some of your
travel, anything that can berelated or relevant to managing

(10:08):
the property.
That's all getting deducted onyour management company level
and then we can discuss the typeof entity for that management
company.
A lot of times we likeS-Corporation because that'll
avoid self-employment income aswell from the profits on the
management company.
Versus, if we were an LLC, youhave self-employment taxes.

(10:29):
If we were a C corporation, youhave double taxation.
So a lot of times for thatmanagement company, an S corp is
a pretty good entity type touse.
And then we can get into an evenbigger portfolio.
Let's say you have maybe 10million, 20 million, 30 million

(10:49):
of a portfolio and all of asudden you have the good problem
having a lot of cash on hand.
Then you can start becomingyour own lender, essentially.
So you have your holdingcompany that we talked about,
you have your management companythat we talked about, and then
you can form your own lendingcompany.

(11:10):
Now what the lending companydoes is, let's say, you have
three, four different holdingcompanies, each of them holding
a property or two within them.
Instead of going out andborrowing money from a bank and
paying the bank interest andagain you have some cash.
You're sitting on that.
Maybe you don't want to investelsewhere, you want to invest it

(11:35):
within your own portfolio.
You can form a lending company,put your cash into the lending
company and then your lendingcompany begins lending money to
your own holding companies.
That lending company can be a Ccorporation, so it doesn't the
profits do not flow through toyou maybe out of state,
something like Florida or Texas,where we don't have, or

(11:56):
Delaware, where we don't havestate income taxes, and or,
contractually, the courts aremore favorable to corporations
in the States.
We can form the lending companythere and then your holding
companies try to pay interest toyour own lending company.
You create a promissory notethere.
What that does is it'll reducethe profits that pass on to you

(12:20):
from your management company andholding company and it'll move
some profits to an out-of-statejurisdiction where, again, it's
more favorable from a taxperspective and a legal
perspective and just run thatsetup.
This is perfect for a reallylarge portfolio where you're

(12:40):
protecting your profits, you'reprotected legally from any
potential lawsuits and you'rejust holding the property.
You are the landlord.

Speaker 2 (12:50):
So that's a really, really good setup here and also
the lending company can file alien on your own property and
then therefore, if there is anyoutside creditors wants to file
a claim, you will have apriority over.
That was the first lien holder.
Yeah, exactly.

Speaker 1 (13:09):
You guys are going into like high level nuts and
bolts.
But yeah, you can get titleinsurance, you know, you can get
all kinds of stuff to kind ofprotect that lien, but then at
the same time this is a muchhigher level conversation.
But I know guys that lend moneyto themselves and then they
sell the note and sell themortgage back security Right.
So we won't go too far downthat rabbit hole for this
purpose.
But there are some real highlevel ways to maneuver for sure.

Speaker 3 (13:33):
Right, yeah, absolutely.
So.
Again, that's perfect forsomeone who's holding their
investment real estate.
Then we start getting into OK,you want to maybe get rid of
some of your real estate, maybeflip it into a new property
You're growing.
Then we start looking intoprotecting not net rental

(13:53):
profits but protecting your netcapital gain, your net proceeds
from a sale.
This is where we can get evenmore creative.
We'll have a ton of much morecreative methods of protecting
those profits from your sale.
But a pretty standard one thatyou never want to miss out on is
going to be a 1031 exchange.

(14:14):
So as long as you're interestedor willing to roll your
proceeds from a sale intoanother piece of real estate,
you really, really want to lookinto a 1031 exchange.
So there's a few limitations orqualifications you must meet in
order to get a 1031 exchange,number one being it must be a

(14:38):
piece of investment real estate,so you cannot do this on your
primary residence.
That's an important factorwhich you may or may not be able
to get around those rules ifyou put them in certain holding
companies and maybe chargeyourself rent.
But putting that aside, 1031exchanges for investment real
estate.
What that does, it's a rule inthe US tax code where your

(15:04):
entire proceeds, your net profitfrom a sale, can be completely
tax deferred.
It's not tax free.
You're deferring your taxesindefinitely as long as you meet
the requirements of a 10-30loan exchange.
Now what those requirements are.
Number one is, again, you needto roll your profits from the

(15:27):
sale into a new piece ofproperty.
So you sell a property for $10million, for example your cost
basis, let's say if it was $7million you have profits of $3
million.
You need to roll all of yournet profits, your net proceeds,
rather into a new real estate inorder to get a 100% exclusion

(15:48):
on your capital gain.
You can, if you are interestedin maybe pocketing some and
investing it elsewhere insteadof a piece of real estate.
You're able to do somethingcalled a partial 1031 exchange
where you can roll a portion ofyour proceeds of the sale into a
new piece of real estate.
You can keep the remainder, andthe portion you keep as a

(16:12):
remainder instead of rollingover that part will be taxable
as long-term capital gain.
The portion you rolled overwill continue to be tax deferred
.

Speaker 1 (16:22):
So, harry, let me jump in there real quick.
So this is awesome and I reallyappreciate the way you even
communicated that, because Ithought that was very black and
white.
I'm going to use an example andit was funny because I just
looked at who's actuallywatching us.
So I'm sorry to one of ourclients but I'm going to use
them as a guinea pig and exampleduring this and it's also
relevant.
So one of our gentlemen nowwith Paradigm Storage and I'm

(16:46):
going to use this as a liveexample.
So Paradigm Storage, one of theproperties that we have, we
condo map these storage unitswhere you can buy each one.
They're fee simple so everybodycan buy them either store your
toys in them.
They're really good forcashflow just due to demand.
What we've seen over the lastyear is the amount of investors
or clients that are buying theseunits really are using 1031

(17:10):
Exchange.
So we have 208 units and Ithink where we're going to end
up having is anywhere betweenmaybe 70, 80 owners out of 208
units, because a lot of peopleare selling.
This is going to go back withwhat happened during the
pandemic and not collectingmoney for rent.
You know you have some peoplethat just kind of burned out
from that.
A lot of Airbnbs where you maywant to, airbnbs, kind of

(17:31):
getting hit.
People are selling theirAirbnbs and 1031 exchanging but
they love the cashflow.
That's their objective, youknow that type of stuff.
So these units have been kindof on the forefront and there's
kind of a wave of interestcoming that direction.
But, using this example, we haveone gentleman who just went
into a contract to acquire 23units.
He had a mortgage so he had tohave a step up in his basis.

(17:53):
On his last property that hesold it's a commercial building
in Nevada he had a requirementto have a step up on his basis.
These assets, as far asparadigm storage, do qualify for
a bank loan.
So with insurance and billingmethods, what have you?
So he was able to acquire a newloan and then also obtain the

(18:14):
cash flow that he was reallylooking for and then defer those
capital gains.
And it was quite a mountain.
If he's buying 23 units, it wasquite a bit.
So the structure for him wasokay.
This is great because it's notas hands-on, it's consistent
cash flow, just the asset classin itself.
But the point is is that he wasable to 1031 exchange a massive

(18:36):
amount of capital gains to moveinto another asset to get to
the objective, which was getcash flow.
And then on top of that, he'salso like you just hit on on the
nail on the head there, harrythat he's able to take a little
bit of the money out of thatthat sale to pay down or pay off
some additional debt that hehad.
So now everything he's got isfree and clear.

(18:57):
And then he exchanged the restand and uh, was able to, you
know, kind of start building his, his future and really where he
wants to be in retirement.

Speaker 3 (19:08):
Yeah, it works out perfectly.
I was just talking to a clientlast week where he has a $20
million home out here inCalifornia and I talked to him
about a 1031 exchange and he'slike well, I really don't want
to park another 20 million.
I just bought another house.
I don't want to put another 20million more into real estate.
I want to get out of some realestate.

(19:30):
Well, I was like, okay, maybeyou buy a $5 million property
instead of 20.
You roll at least some of yourproceeds tax deferred and go
ahead and take the tax hit onthe remainder that you want to
keep.
So yeah, a partial 1031exchange works great.
Another part that a lot ofpeople aren't aware of is a
reverse 1031 exchange, and wejust closed on one of our

(19:50):
clients' reverse 1031 exchangesout in New York.
So basically, the way a regular1031 exchange works is you need
to sell your first property,your existing property, you sell
it, you know your proceeds andyou roll the full amount or
partial amount into a new pieceof real estate.
Now some people they find aproperty they love that is on

(20:16):
the market, that's not going tolast and they haven't sold their
existing property yet, but theydo still want to do a 1031
exchange.
What you can do is, if you planthis properly, is you are still
allowed to purchase a newproperty before you sell your
existing property.
Of course, the dollar amountsand the limits and the full

(20:37):
exclusion or partial exclusion,your mortgage, all of these need
to line up still, and you stilldo need to use qualified
intermediary but you are alsoable to purchase a new property
whether it's cash or mortgage orfinanced before you sell your
existing property, so you don'tneed to lose out on a potential

(20:57):
investment opportunity justbecause you haven't sold yet.
This is something that's notvery commonly used, but it works
out great when the timing isright.

Speaker 1 (21:07):
And I like the way you said that because certain
there are, especially when youknow you're going to 1031
exchange and you have a veryshort bandwidth.
But let's say you have yourproperty in escrow and you find
another asset that you want toreally acquire and time is of
the essence and if you have theability to acquire it, get it
and then obviously, when yousell your existing property,

(21:28):
then you can do that reverse1031.
That's kind of what you'regoing, Am I correct?

Speaker 3 (21:32):
Yeah, more or less.
So once you're in escrow, yourhands get tied a little bit.
You do have some flexibilitystill, or they get tied a good
amount, but you do have someflexibility still.
So it's really important toplan ahead.
But once you're in escrow andthen, yeah, I mean timing.

Speaker 1 (21:49):
It's very quick sometimes with real estate.
Sometimes you know that it'sgoing to be.
It's going to all come down totiming and timing and strategy.
You know, if you are going totry to target a reverse 1031,
you really need to know whatproceeds you're going to get and
you got to really plan youracquisition around the sale yeah
, and what you brought up escrow.

Speaker 3 (22:08):
So something a lot of people miss as well is that you
have to use a qualifiedintermediary as your escrow
agent, uh, your escrow company.
You can't simply use any escrow, say I sold my property, come
to us, you know, two monthslater, say, well, let me 1031
this now, that's not how itworks.
So when you're trying to do a1031 exchange, you need to have

(22:29):
that, you know put in place,even if, whether it's reverse or
regular, you need to be using aqualified intermediary.
If you do a simple sale, youlose the opportunity to do a
1031 exchange and and betweenyou guys and us.

Speaker 1 (22:44):
I think we can refer the right intermediary to our
clients.

Speaker 3 (22:49):
Absolutely.

Speaker 1 (22:50):
You bet.

Speaker 3 (22:52):
So yeah, this is basically the slide we're on
holding your real estate, beinga landlord and then deferring
your proceeds from a simplepiece of real estate transaction
.

Speaker 2 (23:06):
Yeah, one thing I want to touch base, ryan, is
lately we've been doing a lot ofconsulting for people that they
want to sell their property inLA County and they're subject to
a mansion tax.
So we came up with this reallygreat idea how to completely
avoid the mansion tax and partof it goes to what Harry kind of

(23:32):
touched base earlier by settingup a holding company as a hold
your property in a form of anLLC.
Then what you do when timecomes for you to sell the
property, you sell themembership interest of the LLC
instead of the actual property.
That way the mansion tax cannotapply to the sale of membership

(23:58):
interest of an LLC or any formof a partnership if it holds a
property.

Speaker 3 (24:03):
Since title never changed, correct.

Speaker 1 (24:05):
That's interesting.
That's actually pretty neat.

Speaker 2 (24:08):
Yeah, we came up with this idea.
We've been working with a fewof our top realtors and it just
works.
And then you completely bypassthe escrow.
The agreement can be done inour office or we can refer to a
legal firm and they can draft anagreement and all you have to

(24:29):
do make sure that the buyer willdo, you know, all the proper
inspections and make sure theywill cancel all the
contingencies before signing theagreements so, in essence,
you're selling the business thathas real estate holdings,
correct?

Speaker 3 (24:45):
you're selling your holding company.

Speaker 1 (24:46):
You're not selling the real estate which also you
get the real estate which isalso a strategy when you're
looking at an exit of a business, and let's say that business
owns buildings right right andyou're going to exit a business
where you want to sell your.
The business value is x andthen you bolt on real estate
holdings to that business.
Really kind of the same play,just a little bit dumbed down.

Speaker 2 (25:07):
Yeah right.
So, speaking of selling abusiness, let's talk about a few
ideas.
Number one basic type of a sellis a lump sum.
When you sell your business,you get all the money and, guess
what?
You're going to pay a massiveamount of tax.
And actually we always getclients that come to us.

(25:30):
They're like oh, my CPS saysI'm paying more than a 50% of a
tax when I'm selling my business.
Is there any way we can lowerthat tax?
I would say, yes, I wish youwould have come to us a year ago
.
Tasks I would say, yes, I wishyou would have come to us a year
ago.
So the second option isinstallment sale.

(25:55):
Pretty much, installment sale isunder IRC code section 453.
It's a really old code sectionthat you sell your business,
membership or shares or assetson installment sale.
Installment sale needs to bemore than two years, or two
years plus, in order to qualify.
In other words, you cannot sellyour business in April of 2025,

(26:18):
but not collect any paymentuntil, like March of 2026.
And you said, oh, I'm deferring, now IRS can come and tax you
based on a constructive incomedoctrine or a step transaction
doctrine.
And they said, oh, this hasbeen all scam and you have to

(26:40):
pay taxes plus penalties andinterest.
In order to avoid that, a lotof people they use installment
sale under Code Section 453.
Now, installment sales obviouslyhave its own pros and cons.
The good thing about it thatyou don't pay taxes in a year
that you sell, unless youcollect payments and when you

(27:02):
collect the payments.
There is three types of a tax.
You collect payments and whenyou collect the payments, there
is three types of attacks.
Number one there is theinterest income that you pay on
the note.
Number two the capital gain,which is calculated based on
your basis of the asset plus allthe selling expenses over the

(27:25):
amount that you collect, lessthe interest portion.
And that's something that wesee.
A lot of CPAs or tax attorneysthat make mistakes.
They calculate the gross profitpercentage but they don't
separate the interest portion.
And client comes to us and wesay oh no, you're double paying
taxes because you're payingtaxes on interest and you're

(27:47):
paying taxes on installments.
The interest portion of the taxcannot be included in an
equation, so your gross profitis always lower.
And the third portion obviously, is the recapture on the assets
.
Some people they sell thebusiness, they were saying, oh,
I have a ton of recapture incometax on the depreciation that I

(28:12):
took earlier year.
How can I avoid that foodfranchise fast food franchise
last year and I saved themalmost $8 million of tax by

(28:33):
writing off a bunch of assetsthat were fully depreciated on
their balance sheet.
So when they sold the businessa very small amount of the sale
proceeds or purchase price wereallocated to those assets and
therefore we kind of mitigatedthe recapture.

(28:55):
Now, on a installment set, thereis something else available,
that is, a deferred sales trust.
The deferred sales trust issomething new.
Irs hasn't approved it but ithasn't disapproved it.
They've been very silent aboutit.
It's a really great tool justto kind of avoid the tax avoid

(29:22):
the tax Pretty much.
The way it works still is underSection 453 is by you as a
seller.
You create a irrevocable trust.
We call it deferred sales trust.
You sell your assets or amembership or shares of the

(29:46):
company to DST, let's call it,at the higher value.
So prior for your sell you haveto have somebody to do
evaluation.
You set up a trust.
You are not a trustee of thattrust needs to be a completely

(30:09):
unrelated third party as atrustee.
And then you receive a notethat and in a future date
usually must happen at least ayear and a half to two years
after that.
You create a trust, then thetrustee of a trust sells your

(30:30):
business.
Then the trust pays a minimumtax.
Why?
Because let's say, if it costsyou $20 million to create a
business, your basis in theentity is $20 million.
You sell that business for $100million to your own trust, but
you don't receive payment, butyou don't receive payment.

Speaker 3 (30:53):
That's the key.
So that's why there's no taxupon your first sale.
Because you didn't receivepayment from your own trust, you
sold it and the trust owes youmoney.

Speaker 1 (31:04):
Correct, so let's dumb it down further.
So, number one you have to beforward thinking on your exit,
meaning if anyone who's watchingor listening to this, if you
know you plan on selling yourbusiness, let's say in two,
three years, down road you wantto have that trust established
at least two years if I'mcorrect, armik prior to the exit

(31:28):
of that business.
That's how you have to bestrategic and focusing on your
tax strategy, on keeping thatcapital.
Two, the way that you'reultimately selling the interest
of your business to your trustand then, down the road, the
idea would be to take a loan outto yourself to then buy other

(31:51):
to other investor, buy otherassets.
Is that correct?

Speaker 2 (31:54):
Right, so yeah.
So step number one is to set upthe irrevocable trust in
exchange for the installmentnote, and then step number two
will be the trust sells theasset to the buyer in a lump sum
sale for the already agreedupon sale price, with the trust

(32:15):
receiving the full sale proceedsin a lump sum.
So the buyer's involvement endshere, meaning the seller deals
with only the DST going forwardand the trustee, and then,
finally, the trust reinvests theself-proceeds as directed by
the seller and makes payments tothe seller over time per the

(32:37):
terms of the installment.
In other words, the sellernever pays the tax unless you
collect on the installment note.
And when you collect on yourinstallment note, that becomes a
capital gain, just the portionyou collected.

(32:59):
Just the portion you collectedPlus the interest.
Just the portion you collected,just the portion that you
collected Plus the interest.
Right, so it's really justanother vehicle, right.

Speaker 1 (33:05):
Almost identical to all the things that we're
talking about.
You know, you're lendingyourself money, eliminating
taxes, still buying assets.
If you do take any personalcapital, you do need to get your
that is, taxable income, right,right, those type of things.
So this is really the.
This is for everyone who'slistening.
Right, those type of things.
So this is really the, the.
This is for everyone who'slistening.

(33:25):
This was really the fruit right.
Here is this deferred salestrust.
I have a lot of clients that areselling business, and it
doesn't need to be big dollaramounts, guys, this could be.
You know, you have four or fivemillion dollars in real estate
and maybe a business or just abusiness or what have you.
You just want to be able tocapture as much of that uh, you
know, income, let's say, let'ssay proceeds from the sale as
possible, not have to spend somuch money in taxes.
This is really what this is.

(33:46):
So this is kind of the futureplanning strategy, no matter how
big you go, but it also givesyou really a better perspective
of the valuation of your company.
So you have an idea what toexit at, right.
So what you heard Armick saywas go get an evaluation, and
there's millions of differentways to do that.
These gentlemen will help youwith that, depending on the

(34:07):
nature of your business.
But that's really.
The idea was to plan for theexit and get a very clear
picture.
When you start going to thenegotiation table on the sale,
you know where your valuation isuh is really at right and then,
uh, so those are the threesteps.

Speaker 2 (34:20):
Uh, there is a pros and cons to it.
The obviously is you don't paytaxes unless you collect your
payment, and also you can givethe instruction to the trustee
how to reinvest the money thatthe trust received.
And, by the way, when a trustreceives money, trust doesn't

(34:40):
pay any tax because there is anote sitting in the trust that
needs to be satisfied and thetaxes are paid when the
installments are made.
So trust will face a zero tax.
At the moment, however, thebeneficiary of the trust needs

(35:02):
to be somebody other than you,so you can set, like your
grandchildren, your kids, to bethe beneficiary, or you can even
set up their corporation to bethe beneficiary of the DST trust

(35:27):
.
And then any assets that getsreinvested at the DST level, if
market appreciates on thoseassets, you pay no tax on it.
Those assets, you pay no tax onit.
And then trust also has its ownexemptions and its own rules

(35:48):
that you can create.
In other words, the trustee ofthe trust can also gift some of
the trust earnings or trustassets to another trust.
So there is a lot you can do atthat level, but the problem
with the DST is when you giveyour instructions to the trustee

(36:11):
and trustee decides to investin some assets, let's say future
business or a future realestate or a future who knows a
contract or a businesses andthose future investment.
They go in a differentdirection.
Now trust cannot make thosepayments that you agreed upon

(36:35):
creation of a trust.
There is nothing you can do tothe trustee.
In other words, trustee ownsthat trust.
Trustee has a fiduciary duty,obviously to follow those duties
.
And guess who?
You set up those duties becauseyou indirectly control the
trust, but you're not supposedto say that again.

(37:00):
So the credit risk transfers tothe trust and a trustee and as
long as trustee acts based onhis fiduciary duty, there's
nothing you can do to thattrustee.
In other words, the trustee isfully protected.
By the way, we can be trustee,your attorney can be a trustee,

(37:23):
and then you can have a law firmto create the DST trust and you
can create a different layer ofa protection.
By the way, that trust is fullyprotected from the creditors.
So that's another beauty of theest trust that's really that's.

Speaker 1 (37:44):
That's, that's great intel.
What's nice is you guys caneven go in too far into some
high-level conversation.
You can do life insurance.
You know, you can bury a lifeinsurance policy into this.
I mean, there's all kinds ofways to continue to protect your
assets and then you know, whenyou assign somebody as a trustee
whether it's charterinternational or attorney you're
able to kind of navigate thosewaters.

(38:05):
Now, if God forbid, somethinghappens to you, that trustee
guidelines is already in place,and so now you're kind of
killing two birds with one stone, I'm assuming.

Speaker 2 (38:17):
Correct, that's pretty much it, and then from
DST, then we can go to the nextstep, which is delaware.
Sales trust another type of dst, yeah, which is funny because
everyone thinks a lot.

Speaker 1 (38:31):
I think most people think of dsts as delaware
statutory trust.
They haven't heard really ofthe deferred sales trust.
That was really the big uhtalking points today.
But let's explain to theaudience what the difference
really is and it's really blackand white, but it does.
Dsts are going okay.
Now what does that mean?

Speaker 3 (38:51):
Yeah, so the difference is, like Amrit
mentioned.
It's when you're really sellinga business, right, because
you're deferring your capitalgain, just like we talked with
the 1031.
But you can't 1031 exchange abusiness.
The equivalent of selling abusiness and deferring the
capital gain would be thatdeferred sales trust and that

(39:11):
whole structure.
So now, if we come back to realestate, that's where the
Delaware statutory trust wouldcome into play.

Speaker 2 (39:21):
It's very similar to a 1031 exchange but slightly
different.

Speaker 3 (39:27):
So basically, with the 1031 exchange, you had to
roll over your proceeds intoreal estate, like we said.
Now, maybe you don't want toput the money into a real estate
that you're going to manage,you don't want to be the title
owner of a piece of property,you don't want to deal with the
tenant, you don't want to dealwith managing and so forth, but
you want to defer your capitalgain.

(39:48):
So what you can do is you can1031 exchange your proceeds from
the sale of your property, yourinvestment property, into a
Delaware statutory trust,instead of rolling it over into
a piece of real estate directly.
So what that means is you wouldhave to find a Delaware

(40:09):
statutory trust and put yourproceeds there.
What the Delaware statutorytrust is it's essentially a
professional real estate companyis owning a commercial property
.
It's typically commercialbecause they're on the larger
side.
So the professional real estatecompany owns the title to that

(40:30):
real estate and then it findssome investors who then roll
over all of their proceeds intothat DST.
What that allows is theinvestor sold their old property
, their existing property, theydeferred their tax, but they
don't have to manage a piece ofreal estate anymore.
They can part the funds, theproceeds, with a professional

(40:53):
company who's managing theproperty and paying
distributions out of the netprofits to the investor, while
keeping that tax deferredtreatment the net profits to the
investor, while keeping thattax deferred treatment.
So it's almost like, instead ofinvesting into securities or
stocks, you invest your 1031proceeds into another real

(41:15):
estate project and get rid ofbeing a landlord, keeping your
tax deferred treatment.

Speaker 1 (41:19):
And so let me jump in there too, harry, a little bit,
just to kind of break it downeven further, if you don't mind.
First of all, to qualify as aDST a Delaware Statutory Trust
it has to be an income producingproperty, correct.
And then it would be like,let's say, investors I was going
to open up a DST, investors caninvest into a fund that I

(41:42):
manage right, or a DST trust,but just say fund for
conversation purposes into atrust that I manage, and then
those proceeds are going intoassets that are generating
income in the real estate space.
So I'd say it's apartments,units, single family homes that
are builder rent communities.
A lot of people have heard metalk about that in the past
builder rent communities.

(42:03):
The Delaware statutory trustsare very, very common for that.
So what happens ultimately isI'm doing all the work.
You guys are investing intosomebody else that's managing
the property, doing all the work.
You're just looking for thatcoupon and that mailbox money
every month or every quarter,what have you?
So that's really the overallwhat a Delaware statutory trust
is.

Speaker 3 (42:23):
Right, exactly.
And what happens there is justbecause you've invested into it,
you've rolled your 1031proceeds.
It does not mean your money'slocked in there.
Let's say five, 10 years downthe line you decide you know
what I want to get out of.
Maybe this DST specifically, Ilike this other DST, or I want
to go into this other piece ofproperty, or you maybe want to

(42:44):
cash out and get out of realestate completely.
That investor can still get outof their position in the DST If
they roll it over into anotherDST or another piece of real
estate that continues the taxdeferred treatment, or if they
want to withdraw money out ofreal estate completely, then at
that point whatever they receivewill be taxable as capital

(43:06):
gains at that point.
So you can keep rolling itindefinitely, or eventually you
want to get out of real estate.
You simply have to find anotheraccredited investor, which you
know between all Ryan's contacts, paradigm's contacts, maybe
even our contacts.
You have an accredited investor, take your position in the BSD

(43:29):
and you can exit.

Speaker 1 (43:31):
Yeah, in essence, you can sell your position, get
your liquidity and thensomeone's just replacing the
capital Right Like an evergreenstructure almost.
It obviously depends on theassets that we're managing, any
capital events, the economy, soon and so forth, but it is.

Speaker 3 (43:47):
You do have the ability to exit we've had some
clients who thought they couldonly be real estate in Delaware.
The trust needs to be formedlegally in the state of Delaware
.
At that point you can the DSTinvests into real estate

(44:10):
anywhere in the US and you canbecome an investor in that DST.
So, like Ryan said, he does allthe heavy lifting, He'll do the
work getting it set up andregistered within Delaware and
then, as investors come in, theysimply roll profits into it and
get that treatment.

Speaker 1 (44:31):
I got a question for you, Harry.
I have not thought about this.
We have not talked about thisat all.
Is there a way to convert,let's say, someone rolls
investment to an equity position?
I'm going to use this as anexample because it's on the
forefront.
So we're looking at buildingsome more apartments and we are
thinking about managing it afterwe build it.

(44:51):
And what I was thinking was isit possible to do a convertible
from an equity fund into a DST,a Delaware statutory trust?

Speaker 3 (45:04):
It would have to be separate transactions,
indirectly?
Yes, so you would still have toget the trust set up separately
.
You can't convert a partnershipor the corp into a trust.
You would have to form thetrust in Delaware separately,
get all your approvals from thejurisdiction and then with your
investors in the current entity.
I guess once you have thecorrect approvals with your

(45:28):
partnership agreements then youcan fund the new trust with the
current funds and investmentsmoney, the proceeds, yeah, so
that's perfect.

Speaker 1 (45:37):
And the reason I bring that up is because I have
a lot of investors that areinvesting, for example, lake
Havasu, since it's such aretirement community.
A lot of people are going hey,I only got four or five, six
years left of retirement.
I may eventually move out there, but I want to take my IRA, or
I want to take whatever it is,and I want to invest into
accumulation.
I want to build my retirementaccount now, but as soon as I

(45:59):
retire, I'm going to lose cashflow.
I'm going to lose cashflow.
I'm going to lose income and Iwould like to to push it like,
let's say, into something likethe secured income fund, because
it is creating, you know,cashflow.
But a Delaware statutory trustis is very similar.
I obviously I couldn't use theSIF for that on an exit, cause
that's a long-term kind of play,that the SIF is short-term

(46:19):
loans totally differentstructures anyways, but that
would be something that I wouldprobably consider.
I'll work with you guys,obviously, but I'm going to try
to come up with that structurebecause, again, a lot of my
clients are just looking atgoing hey, I want to accumulate
over the next 4, 5, 6, 10 years,whatever it is, and then I'm
going to retire and I'm lookingfor cash flow.
So that's why I was askingabout the convertible.

Speaker 3 (46:39):
Yeah, absolutely so you know we'll work with you on
the process.
I know we talked about.
Paradigm is, considering that,you know, forming a DST and
it'll be a great setup.
You know, once you have thesetup in place, that's the heavy
lifting from there is it's amatter of finding, you know,
investors who are interested inthe deal.
But of course, as you're goingalong that process, you know
you're already having thatcommunication with people to, I

(47:01):
guess, test the interest in theproject.

Speaker 1 (47:04):
Well, in essence, what I'm doing is I'm creating
an exit strategy and securityRight.
So everybody's worried about ifI'm going to invest over this,
who's going to be your end buyeron a big ticket and if you
already have the investors thatare looking at it more for long
term and convertible.
In essence, I'm alreadycreating an exit strategy that
lowers the risk overall from aninvestment side.

Speaker 2 (47:27):
Exactly.
Another thing, ryan, you wantto think about is there's
something called 1035 exchange.
Talk to me, yeah, so you cancreate an endowment fund and put

(47:47):
some real estate there that isgenerating income, and then you
can bring investors that theycan exchange their annuity fund
or their life insurance fund toyour endowment fund without
paying a penny of tax whatyou're saying is and correct me
if I'm wrong what you're sayingis I can bring an institutional

(48:08):
leverage to that right.

Speaker 1 (48:10):
Yes, so ultimately I can create an endowment fund, I
can get, I can front load withsome current investors and then
I can go get leverage againstthat fund and it's, you know,
they're gonna that.

Speaker 2 (48:22):
Well, let's say that wealth management or the other,
uh, institutional investor wouldlook at it for tax strategy as
well, because it's the samestructure right, because you get
a lot of people that mostlythey're elderlies and they had a
life insurance for 15 years.
They were like my cashsurrender value is so much, but
I don't want to touch this lifeinsurance because I'm going to

(48:45):
pay taxes on it.
No, you can exchange that to anendowment fund under 1035
without paying a tax.

Speaker 1 (48:53):
That's actually impressive.
I didn't even know that.

Speaker 2 (48:56):
I know a lot of people don't know it exists, but
it does exist.

Speaker 1 (49:00):
Wow, yeah, I'm going to retouch you guys to talk more
about that.

Speaker 2 (49:04):
yeah, yeah, because I get those questions asked a lot
.
I was like oh, I got all thislife insurance, I have annuity
contract or universal life withmassive cash surrender value,
but I want to touch these a lotof people.
They're touching it and they'repaying penalties plus the tax
Penalties 10% for earlywithdrawal plus income tax which

(49:28):
that puts them in the highestbracket, because all of a sudden
they get that massivedistribution and next thing you
know, they invest some money andthen when it comes filing tax
returns, they have a massiveincome tax to pay.
And I asked them why didn't youdo a 1035?
They were like nobody ever toldme about that, so it doesn't

(49:51):
exist that's, yeah, I'm, I'm,I'm definitely impressed with
that one for sure.

Speaker 1 (49:57):
Yeah, there, you get my mind spinning now.
Thank you.

Speaker 2 (50:02):
That's where I said the 26,000 pages rule.

Speaker 1 (50:05):
Well, I think, for a transparency side, you know,
when you're going to go with anendowment fund with that type of
leverage and you're going aftermore of the institutional side,
it's going to require an auditof financials anyways, right?
So you guys would also helpprepare the audits for the
transparency side, right?

Speaker 3 (50:22):
I love it.
So, moving on, we're done withboth of the STs.
We have QSBS and GST, gst.

Speaker 2 (50:35):
Yeah, I can jump in on GST.
Gse pretty much is a generationskipping trust that it's an
irrevocable trust that allowstaxpayers or individuals to
transfer assets to the futuregeneration without triggering
any gift or state taxes.

(50:56):
This type of trust isparticularly useful for those
who want to ensure their wealthis protected for multiple
generations.
In other words, and by the way,you can use GSTs in the various
areas of taxation.
For instance, if you have amanufacturing company or if you

(51:19):
have a massive real estateholding company that you're not
thinking of selling it becauseyou bought it many years now
it's a cash producing machineand you want to gift it to the
next generation.
The GST number one rule is thatyou have to skip one generation

(51:41):
.
In other words, you cannot giftit to your sister, brother or
to your own son, but you have togift it to the second
generation, which is yourgrandchildren or your
great-grandchildren.

Speaker 1 (51:55):
Got it.

Speaker 2 (52:11):
You can set the rules and say that you're
transferring 30% or 40% of yourmembership in a holding company
or within your corporation oryour partnership to your
grandchildren and that way youdon't have to transfer to your
children to face an estate taxor a gift tax and then for them
to transfer it in their kids inthe future and for them to face
another gift or estate tax.

(52:33):
That way you're skipping onegeneration.
And the way it works is notthat complicated, pretty much.
You set up your own GST trust.
It's an irrevocable trust, soit's concrete.
Once you set up, you're done.
It's a one-way street.
And then you fund that trust byputting a down payment on the

(52:58):
trust.
Usually down payment anywherenear about 10% to 15% I usually
be around 7%, 8% of the value ofasset that you transfer.
So you fund the trust, you putthe down payment and then trust
the GST buys your company on thenote.

(53:21):
So now your grandchildren aregoing to receive the part of
your company or your holdingentity without paying taxes, as
long as you meet the exemptionrequirements, and the exemption
requirement for this year is$27.98 million per couple, yes,

(53:44):
and $13.99 million perindividuals, plus the $17,000
gift tax exclusion.
By the way the reason I'mbringing this up because it's
very important this limitationis going to change next year to

(54:05):
$7 million 50%, literally, right, wow.
So, unless we see a massivechange which we were told that
there are a lot of changescoming around July 4th or
mid-July of this year, but wedon't know if the GST exemption

(54:27):
is going to change or not.

Speaker 1 (54:29):
What we'll do is, depending on how heavy those
shifts are, you will stay incommunication.
Maybe we'll do another webinarto kind of bring awareness to
any adjustments.
So let me ask you this, and Imay be off topic, but let's use
maybe a live example.
And what's actually kind offunny is you guys and I talked
about this just not too long agoon one of our calls.
We both know the group.

(54:49):
So, without going too much intodetails, let's say it's a
construction company thatdecides to sell.
Grandpa created the company.
The son took over the company,which is a boomer.
The boomer opens up a GST, aboomer, the boomer opens up a

(55:15):
gst.
The boomer now this is livenumbers sells the company to his
son.
Okay, so this is the boomerthat took over from grandpa
sells a company to the son on a300 million with a carryback of
65 million.
There is the.
The son has a 65 million dollardebt, but the grandparents, the
, the, the beneficiary of thattrust, are the grandkids, and so

(55:39):
all of the wealth of thatconstruction company is
ultimately going to thegrandkids.
But the, the grandpa, was theone that created the gst, that's
again, wealth goes to thegrandkids.
The son was the one thatcreated the GST.
That's again.
Wealth goes to the grandkids.
The son bought the company witha seller carry.
Is that somewhat?
similar yeah the only thing isthe son cannot.

Speaker 2 (56:07):
The key to the GST trust is for you to escape one
generation.
So if the son, instead of you,doing that, I think it will be
beneficial for a grandpa tocreate the GST, fund the GST,
collect the note and put the sonas a trustee of the GST.

Speaker 1 (56:23):
And the son only is making salary.
He doesn't get any of the Righthe doesn't get, so he gets
salary from the doesn't get anyof the uh right he doesn't get.
So he gets salary from thecompany, the management of the
company itself, but he doesn'treceive any proceeds from the
value of the company.
Okay, that makes sense.
It's all going to the grandkids.
I don't know if that's on thesame line similar.

Speaker 3 (56:44):
Okay, yeah, it could have been a little more
streamlined, but it's that's,that's the end goal is very
similar.
Um, you know where it'sskipping that generation?
Um, it's going and theownership, or the benefit of the
ownership of the company is forthe grandchildren.
It's just more streamlined whendone, you know, properly with

(57:05):
the gst, but that's effectivelya similar concept.

Speaker 1 (57:08):
That's a good takeaway.
That means that I just gave youa structure of another company
and you're saying we canstreamline it even better.
So that was a $300 million saleand you're saying you can make
it easier.
Okay.

Speaker 2 (57:19):
It's funny, ryan, because I had a case that I did
set up a GST trust for thisindividual who had a kid.
The father obviously thegrandpa really loved the
grandchildren.
We set up a GST and then songot married and the grandpa

(57:42):
didn't really like the bride.
Is this the same people?

Speaker 1 (57:48):
we're talking about?
No, no, like the bride.
And he said Is this the samepeople we're talking about?
No, no, I'm kidding.

Speaker 2 (57:55):
I remember this was a pre-COVID, and so I found out
that he was getting marriedbecause I received the wedding
invitation and I was like ohgreat, he's getting married, but
wait a minute.
What's going to happen with allthe wealth?
So I called the father.
Father was out of country.
I said thank you so much forsending me invitation for the

(58:18):
wedding.
The wedding is two months fromnow, but what's going to happen
with all this assets?
He was like well, what do youmean?
So I explained to him.
I said there is no prenuptialagreement here.
So what are we going to do?
He said well, do whatever youthink is right.

(58:39):
He gave me a full power ofattorney.
I talked to the son.
Son goes Armie.
If you ask her to sign aprenuptial agreement, my wedding
is over.
Her to sign a prenuptialagreement, my wedding is over.
And I said okay, well, that's aproblem.
Yeah, I said.
I said then you know what?
I'm sorry, but I'm going to setup a GSD trust for your dad and

(59:01):
your kid will have, but youwill be the trustee, but I have
to do this prior to the wedding,otherwise this will be subject
for a future divorce he goeslike okay, I don't care as long
as she doesn't know anything, Isaid no, but she's still your

(59:23):
fiance.
So, cut long story short, weliterally signed everything 48
hours before the wedding.
Wow, and six months later,grandpa called me already and

(59:55):
they want a piece of my company.
And I was like, well, tell thelawyers to call me.
So her lawyer called me, youknow, acting like whatever.
And then I answered the calland I just hung up.
I said there's nothing, youhave zero claim, everything is

(01:00:18):
under GST trust.
The son was just getting a W-2.
And guess what, before themarriage, I even lowered his W-2
to $55,000 a year.
That's it, and I hang up thecall.

Speaker 1 (01:00:31):
You know, I really appreciate this part of the
conversation because this isactually real life.
You know these are things thatreally happen.
You know you havemulti-generational hardworking.
You know folk that build abusiness and kid gets married.
You don't even really like whoyou're marrying, or they're
marrying because you don'twhatever.
And now, next thing, you knowyou're subject to losing a

(01:00:52):
portion of your wealth through amarriage or through a divorce,
and that's really unfortunate.
So you know again, the takeawayhere is really being able to
protect the assets across theboard from any liabilities.
And and that's really important, you know, for everyone that's
listening in, because I have alot of boomers have multiple
marriages and they've.
You know, I hear all thosestories.
I've lost everything in thisand that.

(01:01:13):
And you know, moving forward,if you really have rebuilt
yourself and you don't want togo through that again, it's all
about planning and settingyourself up and making sure that
you're like.
You know I like for me weshared it earlier on.
You know I have a.
I have a son from a previousand I'm always looking at making
sure that he's set up and he'sgoing to get married at some

(01:01:36):
point and if he's going to takeover a portion of the company,
which I'm hoping.
We all know that we all havekids, that we want to go one
direction.
They go a different direction,but if, if they, if he does, I
would definitely want to protectall the the empire that I've
built right.
Not through a divorce, uh, youknow, and now we have to offload
assets.
I think that would really beunfortunate.

(01:01:57):
So I really appreciated thisrealistic conversation, because
this is this is reality yeah, itis, and you know it's funny.

Speaker 2 (01:02:05):
Um, because the timing of it.
I mean, if I didn't get thatinvitation, this was 165 million
dollar electrical part companyand I I saved I mean their lives
yeah, millions, yeah, just samething.

Speaker 3 (01:02:23):
Going back to the timeline, how the timeline is so
important to get on this early.
You know, just coming backafter the divorce, it was too
late.

Speaker 1 (01:02:30):
If, if that happened, right and there you go, that's
that, that's that you know.
Big takeaway here is plan, plan, plan and execute that plan now
you know, don't wait, reallykind of get moving position
yourself so you just don't haveto worry about things down the
road.
Because it's always that timewhere you're like, oh, I wish I
would have, I should have, and Ididn't.
And now you're, you're lickingwounds, yeah right right.

Speaker 3 (01:02:53):
so last thing again, it goes kind of towards the the
timing topic, but a qsbs.
So qsbs it's another way ofgetting tax-free proceeds, but
this QSBS is a qualified smallbusiness stock.
You can get tax-free treatment,not tax-deferred treatment.

(01:03:17):
So all the topics we've beendiscussing so far it's
tax-deferred.
You kick it down the line,either indefinitely or maybe a
certain set period of time.
But a QSBS, if done properlywhich you need to plan for at
least five years in advance, bythe way but if done properly you
get tax-free proceeds of eitherthe greater of $10 million or

(01:03:43):
10 times your basis in thecompany.
So you can walk away $10million completely tax-free and
that's not deferred, that's nottax, that's going to come in 10,
20, 30 years down the line.
Or again, 10 times your basis.
So if your basis is, let's say,$1 million, it's equal to the

(01:04:04):
$10 million exclusion limit.
Or let's say your basis is $2million in the company and you
have a huge exit you're getting$20 million tax-free, not
tax-deferred, from the SIP.

Speaker 1 (01:04:18):
Dude, this is huge.
This is huge, this is massive.

Speaker 3 (01:04:23):
We're going through one right now, a company that's
going public.
We obviously won't go into toomuch detail on which one, but
QSPS is huge when you canleverage it.

Speaker 1 (01:04:36):
So this is a growth mindset.
This is hey, I still got 20years to burn.
I'm going to exit this and usethose proceeds and expand even
further.

Speaker 3 (01:04:44):
Right, right, but timeline-wise again.
You need to do this at leastfive years beforehand.
If you're four years, you'retoo late.
You get nothing tax-free.
You're paying tax on the wholething, so a couple of rules we
need to talk next week.
Yeah, it gets very specific onthe rules for qualifying to do a

(01:05:05):
QSPS transaction.
So one of them again, five-year.
I keep saying it because that'swhat a lot of people miss.
The next is it needs to be theentity being sold needs to be a
C corporation.
Specifically, can't be an LLC,can't be an S corp, it needs to
be a C corporation and, evenfurther, it needs to be a stock

(01:05:29):
sale.
So question for you.

Speaker 1 (01:05:33):
If you are a C corp now, you can convert it to an S
corp, or, sorry, S corp.
You convert to a C corp, butyou get a plan for it.

Speaker 3 (01:05:40):
Correct Five year timeline begins at the time of
conversion.
Got it, so you convert nowlet's say you had the company
for 10 years as an S corp.
If you convert now, thatfive-year timeline doesn't start
until that conversion.
All the 10 years you've had asS corp don't go towards this
five-year rule.

Speaker 1 (01:05:58):
Is it year driven or is it actual, like date driven?

Speaker 3 (01:06:02):
Year, the year of formation or, sorry, year of
your, the you acquiring theshares, the issuance, of the
shares Year of.

Speaker 1 (01:06:10):
So got it Okay, right , good to know.

Speaker 3 (01:06:14):
So again, that has to be a C-corp.
You can convert, like you justsaid.
You can convert into a C-corp,but the timeline doesn't start
until that point.
Now, also very importantly isthe shares you sell with the
QSPS.
They need to be original issuedshares, meaning the stock.
Let's say you buy stocks on thepublic market.

(01:06:35):
That's secondary issued shares.
You're buying from someone else.
Those don't qualify.
This needs to be.
Let's say you were the founder,the original shares of the
company were issued to you.
You then qualify for QSPS.
But if, for example, theoriginal shares were issued to
you, you then qualify for QSPS.
But if, for example, theoriginal shares were issued to

(01:06:57):
you, you sold to a friend ofyours or a kid, for example,
those shares held by them werenot originally issued to them,
so they don't qualify for QSBSat all.
You, as an original issuedshareholder, qualify.

Speaker 2 (01:07:15):
So you pretty much write a little bit of everything
.
When time comes to sell yourcompany, you can do a mini
spin-off assign some of yourshares to a brand new C-Corp
that qual qualifies under qsbs,and then you can do a dst trust

(01:07:36):
the deferred sales trust for theremainder and you can also do a
separate dst within the qsbs.

Speaker 1 (01:07:45):
So yeah, no, I.
I was going to ask you ifthat's ways to do it because,
ultimately, if you want todiversify your capital, you
could do that and still usethose structures underneath that
right right and then there's away that you can even sell
portions of the shares of it.
So there's a lot of people thatdon't sell all all aspects of
their company, maybe just aportion of their company right

(01:08:06):
right and if that's the case,you can start structuring it
properly even doing that.
So you still operate yourcompany, still have x divisions.
You can do a spin-off, like youmentioned armic and sell a
portion of your company, butstart structuring it this way
right exactly, which is probablyvery common right and you know
um c-corps often being ignoredby a lot of attorneys and stuff.

Speaker 2 (01:08:30):
By the way, I didn't want to mention, I went to law
school.
I didn't have a master's degreein a tax law, but I don't
practice as a JD or any of that.
But what I'm trying to say is alot of tax attorneys are not a
big fan of C-Corporationationand they're a big fan of LLCs.
I'm actually.
I was in a battle with two taxattorneys last week about having

(01:08:54):
an LP versus LLC and I finallyconvinced them that LP is way
better than LLC in the case thatthey were thinking of operating
so.
And then C-corps they have amassive benefit.
If you have a C-Corp holdingshares of another C-Corp, if you

(01:09:18):
own more than 20% of the parentcompany, any dividends that
you're going to get from thatcompany up to 80% will be tax
free, so you can get dividendsfrom.

(01:09:39):
You can set up a holdingcompany as a C-Corp and have
another C-Corporation be underthat C corporation.
So the first C corp issues adividends to the second C corp
and the second C corp can investin a real estate entities and
you can even, you can even focuson tax strategy for that other

(01:10:00):
20%.

Speaker 3 (01:10:02):
Exactly, yeah, yeah.
All of these get later on topof each other.
That that's the beauty of it.
So it's like your first 10million it's completely tax-free
.
The remainder you roll it intoa Delaware statutory trust.
Another portion you do thegeneration skipping trust.
It all layers up.
The dollar amounts add upquickly once you start layering
all of these on top of oneanother.

Speaker 1 (01:10:24):
That is so important for people to know that it
doesn't have to be one structure.
You literally can say, hey, r,m, I, k, harry, here's my world,
here's what I'm trying toaccomplish.
I have grandkids that I love.
I have kids that I love.
I want to give them this, Iwant to try to do this.
I want to protect this.
I want to do that.
I'm looking for tax strategy.

(01:10:44):
I want to buy a house over hereto retire.
I'm looking to right.
You could kind of do it allright yeah, I need cash flow
over here.
I want this much liquidity tostart investing.
I want to be able to sell myshares.
I want to be able.
Yeah, this is, this is killer.
So ultimately it just comesdown to just uh people calling
you and picking your brain andand saying, hey, talk to me, I'm

(01:11:05):
gonna.
Here's my world.
You're the doctor, you got togo in there and you can't
prescribe anything until theytell you the truth and what's
going on.

Speaker 3 (01:11:10):
Right, right.
Yeah, I'm talking to us early,not the day they're signing
escrow Right Loud and clear yeah, yeah, yeah, okay.
Is there anything else you guyswant to cover Cause I questions

(01:11:33):
and then, uh, and if anybody hasadditional questions, go ahead
and feel free to type them in.
Um, but one of them actually,let me ask is there anything
else that you guys want to cover?
No, that's it for us.
I mean we can.
We can go on and on.
We can go hours on each one ofthese, I know we're doing really
good on time too.

Speaker 1 (01:11:41):
I try not to bombard people.
I think ultimately it's justkind of giving everybody an idea
of what can happen and thencorrect me if if I'm wrong.
You guys are doing freeconsultations.

Speaker 2 (01:11:51):
Correct.

Speaker 1 (01:11:51):
Right.
So you know any one of theseclients, investors or anybody
who's just kind of looking forsome sort of guidance, you know,
feel free to call thesegentlemen and if you need me to,
you know make an email intro.
Just let me know as well.
Happy to do so.
So with that said Ron, which isa really good friend of mine.
Ron said don't you have to 1031exchange into a new property
from the same name that was ontitle originally.

Speaker 3 (01:12:15):
Correct.
Yes, so one of the keys withthe 1031 is you can't change the
ownership of the proceeds.
So we discussed the proceeds,where the proceeds flow to, but
the owner of those proceedsquote, unquote needs to remain
the same.
So if ABC LLC sold the property, ABC LLC is the one that needs

(01:12:36):
to own the new investment thatis acquired.
You can then have the newinvestment owned by XYZ LLC.
It needs to be the same exactLLC.
Or if it was owned by youpersonally, you personally need
to own the new investment.
Same thing.
Ownership cannot change,correct.

Speaker 1 (01:12:53):
And then the idea would be is plan now for the
exit of that asset that'scurrently in, let's say, your
personal name, yep, and startrotating that in some sort of
trust or whatever you've got todo and what you want to do and
what you want to accomplish,that structure will be
accordingly.
But the idea would be is tostart preparing for the exit of
that 1031, because a lot ofthese, a lot of these clients I

(01:13:15):
think some of them are going tocontinue to look at the cash
flow component, but with oncethere's enough accumulation and
some of my clients are stillyoung enough they want to make
moves.
You know they're just waiting.
They're just looking to parkmoney.
Wait until opportunity presentsitself, wait for the economy to
shift, whatever the case may be, you know the idea is to start
planning for you know, bigger,smarter plays down the road.

Speaker 2 (01:13:35):
Right.
And another solution, ryan, toRon's question is if you have
two or three partners that theywant to invest in a piece of
property, set up a holdingcompany as an LLC.
Make sure the membership ofthat LLC is a tenant in common.
Set up a holding company as anLLC.
Make sure the membership ofthat LLC is a tenant in common
Yep, a TIC Correct and then haveeach individual partners have

(01:13:57):
their own entity or could be anLLC under the main LLC who holds
the asset on their tenant incommon agreement.
So if one partner wants toexchange, the exchange doesn't
need to be on the original title, can be within their else.

Speaker 1 (01:14:17):
Can they all be managers, or is it more members
with one manager?

Speaker 2 (01:14:21):
You can be a member managed or a manager as a member
and a manager, but not a member, I'm sorry or a member managed,
but that is irrelevant when itcomes to a 1031 exchange.

Speaker 1 (01:14:35):
Right.
It's just, ultimately, how youwant to manage the asset,
correct who's got voting rightsand who's going to help and
guide and who only wants to bemore involved.
Who doesn't want to be involved?
That type of stuff.

Speaker 2 (01:14:46):
Yeah, tenant in common gives you a massive
flexibility.

Speaker 1 (01:14:49):
Yeah, it's very common.
It's be involved that type ofstuff.
Yeah, tenant in common givesyou a massive flexibility.
Yeah, that's very common.
Not a lot of people know aboutthat though the tick tenant in
commons, but it is very, verysimilar.

Speaker 2 (01:14:58):
Or they have a tenant in common, but the title is not
reflected as a tenant in common.
I see that all the time.
That's why, when escrow sendsyou paper hey, is this a joint
tenancy or a common tenancy?
Make sure you pay attention tothat.

Speaker 1 (01:15:12):
Yeah, well, it's also important if you do have
leverage against the asset, youhave title insurance and kind of
more protection and so forth.
So, yeah, totally agree.
Well, great guys, I uh I reallytruly appreciate your time.
I mean I'm learning, as everytime we talk, and I couldn't
tell you how much I trulyappreciate you guys watching
over all the aspects of ourbusiness.
You guys have been killer.
We've worked with a lot of CPAsand tax attorneys, as you guys

(01:15:33):
know where we came from, a bigprivate equity owned firm out of
New York, and we just we loveworking with you guys.
You're answering calls, you'rewith me, you're working with me
Even when the chaos during taxseason, you guys are taking our
calls and taking our emails,which is incredible, taking our
calls and taking our emails,which is which is incredible.
So I really do appreciate it.
And for everybody else who'seither going to be listening to
the future or watching now orwatching in the future, you know
these guys will do a freeconsultations.

(01:15:55):
Again, this is something whereyou need to start planning for
your future.
If you have created some wealththat you want to retain, then
this is the really the way to go.
So these gentlemen right herecan really help you out.
And again, like he mentioned inthe beginning, he's got a big
team, fairly knowledgeablepeople, and this is what they do
.
This is why I had engaged withthem, one really being I work

(01:16:16):
with CPAs all the time and I'mnot saying one thing or another
is bad, but when you work with aCPA whose target market has
been high net worth clients,they have to be more strategic,
a lot more planning involved,and that's what I think you guys
have all been kind of.
The takeaway from this is theseguys have just had to dig deep

(01:16:37):
into this, after even all theyears of experience, to try to
position their clients.
And when we have investors thatare getting involved in their
CPAs or wealth managers aretelling them oh, this isn't
correct or that's not correctLegally, I can't guide you.
So what I try to do is giveresources to people that I
believe are really smart,because I've been in the
investment game for 20 years.

(01:16:58):
So I would like to, you know,encourage everyone to reach out
to these two gentlemen if youhave any questions and want to
get knee deep in destruction foryour future.
So, guys, thank you so verymuch for your time.
I truly appreciate it.
What we'll do is we'll go aheadand do a poll and if anybody
has any more questions orsomething that they want us to
touch on, that's right up youralley.
We'll may ask you guys to comeon for a second time.

Speaker 2 (01:17:19):
Great.
Thank you so much, Ryan, forhaving us.

Speaker 1 (01:17:22):
Great guys have a wonderful day and truly
appreciate it, and we'll talk toyou soon.

Speaker 2 (01:17:25):
Thank you so much.