Those of us who own businesses, highly appreciated stock, commercial or residential investment real estate assets are often reluctant to sell because of capital gains taxes associated with the sale. But what other choice do we have other than a 1031 property exchange? Is there another way to deal with the capital gain tax liability that so many investors experience when they sell their real estate assets? The answer may lie in the “Deferred Sales Trust.”

This capital gains tax deferral and estate transfer tool could save you thousands of dollars, and at the same time, make a profit on the money you would have paid to Uncle Sam in the year of the sale. Obviously, this strategy is gaining popularity among those who have highly appreciated assets. The “Deferred Sales Trust” can also be more simply described as a no risk “seller carry-back” financing structure.

The process starts with a property owner, transferring ownership of the property to a dedicated trust. The trust then sells the property or stock to the buyer of same. Next, the trust pays you. The payment isn’t in cash, but with a payment contract called an “installment contract.” The contract promises to make payments to you for the rest of your life, and said payments can even continue to future generations or a term. There are zero taxes to the trust on the sale since the trust “purchased” the property from you for what it sold it for.

You can choose to defer the start date of the principal payments. You may have other income and don’t need the payments right away. The tax code doesn’t require payment of the capital gains until you start receiving installment payments. The capital gains tax paid to the IRS is only that portion of the capital gains due in proportion to the number of years established in the term of the installment agreement.

The “Deferred Sales Trust” has the ability to generate substantially more money over the long run that a direct and taxed sale. It is also superior to a direct installment sale as concerns of a defaulting buyer in said installment arrangements are eliminated.

Primary benefits:

1. Tax Savings: when appreciated property is sold, tax on gain is deferred until receipt of payments

2. Estate Tax Savings: accomplishes an estate freeze for estate tax purposes

3. Maintains Family Wealth

4. Estate Liquidity: converts an illiquid asset into monthly payments

5. Retirement Income: provides a stream of income for retirement

6. Probate Avoidance: with proper estate planning

7. Eliminate Risks Associated With Ownership: by utilizing the Deferred Sales Trust, you have taken an asset that is otherwise liability prone and converted it to a no risk asset

FOR MORE INFORMATION CALL OUR OFFICE AT (925) 287-6400

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Today I want to tell you about an import report out there that you should pay attention to if you’re a homeowner or considering buying a home.  It’s from the Federal Reserve Bank in Chicago.  The report discusses prepaying your mortgage.  The report says that it’s an awful idea and that most people are just throwing away their money when they do that. Prepaying your mortgage just doesn’t make a lot of sense.  If you’d like to have a copy of this report, I’ll be glad to send it to you.  Just give us a call at 1-866-490-1827.

Treating your home differently than any other investment is the biggest mistake you’ll ever make.  According to a 2003 national housing survey done by Fannie Mae, the reason most Americans cited for buying a home is for a long-term investment.  And that’s exactly what it is.  I know you know that it’s a long-term investment. I tell my wife, wherever you want to live, we’ll live!  But realistically, that’s still an investment.  If you believe your home is an long-term investment, then shouldn’t you manage it as carefully as your other investments?  And do you manage your other investments carefully? Let me challenge you on this. . . .

When comparing investments, I look for safety of principal.  I want something liquid.  You want access to your money.  You have growth potential and you have tax efficiency.  These are the four things you really need in any good investment.

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