Speaker 1 0:20

Everybody, welcome to today's webinar. My name is Ryan Garland, founder and chairman of Paradigm. We're a private equity boutique private equity firm that really focuses on real estate and alternative assets, but really focused on real estate and, for those of you that have been following me for years, I always try to add value and bring on some muscle, and I think you guys will really appreciate this webinar because one of the things that we continue to get asked is more tax strategy. With inside our offerings, you know what is it that we can get involved in, whether it's a 1031 exchange, deferred sales trust, delaware, statutory trust and so we really want to start opening up the doors for our clients to understand who we align with and then also give you resources to reach out to and this is going to be my team in which we do so that you can reach out and build a relationship and start talking a little bit about strategy and kind of separate the church and state. If you will, I want you guys to have access to some of my back office, some of the people that I work with. For example, this is Charter International. They're out of Beverly Hills. They're doing our audits, moving forward. They just did our audit for the Secured Income Fund, which is our $100 million debt fund. So they just did our audit for the Secured Income Fund, which is our $100 million debt fund, so they're completely integrated with everything that Paradigm does. And that's opened up the doors for these conversations.

Speaker 1 1:33

A lot of our investors again are looking at figuring out a way to retain the wealth that they've created over the years and not have to pay Uncle Sam so much. So, really, the idea today is just to add value. Give you guys other vehicles to consider, help you position yourself for the future, whether it's a deferred sales trust, a 10th or winning exchange, what have you and I will be opening up doors to a new offering that is going to be in what we call a Qualified Opportunity Zone Fund, which is a capital gains fund where people can start accumulating more wealth through an equity position play. It's another project that we're going to be opening here soon. But, with that said, I am excited to introduce you guys to Charter International.

Speaker 1 2:09

This is Harry and Armik. These guys will share a little bit about their background, but this is what I would consider real muscle. Here. These guys are preparing 2,500 tax returns a year on average. They manage hundreds of millions of dollars and help strategize with high net worth clients, family offices all the way down to smaller retail, small families that are trying to offices, all the way down to smaller retail, small families that are trying to position themselves in the market.

Speaker 1 2:28

And, without going too far into the elephant in the room on the economy, which I do believe it will eventually kind of turn back around here somewhat soon, but it is important that you guys all know what is out there and what is possible. So, with that said, guys, you have the floor and thank you so very much for joining me today possible. So, with that said, guys, you have the floor and thank you so very much for joining me today. It is important for me to introduce my network, my current investors, to the people that really are overseeing not only our compliance from our audit that we had on our secured income fund, but really just give them a higher level of exposure to people that can really assist them planning their future moving forward. So again, thank you guys for being here. So, harry Armik, it's all yours.

Speaker 2 3:11

Thank you, ryan. Thank you for having us. It's me, Armik Agakani, and my partner, harry Gallumian. I'm the founder of the Chartered International LLP. We are a 24-7 firm. Our main office is located in Beverly Hills, we have a second office in Glendale, california, and our third office is actually an offshore outside the country, so we're pretty much 24-7. We are a total of staff of 36 people. Majority of them are senior staff.

Speaker 2 3:42

The good thing about our firm is that every client that comes on board, we create a team. We put that team in touch with client. They have access 24-7 to our resources and also we kind of think outside the box, in a gray area and not to be just a black and white that we see in some of our CPAs or colleagues when we get their tax returns and we review them and we come up with so many deficiencies and ideas. The tax rules are more than 26,000 pages and it's kind of easy nowadays how to become a certified accountant and the passing rate is a 45%. Versus the year that I took my exam it was a 1.7% and I scored top 10 in the country. I'm gold certified.

Speaker 2 4:47

My background was with PricewaterhouseCoopers, pwc and then, after working for them for a million years. Then I started my practice about 25 years ago. Harry is one of our top guns and now he's a junior partner. He joined our firm about five years ago and I trust him 100% and when we get a new client or even existing clients that we like to debate and come up with a really good tax strategy, I always ask for Harry for advice and go from there. So anything else, harry, you want to add? Yeah, I think.

Speaker 3 5:32

I've covered a lot of it. We're growing at an incredible rate and it keeps us busy. It keeps us on our toes With the new tax law changes we're expecting to come up to it. It's keeping everything interesting, but I mean with our client base we have such a broad array of clients in different industries, different sizes.

Speaker 3 5:51

You know we have a lot of real estate, a lot of professional industries like doctors, attorneys, and different sizes, so we have clients that are making you know a few hundred thousand a year and then 10 years later they're exiting at $50 million or $100 million with their manufacturing company. So it's been a fun journey so far. Like I said, it keeps us busy, keeps us reading some books and articles and newsletters. But here we are today. So thank you again, ryan, for having us too.

Speaker 1 6:20

Absolutely. Let's go ahead and dive in and get right to the value add and go from there. So, Harry, if you want to take control, yes sir.

Speaker 3 6:31

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 we can open up the Q&A or maybe some follow up emails from there. But some six general categories we think are important here. So, starting off, we're going to be focusing on real estate for the majority of this conversation. Number one it's how we're getting things structured to get going. So this is more for the landlord who's managing the property or maybe has an on-site manager. They're not involved in the day-to-day but they are holding the property long-term. It's not a fix and flip, it's not a quick sale. They are holding the property for the foreseeable future. So there are a couple of things you want to have when you're structuring for this setup. Number one no matter what you really 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 and really you want to have more than one member on there. You don't want a single-member LLC, because single-member LLCs are quite literally the highest rate of audits in all of the tax forms that there are. So you avoid single-member LLCs as much as you can. What you do is you have maybe a spouse as a second partner, maybe kids, or. We'll be talking about trusts a lot. Maybe you can have your trust as the second member, but you need that hold co in place as the second member, but you need that hold code in place. And what that does is, aside from the tax savings that we'll be getting into the legal protections you get with the holding company. So instead of let's say God forbid, there was to be some sort of lawsuit that arises, someone trips and falls or you have a tenant dispute, instead of that lawsuit going to you personally, going after your personal assets, all of your other personal investments, you have this LLC in place and for the majority of lawsuits, unless there's some sort of breach in the corporate veil, that lawsuit will be limited to whatever that holding company holds. So typically one property, in some cases a few properties, but typically one property in that LLC and that's where your liabilities end. So that's holding company and for basic investors that may be enough.

Speaker 3 8:58

But as you start growing you're going to realize you have a ton of expenses that you cannot write 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 that kind of stuff on a holding company because the purpose of a holding company is again, literally just to hold the piece of property. It's the title owner, it's not the manager. And things like auto expenses or home office expenses, travel, those are related to managing the property, not holding the property. So once you have your holding company in place, which is a title owner, then you move on. You form a management company. So this management company is going to charge your holding company a management fee. It could be a flat fee each month, it could be a percentage of profits.

Speaker 3 9:56

You can get creative with that structure. But you start having your management company charge your holding company and then, on your management company, this allows you to offset, to write off all of those expenses I mentioned. Plus more, we can get super creative here. You can have some kids on payroll 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 your auto expenses, some of your travel, anything that can be related or relevant to managing the property. That's all getting deducted on your management company level and then we can discuss the type of entity for that management company. A lot of times we like S-Corporation because that'll avoid self-employment income as well from the profits on the management company. Versus, if we were an LLC, you have self-employment taxes. If we were a C corporation, you have double taxation. So a lot of times for that management company, an S corp is a pretty good entity type to use.

Speaker 3 11:03

And then we can get into an even bigger portfolio. Let's say you have maybe 10 million, 20 million, 30 million of a portfolio and all of a sudden you have the good problem having a lot of cash on hand. Then you can start becoming your own lender, essentially. So you have your holding company that we talked about, you have your management company that we talked about, and then you can form your own lending company. Now what the lending company does is, let's say, you have three, four different holding companies, each of them holding a property or two within them. Instead of going out and borrowing money from a bank and paying the bank interest and again you have some cash. You're sitting on that. Maybe you don't want to invest elsewhere, you want to invest it within your own portfolio. You can form a lending company, put your cash into the lending company and then your lending company begins lending money to your own holding companies.

Speaker 3 12:07

That lending company can be a C corporation, so it doesn't the profits do not flow through to you maybe out of state, something like Florida or Texas, where we don't have, or Delaware, where we don't have state income taxes, and or, contractually, the courts are more favorable to corporations in the States. We can form the lending company there and then your holding companies try to pay interest to your own lending company. You create a promissory note there. What that does is it'll reduce the profits that pass on to you from your management company and holding company and it'll move some profits to an out-of-state jurisdiction where, again, it's more favorable from a tax perspective and a legal perspective and just run that setup. This is perfect for a really large portfolio where you're protecting your profits, you're protected legally from any potential lawsuits and you're just holding the property. You are the landlord.

Speaker 2 13:10

So that's a really, really good setup here and also the lending company can file a lien on your own property and then therefore, if there is any outside creditors wants to file a claim, you will have a priority over. That was the first lien holder. Yeah, exactly.

Speaker 1 13:30

You guys are going into like high level nuts and bolts. But yeah, you can get title insurance, you know, you can get all kinds of stuff to kind of protect that lien, but then at the same time this is a much higher level conversation. But I know guys that lend money to themselves and then they sell the note and sell the mortgage back security Right. So we won't go too far down that rabbit hole for this purpose. But there are some real high level ways to maneuver for sure.

Understanding 1031 Exchanges

Speaker 3 13:53

Right, yeah, absolutely. So. Again, that's perfect for someone 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, maybe flip it into a new property You're growing. Then we start looking into protecting not net rental profits but protecting your net capital gain, your net proceeds from a sale. This is where we can get even more creative. We'll have a ton of much more creative methods of protecting those profits from your sale.

Speaker 3 14:29

But a pretty standard one that you never want to miss out on is going to be a 1031 exchange. So as long as you're interested or willing to roll your proceeds from a sale into another piece of real estate, you really, really want to look into a 1031 exchange. So there's a few limitations or qualifications you must meet in order to get a 1031 exchange, number one being it must be a piece of investment real estate, so you cannot do this on your primary residence. That's an important factor which you may or may not be able to get around those rules if you put them in certain holding companies and maybe charge yourself rent. But putting that aside, 1031 exchanges for investment real estate. What that does, it's a rule in the US tax code where your entire proceeds, your net profit from a sale, can be completely tax deferred. It's not tax free. You're deferring your taxes indefinitely as long as you meet the requirements of a 10-30 loan exchange.

Speaker 3 15:41

Now what those requirements are. Number one is, again, you need to roll your profits from the sale into a new piece of property. So you sell a property for $10 million, for example your cost basis, let's say if it was $7 million you have profits of $3 million. You need to roll all of your net profits, your net proceeds, rather into a new real estate in order to get a 100% exclusion on your capital gain. You can, if you are interested in maybe pocketing some and investing it elsewhere instead of a piece of real estate. You're able to do something called a partial 1031 exchange where you can roll a portion of your proceeds of the sale into a new piece of real estate. You can keep the remainder, and the portion you keep as a remainder instead of rolling over that part will be taxable as long-term capital gain. The portion you rolled over will continue to be tax deferred.

Speaker 1 16:43

So, harry, let me jump in there real quick. So this is awesome and I really appreciate the way you even communicated that, because I thought that was very black and white. I'm going to use an example and it was funny because I just looked at who's actually watching us. So I'm sorry to one of our clients but I'm going to use them as a guinea pig and example during this and it's also relevant. So one of our gentlemen now with Paradigm Storage and I'm going to use this as a live example.

Speaker 1 17:08

So Paradigm Storage, one of the properties that we have, we condo map these storage units where you can buy each one. They're fee simple so everybody can buy them either store your toys in them. They're really good for cashflow just due to demand. What we've seen over the last year is the amount of investors or clients that are buying these units really are using 1031 Exchange. So we have 208 units and I think where we're going to end up having is anywhere between maybe 70, 80 owners out of 208 units, because a lot of people are selling. This is going to go back with what happened during the pandemic and not collecting money for rent. You know you have some people that just kind of burned out from that. A lot of Airbnbs where you may want to, airbnbs, kind of getting hit. People are selling their Airbnbs and 1031 exchanging but they love the cashflow. That's their objective, you know that type of stuff. So these units have been kind of on the forefront and there's kind of a wave of interest coming that direction.

Speaker 1 18:04

But, using this example, we have one gentleman who just went into a contract to acquire 23 units. He had a mortgage so he had to have a step up in his basis. On his last property that he sold it's a commercial building in Nevada he had a requirement to have a step up on his basis. These assets, as far as paradigm storage, do qualify for a bank loan. So with insurance and billing methods, what have you? So he was able to acquire a new loan and then also obtain the cash flow that he was really looking for and then defer those capital gains.

Speaker 1 18:39

And it was quite a mountain. If he's buying 23 units, it was quite a bit. So the structure for him was okay. This is great because it's not as hands-on, it's consistent cash flow, just the asset class in itself. But the point is is that he was able to 1031 exchange a massive amount of capital gains to move into another asset to get to the objective, which was get cash flow. And then on top of that, he's also like you just hit on on the nail on the head there, harry that he's able to take a little bit of the money out of that that sale to pay down or pay off some additional debt that he had. So now everything he's got is free and clear. And then he exchanged the rest and 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 19:28

Yeah, it works out perfectly. I was just talking to a client last week where he has a $20 million home out here in California and I talked to him about a 1031 exchange and he's like well, I really don't want to park another 20 million.

Speaker 3 19:41

I just bought another house. I don't want to put another 20 million more into real estate. I want to get out of some real estate. Well, I was like, okay, maybe you buy a $5 million property instead of 20. You roll at least some of your proceeds tax deferred and go ahead and take the tax hit on the remainder that you want to keep. So yeah, a partial 1031 exchange works great.

Speaker 3 20:02

Another part that a lot of people aren't aware of is a reverse 1031 exchange, and we just closed on one of our clients' reverse 1031 exchanges out in New York. So basically, the way a regular 1031 exchange works is you need to sell your first property, your existing property, you sell it, you know your proceeds and you roll the full amount or partial amount into a new piece of real estate. Now some people they find a property they love that is on the market, that's not going to last and they haven't sold their existing property yet, but they do still want to do a 1031 exchange. What you can do is, if you plan this properly, is you are still allowed to purchase a new property before you sell your existing property.

Speaker 3 20:54

Of course, the dollar amounts and the limits and the full exclusion or partial exclusion, your mortgage, all of these need to line up still, and you still do need to use qualified intermediary but you are also able to purchase a new property whether it's cash or mortgage or financed before you sell your existing property, so you don't need to lose out on a potential investment opportunity just because you haven't sold yet. This is something that's not very commonly used, but it works out great when the timing is right.

Speaker 1 21:27

And I like the way you said that because certain there are, especially when you know you're going to 1031 exchange and you have a very short bandwidth. But let's say you have your property in escrow and you find another asset that you want to really acquire and time is of the essence and if you have the ability to acquire it, get it and then obviously, when you sell your existing property, then you can do that reverse 1031. That's kind of what you're going, Am I correct?

Speaker 3 21:53

Yeah, more or less. So once you're in escrow, your hands get tied a little bit. You do have some flexibility still, or they get tied a good amount, but you do have some flexibility still. So it's really important to plan ahead. But once you're in escrow and then, yeah, I mean timing.

Speaker 1 22:10

It's very quick sometimes with real estate. Sometimes you know that it's going to be. It's going to all come down to timing and timing and strategy. You know, if you are going to try to target a reverse 1031, you really need to know what proceeds you're going to get and you got to really plan your acquisition around the sale yeah, and what you brought up escrow.

Speaker 3 22:29

So something a lot of people miss as well is that you have to use a qualified intermediary 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 months later, say, well, let me 1031 this now, that's not how it works. So when you're trying to do a 1031 exchange, you need to have that, you know put in place, even if, whether it's reverse or regular, you need to be using a qualified intermediary. If you do a simple sale, you lose the opportunity to do a 1031 exchange and and between you guys and us.

Speaker 1 23:04

I think we can refer the right intermediary to our clients.

Speaker 3 23:10

Absolutely.

Speaker 1 23:10

You bet.

Speaker 3 23:13

So yeah, this is basically the slide we're on holding your real estate, being a landlord and then deferring your proceeds from a simple piece of real estate transaction.

Speaker 2 23:27

Yeah, one thing I want to touch base, ryan, is lately we've been doing a lot of consulting for people that they want to sell their property in LA County and they're subject to a mansion tax. So we came up with this really great idea how to completely avoid the mansion tax and part of it goes to what Harry kind of touched base earlier by setting up a holding company as a hold your property in a form of an LLC. Then what you do when time comes for you to sell the property, you sell the membership interest of the LLC instead of the actual property. That way the mansion tax cannot apply to the sale of membership interest of an LLC or any form of a partnership if it holds a property.

Speaker 3 24:23

Since title never changed, correct.

Speaker 1 24:25

That's interesting. That's actually pretty neat.

Speaker 2 24:28

Yeah, we came up with this idea. We've been working with a few of our top realtors and it just works. And then you completely bypass the escrow. The agreement can be done in our office or we can refer to a legal firm and they can draft an agreement and all you have to do make sure that the buyer will do, you know, all the proper inspections and make sure they will cancel all the contingencies before signing the agreements so, in essence, you're selling the business that has real estate holdings, correct?

Speaker 3 25:05

you're selling your holding company.

Speaker 1 25:06

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

Speaker 2 25:27

Yeah right. So, speaking of selling a business, let's talk about a few ideas. Number one basic type of a sell is a lump sum. When you sell your business, you get all the money and, guess what? You're going to pay a massive amount of tax. And actually we always get clients that come to us. They're like oh, my CPS says I'm paying more than a 50% of a tax when I'm selling my business. Is there any way we can lower that tax? I would say, yes, I wish you would have come to us a year ago. Tasks I would say, yes, I wish you would have come to us a year ago. So the second option is installment sale.

Speaker 2 26:15

Pretty much, installment sale is under IRC code section 453. It's a really old code section that you sell your business, membership or shares or assets on installment sale. Installment sale needs to be more than two years, or two years plus, in order to qualify. In other words, you cannot sell your business in April of 2025, but not collect any payment until, like March of 2026. And you said, oh, I'm deferring, now IRS can come and tax you based on a constructive income doctrine or a step transaction doctrine. And they said, oh, this has been all scam and you have to pay taxes plus penalties and interest. In order to avoid that, a lot of people they use installment sale under Code Section 453.

Speaker 2 27:11

Now, installment sales obviously have its own pros and cons. The good thing about it that you don't pay taxes in a year that you sell, unless you collect payments and when you collect the payments. There is three types of a tax. You collect payments and when you collect the payments, there is three types of attacks. Number one there is the interest income that you pay on the note. Number two the capital gain, which is calculated based on your basis of the asset plus all the selling expenses over the amount that you collect, less the interest portion. And that's something that we see. A lot of CPAs or tax attorneys that make mistakes. They calculate the gross profit percentage but they don't separate the interest portion. And client comes to us and we say oh no, you're double paying taxes because you're paying taxes on interest and you're paying taxes on installments. The interest portion of the tax cannot be included in an equation, so your gross profit is always lower. And the third portion obviously, is the recapture on the assets. Some people they sell the business, they were saying, oh, I have a ton of recapture income tax on the depreciation that I took earlier year. How can I avoid that food franchise fast food franchise last year and I saved them almost $8 million of tax by writing off a bunch of assets that were fully depreciated on their balance sheet. So when they sold the business a very small amount of the sale proceeds or purchase price were allocated to those assets and therefore we kind of mitigated the recapture.

Speaker 2 29:15

Now, on a installment set, there is something else available, that is, a deferred sales trust. The deferred sales trust is something new. Irs hasn't approved it but it hasn't disapproved it. They've been very silent about it. It's a really great tool just to kind of avoid the tax avoid the tax Pretty much.

Speaker 2 29:45

The way it works still is under Section 453 is by you as a seller. You create a irrevocable trust. We call it deferred sales trust. You sell your assets or a membership or shares of the company to DST, let's call it, at the higher value. So prior for your sell you have to have somebody to do evaluation. You set up a trust. You are not a trustee of that trust needs to be a completely unrelated third party as a trustee. And then you receive a note that and in a future date usually must happen at least a year and a half to two years after that. You create a trust, then the trustee of a trust sells your business. Then the trust pays a minimum tax. Why? Because let's say, if it costs you $20 million to create a business, your basis in the entity is $20 million. You sell that business for $100 million to your own trust, but you don't receive payment, but you don't receive payment.

Speaker 3 31:13

That's the key. So that's why there's no tax upon your first sale. Because you didn't receive payment from your own trust, you sold it and the trust owes you money.

Deferred Sales Trust Strategies

Speaker 1 31:24

Correct, so let's dumb it down further. So, number one you have to be forward thinking on your exit, meaning if anyone who's watching or listening to this, if you know you plan on selling your business, let's say in two, three years, down road you want to have that trust established at least two years if I'm correct, armik prior to the exit of that business. That's how you have to be strategic and focusing on your tax strategy, on keeping that capital. Two, the way that you're ultimately selling the interest of your business to your trust and then, down the road, the idea would be to take a loan out to yourself to then buy other to other investor, buy other assets. Is that correct?

Speaker 2 32:14

Right, so yeah. So step number one is to set up the irrevocable trust in exchange for the installment note, and then step number two will be the trust sells the asset to the buyer in a lump sum sale for the already agreed upon sale price, with the trust receiving the full sale proceeds in a lump sum. So the buyer's involvement ends here, meaning the seller deals with only the DST going forward and the trustee, and then, finally, the trust reinvests the self-proceeds as directed by the seller and makes payments to the seller over time per the terms of the installment. In other words, the seller never pays the tax unless you collect on the installment note. And when you collect on your installment note, that becomes a capital gain, just the portion you collected.

Speaker 2 33:19

Just the portion you collected Plus the interest. Just the portion you collected, just the portion that you collected Plus the interest. Right, so it's really just another vehicle, right.

Speaker 1 33:25

Almost identical to all the things that we're talking about. You know, you're lending yourself money, eliminating taxes, still buying assets. If you do take any personal capital, 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's listening. Right, those type of things. So this is really the, the. This is for everyone who's listening. This was really the fruit right. Here is this deferred sales trust.

Speaker 1 33:47

I have a lot of clients that are selling business, and it doesn't need to be big dollar amounts, guys, this could be.

Speaker 1 33:51

You know, you have four or five million dollars in real estate and maybe a business or just a business or what have you. You just want to be able to capture as much of that uh, you know, income, let's say, let's say proceeds from the sale as possible, not have to spend so much money in taxes. This is really what this is. So this is kind of the future planning strategy, no matter how big you go, but it also gives you really a better perspective of the valuation of your company. So you have an idea what to exit at, right. So what you heard Armick say was go get an evaluation, and there's millions of different ways to do that. These gentlemen will help you with that, depending on the nature of your business. But that's really. The idea was to plan for the exit and get a very clear picture. When you start going to the negotiation table on the sale, you know where your valuation is uh is really at right and then, uh, so those are the three steps.

Speaker 2 34:40

Uh, there is a pros and cons to it.

Speaker 2 34:42

The obviously is you don't pay taxes unless you collect your payment, and also you can give the instruction to the trustee how to reinvest the money that the trust received. And, by the way, when a trust receives money, trust doesn't pay any tax because there is a note sitting in the trust that needs to be satisfied and the taxes are paid when the installments are made. So trust will face a zero tax. At the moment, however, the beneficiary of the trust needs to be somebody other than you, so you can set, like your grandchildren, your kids, to be the beneficiary, or you can even set up their corporation to be the beneficiary of the DST trust. And then any assets that gets reinvested at the DST level, if market appreciates on those assets, you pay no tax on it. Those assets, you pay no tax on it. And then trust also has its own exemptions and its own rules that you can create. In other words, the trustee of the trust can also gift some of the trust earnings or trust assets to another trust. So there is a lot you can do at that level, but the problem with the DST is when you give your instructions to the trustee and trustee decides to invest in some assets, let's say future business or a future real estate or a future who knows a contract or a businesses and those future investment. They go in a different direction.

Speaker 2 36:49

Now trust cannot make those payments that you agreed upon creation of a trust. There is nothing you can do to the trustee. In other words, trustee owns that trust. Trustee has a fiduciary duty, obviously to follow those duties. And guess who? You set up those duties because you indirectly control the trust, but you're not supposed to say that again. So the credit risk transfers to the trust and a trustee and as long as trustee acts based on his fiduciary duty, there's nothing you can do to that trustee. In other words, the trustee is fully protected. By the way, we can be trustee, your attorney can be a trustee, and then you can have a law firm to create the DST trust and you can create a different layer of a protection.

Speaker 2 37:52

By the way, that trust is fully protected from the creditors. So that's another beauty of the est trust that's really that's.

Delaware Statutory Trusts Explained

Speaker 1 38:04

That's, that's great intel. What's nice is you guys can even go in too far into some high-level conversation. You can do life insurance. You know, you can bury a life insurance policy into this. I mean, there's all kinds of ways to continue to protect your assets and then you know, when you assign somebody as a trustee whether it's charter international or attorney you're able to kind of navigate those waters. Now, if God forbid, something happens 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 38:37

Correct, that's pretty much it, and then from DST, then we can go to the next step, which is delaware. Sales trust another type of dst, yeah, which is funny because everyone thinks a lot.

Speaker 1 38:51

I think most people think of dsts as delaware statutory trust. They haven't heard really of the deferred sales trust. That was really the big uh talking points today. But let's explain to the audience what the difference really is and it's really black and white, but it does. Dsts are going okay. Now what does that mean?

Speaker 3 39:11

Yeah, so the difference is, like Amrit mentioned. It's when you're really selling a business, right, because you're deferring your capital gain, just like we talked with the 1031. But you can't 1031 exchange a business. The equivalent of selling a business and deferring the capital gain would be that deferred sales trust and that whole structure. So now, if we come back to real estate, that's where the Delaware statutory trust would come into play.

Speaker 2 39:42

It's very similar to a 1031 exchange but slightly different.

Speaker 3 39:48

So basically, with the 1031 exchange, you had to roll over your proceeds into real estate, like we said. Now, maybe you don't want to put 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 deal with managing and so forth, but you want to defer your capital gain. So what you can do is you can 1031 exchange your proceeds from the sale of your property, your investment property, into a Delaware statutory trust, instead of rolling it over into a piece of real estate directly. So what that means is you would have to find a Delaware statutory trust and put your proceeds there.

Speaker 3 40:33

What the Delaware statutory trust is it's essentially a professional real estate company is owning a commercial property. It's typically commercial because they're on the larger side. So the professional real estate company owns the title to that real estate and then it finds some investors who then roll over all of their proceeds into that DST. What that allows is the investor sold their old property, their existing property, they deferred their tax, but they don't have to manage a piece of real estate anymore. They can part the funds, the proceeds, with a professional company who's managing the property and paying distributions out of the net profits to the investor, while keeping that tax deferred treatment the net profits to the investor, while keeping that tax deferred treatment. So it's almost like, instead of investing into securities or stocks, you invest your 1031 proceeds into another real estate project and get rid of being a landlord, keeping your tax deferred treatment.

Speaker 1 41:39

And so let me jump in there too, harry, a little bit, just to kind of break it down even further, if you don't mind. First of all, to qualify as a DST a Delaware Statutory Trust it has to be an income producing property, correct. And then it would be like, let's say, investors I was going to open up a DST, investors can invest into a fund that I manage right, or a DST trust, but just say fund for conversation purposes into a trust that I manage, and then those proceeds are going into assets 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 me talk about that in the past builder rent communities.

Speaker 1 42:23

The Delaware statutory trusts are very, very common for that. So what happens ultimately is I'm doing all the work. You guys are investing into somebody else that's managing the property, doing all the work. You're just looking for that coupon and that mailbox money every month or every quarter, what have you? So that's really the overall what a Delaware statutory trust is.

Speaker 3 42:43

Right, exactly. And what happens there is just because you've invested into it, you've rolled your 1031 proceeds. It does not mean your money's locked in there. Let's say five, 10 years down the line you decide you know what I want to get out of. Maybe this DST specifically, I like this other DST, or I want to go into this other piece of property, or you maybe want to cash out and get out of real estate completely. That investor can still get out of their position in the DST If they roll it over into another DST or another piece of real estate that continues the tax deferred treatment, or if they want to withdraw money out of real estate completely, then at that point whatever they receive will be taxable as capital gains at that point. So you can keep rolling it indefinitely, or eventually you want to get out of real estate. You simply have to find another accredited 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 and you can exit.

Speaker 1 43:51

Yeah, in essence, you can sell your position, get your liquidity and then someone's just replacing the capital Right Like an evergreen structure almost. It obviously depends on the assets that we're managing, any capital events, the economy, so on and so forth, but it is.

Speaker 3 44:07

You do have the ability to exit we've had some clients who thought they could only be real estate in Delaware. The trust needs to be formed legally in the state of Delaware. At that point you can the DST invests into real estate anywhere in the US and you can become an investor in that DST. So, like Ryan said, he does all the heavy lifting, He'll do the work getting it set up and registered within Delaware and then, as investors come in, they simply roll profits into it and get that treatment.

Speaker 1 44:51

I got a question for you, Harry. I have not thought about this. We have not talked about this at all. Is there a way to convert, let's say, someone rolls investment to an equity position? I'm going to use this as an example because it's on the forefront. So we're looking at building some more apartments and we are thinking about managing it after we build it. And what I was thinking was is it possible to do a convertible from an equity fund into a DST, a Delaware statutory trust?

Speaker 3 45:25

It would have to be separate transactions, indirectly? Yes, so you would still have to get the trust set up separately. You can't convert a partnership or the corp into a trust. You would have to form the trust in Delaware separately, get all your approvals from the jurisdiction and then with your investors in the current entity. I guess once you have the correct approvals with your partnership agreements then you can fund the new trust with the current funds and investments money, the proceeds, yeah, so that's perfect.

Speaker 1 45:58

And the reason I bring that up is because I have a lot of investors that are investing, for example, lake Havasu, since it's such a retirement 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 retirement account now, but as soon as I retire, I'm going to lose cash flow. I'm going to lose cashflow. I'm going to lose income and I would like to to push it like, let's say, into something like the secured income fund, because it is creating, you know, cashflow.

Speaker 1 46:29

But a Delaware statutory trust is is very similar. I obviously I couldn't use the SIF for that on an exit, cause that's a long-term kind of play, that the SIF is short-term loans totally different structures anyways, but that would be something that I would probably consider. I'll work with you guys, obviously, but I'm going to try to come up with that structure because, again, a lot of my clients are just looking at going 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 looking for cash flow. So that's why I was asking about the convertible.

Speaker 3 46:59

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 the setup in place, that's the heavy lifting from there is it's a matter of finding, you know, investors who are interested in the deal. But of course, as you're going along that process, you know you're already having that communication with people to, I guess, test the interest in the project.

Speaker 1 47:24

Well, in essence, what I'm doing is I'm creating an exit strategy and security Right. So everybody's worried about if I'm going to invest over this, who's going to be your end buyer on a big ticket and if you already have the investors that are looking at it more for long term and convertible. In essence, I'm already creating an exit strategy that lowers the risk overall from an investment side.

Speaker 2 47:47

Exactly. Another thing, ryan, you want to think about is there's something called 1035 exchange. Talk to me, yeah, so you can create an endowment fund and put some real estate there that is generating income, and then you can bring investors that they can exchange their annuity fund or their life insurance fund to your endowment fund without paying a penny of tax what you're saying is and correct me if I'm wrong what you're saying is I can bring an institutional leverage to that right.

Speaker 1 48:31

Yes, so ultimately I can create an endowment fund, I can get, I can front load with some current investors and then I can go get leverage against that fund and it's, you know, they're gonna that.

Generation Skipping Trusts

Speaker 2 48:43

Well, let's say that wealth management or the other, uh, institutional investor would look at it for tax strategy as well, because it's the same structure right, because you get a lot of people that mostly they're elderlies and they had a life insurance for 15 years. They were like my cash surrender value is so much, but I don't want to touch this life insurance because I'm going to pay taxes on it. No, you can exchange that to an endowment fund under 1035 without paying a tax.

Speaker 1 49:13

That's actually impressive. I didn't even know that.

Speaker 2 49:16

I know a lot of people don't know it exists, but it does exist.

Speaker 1 49:21

Wow, yeah, I'm going to retouch you guys to talk more about that.

Speaker 2 49:24

yeah, yeah, because I get those questions asked a lot. I was like oh, I got all this life insurance, I have annuity contract or universal life with massive cash surrender value, but I want to touch these a lot of people. They're touching it and they're paying penalties plus the tax Penalties 10% for early withdrawal plus income tax which that puts them in the highest bracket, because all of a sudden they get that massive distribution and next thing you know, they invest some money and then when it comes filing tax returns, they have a massive income tax to pay. And I asked them why didn't you do a 1035? They were like nobody ever told me about that, so it doesn't exist that's, yeah, I'm, I'm, I'm definitely impressed with that one for sure.

Speaker 1 50:18

Yeah, there, you get my mind spinning now. Thank you.

Speaker 2 50:22

That's where I said the 26,000 pages rule.

Speaker 1 50:26

Well, I think, for a transparency side, you know, when you're going to go with an endowment fund with that type of leverage and you're going after more of the institutional side, it's going to require an audit of financials anyways, right? So you guys would also help prepare the audits for the transparency side, right?

Speaker 3 50:42

I love it. So, moving on, we're done with both of the STs. We have QSBS and GST, gst.

Speaker 2 50:55

Yeah, I can jump in on GST. Gse pretty much is a generation skipping trust that it's an irrevocable trust that allows taxpayers or individuals to transfer assets to the future generation without triggering any gift or state taxes. This type of trust is particularly useful for those who want to ensure their wealth is 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 a manufacturing company or if you have a massive real estate holding company that you're not thinking of selling it because you bought it many years now it's a cash producing machine and you want to gift it to the next generation. The GST number one rule is that you have to skip one generation. In other words, you cannot gift it to your sister, brother or to your own son, but you have to gift it to the second generation, which is your grandchildren or your great-grandchildren.

Speaker 1 52:16

Got it.

Speaker 2 52:32

You can set the rules and say that you're transferring 30% or 40% of your membership in a holding company or within your corporation or your partnership to your grandchildren and that way you don't have to transfer to your children to face an estate tax or a gift tax and then for them to transfer it in their kids in the future and for them to face another gift or estate tax. That way you're skipping one generation. And the way it works is not that complicated, pretty much. You set up your own GST trust. It's an irrevocable trust, so it's concrete. Once you set up, you're done. It's a one-way street. And then you fund that trust by putting a down payment on the trust.

Speaker 2 53:20

Usually down payment anywhere near about 10% to 15% I usually be around 7%, 8% of the value of asset that you transfer. So you fund the trust, you put the down payment and then trust the GST buys your company on the note. So now your grandchildren are going to receive the part of your company or your holding entity without paying taxes, as long as you meet the exemption requirements, and the exemption requirement for this year is $27.98 million per couple, yes, and $13.99 million per individuals, plus the $17,000 gift tax exclusion. By the way the reason I'm bringing this up because it's very important this limitation is going to change next year to $7 million 50%, literally, right, wow. So, unless we see a massive change which we were told that there are a lot of changes coming around July 4th or mid-July of this year, but we don't know if the GST exemption is going to change or not.

Speaker 1 54:49

What we'll do is, depending on how heavy those shifts are, you will stay in communication. Maybe we'll do another webinar to kind of bring awareness to any adjustments. So let me ask you this, and I may be off topic, but let's use maybe a live example. And what's actually kind of funny is you guys and I talked about this just not too long ago on one of our calls. We both know the group. So, without going too much into details, let's say it's a construction company that decides to sell.

Speaker 1 55:20

Grandpa created the company. The son took over the company, which is a boomer. The boomer opens up a GST, a boomer, the boomer opens up a gst. The boomer now this is live numbers sells the company to his son. Okay, so this is the boomer that took over from grandpa sells a company to the son on a 300 million with a carryback of 65 million. There is the. The son has a 65 million dollar debt, but the grandparents, the, the, the beneficiary of that trust, are the grandkids, and so all of the wealth of that construction company is ultimately going to the grandkids. But the, the grandpa, was the one that created the gst, that's again, wealth goes to the grandkids. The son was the one that created the GST. That's again. Wealth goes to the grandkids. The son bought the company with a seller carry. Is that somewhat?

Speaker 1 56:17

similar yeah the only thing is the son cannot.

Speaker 2 56:28

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 to create the GST, fund the GST, collect the note and put the son as a trustee of the GST.

Speaker 1 56:44

And the son only is making salary. He doesn't get any of the Right he doesn't get, so he gets salary from the doesn't get any of the uh right he doesn't get. So he gets salary from the company, the management of the company itself, but he doesn't receive 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 the same line similar.

Speaker 3 57:05

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's skipping that generation? Um, it's going and the ownership, or the benefit of the ownership of the company is for the grandchildren. It's just more streamlined when done, you know, properly with the gst, but that's effectively a similar concept.

Speaker 1 57:28

That's a good takeaway. That means that I just gave you a structure of another company and you're saying we can streamline it even better. So that was a $300 million sale and you're saying you can make it easier. Okay.

Speaker 2 57:39

It's funny, ryan, because I had a case that I did set up a GST trust for this individual who had a kid. The father obviously the grandpa really loved the grandchildren. We set up a GST and then son got married and the grandpa didn't really like the bride. Is this the same people?

Speaker 1 58:09

we're talking about? No, no, like the bride. And he said Is this the same people we're talking about? No, no, I'm kidding.

Speaker 2 58:15

I remember this was a pre-COVID, and so I found out that he was getting married because I received the wedding invitation and I was like oh great, he's getting married, but wait a minute.

Speaker 2 58:29

What's going to happen with all the wealth? So I called the father. Father was out of country. I said thank you so much for sending me invitation for the wedding. The wedding is two months from now, but what's going to happen with all this assets? He was like well, what do you mean? So I explained to him. I said there is no prenuptial agreement here. So what are we going to do? He said well, do whatever you think is right. He gave me a full power of attorney.

Speaker 2 59:01

I talked to the son. Son goes Armie. If you ask her to sign a prenuptial agreement, my wedding is over. Her to sign a prenuptial agreement, my wedding is over. And I said okay, well, that's a problem. Yeah, I said. I said then you know what? I'm sorry, but I'm going to set up a GSD trust for your dad and your kid will have, but you will be the trustee, but I have to do this prior to the wedding, otherwise this will be subject for a future divorce he goes like okay, I don't care as long as she doesn't know anything, I said no, but she's still your fiance.

Speaker 2 59:44

So, cut long story short, we literally signed everything 48 hours before the wedding. Wow, and six months later, grandpa called me already and they want a piece of my company. And I was like, well, tell the lawyers to call me. So her lawyer called me, you know, acting like whatever. And then I answered the call and I just hung up. I said there's nothing, you have zero claim, everything is under GST trust. The son was just getting a W-2. And guess what, before the marriage, I even lowered his W-2 to $55,000 a year. That's it, and I hang up the call.

Speaker 1 1:00:51

You know, I really appreciate this part of the conversation because this is actually real life. You know these are things that really happen. You know you have multi-generational hardworking. You know folk that build a business and kid gets married. You don't even really like who you're marrying, or they're marrying because you don't whatever. And now, next thing, you know you're subject to losing a portion of your wealth through a marriage or through a divorce, and that's really unfortunate. So you know again, the takeaway here is really being able to protect the assets across the board from any liabilities. And and that's really important, you know, for everyone that's listening in, because I have a lot of boomers have multiple marriages and they've.

Speaker 1 1:01:31

You know, I hear all those stories. I've lost everything in this and that. And you know, moving forward, if you really have rebuilt yourself and you don't want to go through that again, it's all about planning and setting yourself up and making sure that you're like. You know I like for me we shared it earlier on. You know I have a. I have a son from a previous and I'm always looking at making sure that he's set up and he's going to get married at some point and if he's going to take over a portion of the company, which I'm hoping. We all know that we all have kids, that we want to go one direction. They go a different direction, but if, if they, if he does, I would definitely want to protect all the the empire that I've built right. Not through a divorce, uh, you know, and now we have to offload assets. I think that would really be unfortunate. So I really appreciated this realistic conversation, because this is this is reality yeah, it is, and you know it's funny.

Speaker 2 1:02:25

Um, because the timing of it. I mean, if I didn't get that invitation, this was 165 million dollar electrical part company and I I saved I mean their lives yeah, millions, yeah, just same thing.

Speaker 3 1:02:43

Going back to the timeline, how the timeline is so important to get on this early. You know, just coming back after the divorce, it was too late.

Speaker 1 1:02:51

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, really kind of get moving position yourself so you just don't have to worry about things down the road. Because it's always that time where you're like, oh, I wish I would have, I should have, and I didn't. And now you're, you're licking wounds, yeah right right.

Speaker 3 1:03:13

so last thing again, it goes kind of towards the the timing topic, but a qsbs. So qsbs it's another way of getting tax-free proceeds, but this QSBS is a qualified small business stock. You can get tax-free treatment, not tax-deferred treatment. So all the topics we've been discussing 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 properly which you need to plan for at least five years in advance, by the way but if done properly you get tax-free proceeds of either the greater of $10 million or 10 times your basis in the company. So you can walk away $10 million completely tax-free and that's not deferred, that's not tax, 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 $10 million exclusion limit. Or let's say your basis is $2 million in the company and you have a huge exit you're getting $20 million tax-free, not tax-deferred, from the SIP.

Speaker 1 1:04:39

Dude, this is huge. This is huge, this is massive.

Speaker 3 1:04:43

We're going through one right now, a company that's going public. We obviously won't go into too much detail on which one, but QSPS is huge when you can leverage it.

Speaker 1 1:04:56

So this is a growth mindset. This is hey, I still got 20 years to burn. I'm going to exit this and use those proceeds and expand even further.

Speaker 3 1:05:04

Right, right, but timeline-wise again. You need to do this at least five years beforehand. If you're four years, you're too late. You get nothing tax-free. You're paying tax on the whole thing, so a couple of rules we need to talk next week.

Speaker 3 1:05:22

Yeah, it gets very specific on the rules for qualifying to do a QSPS transaction. So one of them again, five-year. I keep saying it because that's what a lot of people miss. The next is it needs to be the entity 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, even further, it needs to be a stock sale. So question for you.

Speaker 1 1:05:53

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, but you get a plan for it.

Speaker 3 1:06:01

Correct Five year timeline begins at the time of conversion. Got it, so you convert now let's say you had the company for 10 years as an S corp. If you convert now, that five-year timeline doesn't start until that conversion. All the 10 years you've had as S corp don't go towards this five-year rule.

Speaker 1 1:06:19

Is it year driven or is it actual, like date driven?

Speaker 3 1:06:22

Year, the year of formation or, sorry, year of your, the you acquiring the shares, the issuance, of the shares Year of.

Speaker 1 1:06:30

So got it Okay, right, good to know.

Speaker 3 1:06:35

So again, that has to be a C-corp. You can convert, like you just said. You can convert into a C-corp, but the timeline doesn't start until that point. Now, also very importantly is the shares you sell with the QSPS. They need to be original issued shares, meaning the stock. Let's say you buy stocks on the public market. 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, the original shares were issued to you, you then qualify for QSPS. But if, for example, the original shares were issued to you, you sold to a friend of yours or a kid, for example, those shares held by them were not originally issued to them, so they don't qualify for QSBS at all. You, as an original issued shareholder, qualify.

Qualified Small Business Stock (QSBS)

Speaker 2 1:07:35

So you pretty much write a little bit of everything. When time comes to sell your company, you can do a mini spin-off assign some of your shares to a brand new C-Corp that qual qualifies under qsbs, and then you can do a dst trust the deferred sales trust for the remainder and you can also do a separate dst within the qsbs.

Speaker 1 1:08:06

So yeah, no, I. I was going to ask you if that's ways to do it because, ultimately, if you want to diversify your capital, you could do that and still use those structures underneath that right right and then there's a way that you can even sell portions of the shares of it. So there's a lot of people that don't sell all all aspects of their company, maybe just a portion of their company right right and if that's the case, you can start structuring it properly even doing that.

Speaker 1 1:08:30

So you still operate your company, still have x divisions. You can do a spin-off, like you mentioned armic and sell a portion of your company, but start structuring it this way right exactly, which is probably very common right and you know um c-corps often being ignored by a lot of attorneys and stuff.

Speaker 2 1:08:50

By the way, I didn't want to mention, I went to law school. I didn't have a master's degree in a tax law, but I don't practice as a JD or any of that.

Speaker 2 1:08:59

But what I'm trying to say is a lot of tax attorneys are not a big fan of C-Corporationation and they're a big fan of LLCs. I'm actually. I was in a battle with two tax attorneys last week about having an LP versus LLC and I finally convinced them that LP is way better than LLC in the case that they were thinking of operating so. And then C-corps they have a massive benefit. If you have a C-Corp holding shares of another C-Corp, if you own more than 20% of the parent company, any dividends that you're going to get from that company up to 80% will be tax free, so you can get dividends from. You can set up a holding company as a C-Corp and have another C-Corporation be under that C corporation. So the first C corp issues a dividends to the second C corp and the second C corp can invest in a real estate entities and you can even, you can even focus on tax strategy for that other 20%.

Speaker 3 1:10:22

Exactly, yeah, yeah. All of these get later on top of each other. That that's the beauty of it. So it's like your first 10 million it's completely tax-free. The remainder you roll it into a Delaware statutory trust. Another portion you do the generation skipping trust. It all layers up. The dollar amounts add up quickly once you start layering all of these on top of one another.

Speaker 1 1:10:44

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 to accomplish. I have grandkids that I love. I have kids that I love. I want to give them this, I want to try to do this. I want to protect this. I want to do that. I'm looking for tax strategy. I want to buy a house over here to retire. I'm looking to right. You could kind of do it all right yeah, I need cash flow over here.

Speaker 1 1:11:11

I want this much liquidity to start investing. I want to be able to sell my shares. I want to be able. Yeah, this is, this is killer. So ultimately it just comes down to just uh people calling you and picking your brain and and saying, hey, talk to me, I'm gonna. Here's my world. You're the doctor, you got to go in there and you can't prescribe anything until they tell you the truth and what's going on.

Speaker 3 1:11:31

Right, right. Yeah, I'm talking to us early, not the day they're signing escrow Right Loud and clear yeah, yeah, yeah, okay.

Speaker 3 1:11:42

Is there anything else you guys want to cover Cause I questions and then, uh, and if anybody has additional 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 of these, I know we're doing really good on time too.

Speaker 1 1:12:01

I try not to bombard people. I think ultimately it's just kind of giving everybody an idea of what can happen and then correct me if if I'm wrong. You guys are doing free consultations.

Speaker 2 1:12:11

Correct.

Speaker 1 1:12:12

Right. So you know any one of these clients, investors or anybody who's just kind of looking for some sort of guidance, you know, feel free to call these gentlemen 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 is a really good friend of mine. Ron said don't you have to 1031 exchange into a new property from the same name that was on title originally.

Speaker 3 1:12:35

Correct. Yes, so one of the keys with the 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 proceeds quote, unquote needs to remain the same. So if ABC LLC sold the property, ABC LLC is the one that needs to own the new investment that is acquired. You can then have the new investment owned by XYZ LLC. It needs to be the same exact LLC. Or if it was owned by you personally, you personally need to own the new investment. Same thing. Ownership cannot change, correct.

Speaker 1 1:13:14

And then the idea would be is plan now for the exit of that asset that's currently in, let's say, your personal name, yep, and start rotating that in some sort of trust or whatever you've got to do and what you want to do and what you want to accomplish, that structure will be accordingly. But the idea would be is to start preparing for the exit of that 1031, because a lot of these, a lot of these clients I think some of them are going to continue to look at the cash flow component, but with once there's enough accumulation and some of my clients are still young enough they want to make moves. You know they're just waiting. They're just looking to park money. Wait until opportunity presents itself, 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.

Final Q&A and Wrap-Up

Speaker 2 1:13:55

Right. And another solution, ryan, to Ron's question is if you have two or three partners that they want to invest in a piece of property, set up a holding company as an LLC. Make sure the membership of that LLC is a tenant in common. Set up a holding company as an LLC. Make sure the membership of that LLC is a tenant in common Yep, a TIC Correct and then have each individual partners have their own entity or could be an LLC under the main LLC who holds the asset on their tenant in common agreement. So if one partner wants to exchange, the exchange doesn't need to be on the original title, can be within their else.

Speaker 1 1:14:37

Can they all be managers, or is it more members with one manager?

Speaker 2 1:14:42

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 it comes to a 1031 exchange.

Speaker 1 1:14:55

Right. It's just, ultimately, how you want to manage the asset, correct who's got voting rights and who's going to help and guide and who only wants to be more involved. Who doesn't want to be involved? That type of stuff.

Speaker 2 1:15:06

Yeah, tenant in common gives you a massive flexibility.

Speaker 1 1:15:10

Yeah, it's very common. It's be involved that type of stuff. Yeah, tenant in common gives you a massive flexibility. Yeah, that's very common. Not a lot of people know about that though the tick tenant in commons, but it is very, very similar.

Speaker 2 1:15:18

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 sends you paper hey, is this a joint tenancy or a common tenancy? Make sure you pay attention to that.

Speaker 1 1:15:33

Yeah, well, it's also important if you do have leverage against the asset, you have title insurance and kind of more protection and so forth. So, yeah, totally agree. Well, great guys, I uh I really truly appreciate your time. I mean I'm learning, as every time we talk, and I couldn't tell you how much I truly appreciate you guys watching over all the aspects of our business. You guys have been killer.

Speaker 1 1:15:51

We've worked with a lot of CPAs and tax attorneys, as you guys know where we came from, a big private equity owned firm out of New York, and we just we love working with you guys. You're answering calls, you're with me, you're working with me Even when the chaos during tax season, 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's either going to be listening to the future or watching now or watching in the future, you know these guys will do a free consultations. Again, this is something where you need to start planning for your future. If you have created some wealth that you want to retain, then this is the really the way to go. So these gentlemen right here can really help you out.

Speaker 1 1:16:25

And again, like he mentioned in the beginning, he's got a big team, fairly knowledgeable people, and this is what they do. This is why I had engaged with them, one really being I work with CPAs all the time and I'm not saying one thing or another is bad, but when you work with a CPA 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 these guys have just had to dig deep into this, after even all the years of experience, to try to position their clients. And when we have investors that are getting involved in their CPAs or wealth managers are telling them oh, this isn't correct or that's not correct Legally, I can't guide you. So what I try to do is give resources to people that I believe are really smart, because I've been in the investment game for 20 years.

Speaker 1 1:17:18

So I would like to, you know, encourage everyone to reach out to these two gentlemen if you have any questions and want to get knee deep in destruction for your future. So, guys, thank you so very much for your time. I truly appreciate it. What we'll do is we'll go ahead and do a poll and if anybody has any more questions or something that they want us to touch on, that's right up your alley. We'll may ask you guys to come on for a second time.

Speaker 2 1:17:39

Great. Thank you so much, Ryan, for having us.

Speaker 1 1:17:42

Great guys have a wonderful day and truly appreciate it, and we'll talk to you soon.

Speaker 2 1:17:46

Thank you so much.