As a financial and investment advisor, you wear many hats as you serve your clients. Some of your important roles include the following:
- You help your clients determine their present financial health.
- You help them determine their future financial needs.
- You help them determine their investment risk tolerance.
- You educate them regarding the options that will best achieve their goals and objectives.
High Net Worth Clients and Capital Gains
If you represent high net worth clients, you know that one of their biggest challenges is the long-term capital gains taxes they face when they sell a highly appreciated asset. Today’s capital gains rates are as follows:
- 15% for joint filers making between $80,001 and $496,000 annually
- 20% for joint filers making over $496,000 annually
- Additional 2.9%–13.3% state capital gains tax
- Additional 3.8% on the lesser of net investment income or the amount by which modified adjusted gross income exceeds the statutory threshold
To make matters even worse, when President Biden was campaigning for office, he proposed a $4 trillion tax plan that includes raising the capital gains tax rate to 39.5% for people earning $1 million or more per year.
What if you could help your high net worth clients defer their capital gains taxes or possibly even avoid paying them altogether? You can. It’s called a Deferred Sales Trust (DST).
What is a DST?
You already likely know that Section 453 of the Internal Revenue Code authorizes installment sales. A Deferred Sales Trust is a special, proprietary, innovative installment sale that only the Estate Planning Team can set up for your clients. You can, however, become an integral part of this exclusive team.
Once you and your client sit down with the EPT to discuss the specifics of his or her upcoming sale of a highly appreciated asset and the terms of the installment sale note, our tax attorney handles all aspects of setting up the personalized DST. Your client then sells the asset to the DST, receiving a personalized installment note in exchange. Within a day or two thereafter, the DST’s Certified Independent Trustee, one of only 13 vetted, trained and approved Trustees in the country, sells the asset to your client’s intended buyer for the same price as the DST bought it. The sale proceeds come into the DST since it owns the asset, not your client personally. Your client therefore has no constructive or actual receipt of the proceeds and consequently faces no capital gains recognition.
Throughout the life of the installment sale note, the DST Trustee manages the trust, makes investments on behalf of your client, and oversees the installment payments to him or her. Your client, nevertheless, retains control over both the payment terms of the note as well as the right to approve the types of investments the Trustee makes and . Your client can work with their Trustee to change or modify any of these whenever there is a need to do so.. Possible investments include the following:
- Stocks
- Bonds
- Financial instruments
- Real estate
- REITS
- Annuities
- Life insurance
- Any other “prudent investment”
Interested in Finding Out More?
To find out more about how the DST can better help you help your clients (and therefore likely increase your business), contact Reef Point today.