Has it ever occurred to you that retirement planning is similar to a football game? If not, consider the following scenario.
You’re the quarterback of a great team. You’ve played very well during the regular season and are now in the fourth quarter of the Super Bowl. You’re in the red zone, with the goal line in sight, but it’s third and goal. The 2-minute warning just sounded.
You go to the sideline to consult with your coach. You need a sure-fire 2-minute offense from his famous play book. You could win with a field goal, but you’d much rather make a decisive game-winning touchdown. The last thing you need is a penalty that would back you up from your current line of scrimmage.
After your consultation, you huddle with your team regarding your chosen play. With the play clock winding down, you throw the ball to your All-Pro wide receiver. He makes a perfect catch and takes the ball into the end zone. Hooray! You won and you can do your celebratory end zone happy dance.
Defining the Scenario’s Component Parts
So how does the above scenario reflect retirement planning? Let’s redefine the football terms into real-life terms:
- Football: your highly appreciated asset that you need to get out of your hands as quickly as possible
- Regular season: Your long career, during which you’ve “played very well” in terms of accumulating wealth
- Super Bowl: the last and most important “game” of your life, where the financial security of your retirement hangs in the balance
- Team: your DST Estate Planning Team
- Red zone: your quickly approaching retirement
- Goal line: your retirement date
- Line of scrimmage: how far away from retirement you currently are
- 2-minute offense: how you’ll handle your remaining time to retirement to maximize your retirement income
- Penalty: payment of capital gains taxes
- Coach: your Reef Point Independent Certified DST Trustee
- All-Pro wide receiver: your DST
- End zone: your retirement years
- Happy dance: your increased retirement income
Now does the football analogy make sense with regard to your real-life retirement planning?
Using the DST For Advantageous Retirement Planning
As you approach retirement, your financial goals may well change from what they have been in the past. Now, instead of focusing on accumulating assets and family wealth, your focus becomes how to ensure that you and your spouse enjoy a comfortable retirement.
One of the best ways to do this is to make your illiquid assets work for you in a new way by selling them and converting the sale proceeds into liquid assets that will increase your monthly retirement income. However, whether you own a business, investment real estate or a significant investment portfolio, these assets likely have substantially appreciated over the years. Selling them outright will trigger capital gains taxes that could eat up one-third or more of your profits.
Enter the Deferred Sales Trust (DST). This tax deferral strategy allows you to sell your highly appreciated asset while deferring your capital gains taxes. How? Instead of selling your asset to a buyer outright, you sell it to your DST in exchange for a secured installment sale contract. Your Trustee, in turn, sells it to your intended buyer.
Voila! You pay no capital gains taxes and you receive guaranteed monthly cash payments as set forth in your installment sale contract that can greatly enhance your retirement income.
Want to know more? Contact Reef Point today.