#159 - How Deferred Sales Trusts Work with Trevor Kuresa

[00:00:00] Hello everyone, welcome back to Passive Income Pilots, another week of financial education with Tait Duryea and Ryan Gibson. What's up, Ryan? And Tait with his marathon adventure. And are you in France? Where are you? France? That's right. Yeah, coming to you live from Chamonix, France. Representing America. That's right. 15.1 miles tomorrow with 6,000 vertical feet. Super excited. 6,000 vertical feet and 15 miles. Wow.

[00:00:27] And at the very top, well not the top, I mean obviously Mont Blanc is 15,000 feet, but we end up at about the 8,000 foot elevation. Then you take a gondola back down after you're done. It's pretty cool. How many feet elevation? 6,000. Holy cow. So we'll run from 3300, which is the base of the Chamonix Valley, and then you end up at about 9,000, 9,500, something like that. Hit me up next year. I'll do that with you.

[00:00:55] Yeah. Sounds great. Yeah, I'd like to do it again. It's beautiful. I mean, if nobody's ever been to Chamonix, I mean, it's like Aspen on steroids. It is... Amazing. Beautiful. Yeah, I do the Enchantments hike every year, typically. Yeah, you do the Ragnar Relay, right? Are you doing that in two weeks? And the Ragnar Relay. Yeah. Enchantments is 21 miles and you go up, I think, 5,500 vertical. Very nice. And it's like trails, right? Right. Well, that's what we're doing. Yeah, it's all trails. Oh, it's all trails. Oh, wow. Interesting. Yeah, it's all off-road.

[00:01:24] That's amazing. And you flew into where? You fly into Geneva. It's about an hour and a half drive from Geneva Airport. Oh, I love that area. Love that area. Yeah. It's absolutely stunning. So... I did a rowing race, a hundred mile rowing race around Lake Geneva and actually went into France. Oh, right. In circa 2008. And we stayed in the bunkers in Switzerland. You can actually go down in these bunkers. And you can like, there's cots and, you know, food and things like that. That's where they put the racers. And it was super fun.

[00:01:53] That's so cool. So cool. Anyway, Ragnar is coming up in a couple of weeks. And so our team is excited. We always go up against Brooks Running Club. So Brooks Running Club is the corporate team that always beats Spartan Investment Group. This year, we're going to beat them though. We're going to take them down. I love it. We're going to take them down this year. I love it. I mean, they make running shoes, so they better beat us. But anyway, today we're talking about something that's not talked about very much.

[00:02:16] And actually, I'm so grateful that we were referred our guests today because everybody who I talked to about a deferred sales trust to save taxes on selling a business or selling real estate. They always give you like a bunch of mumbo jumbo and it's like really hard to understand. And I think they're just doing that because they want you to hire them or something. But that just turns me off. I know it turns you off, Tait. Definitely. But Trevor today, just like he made it so simple. He just simplified how it works. I mean, you can sell a business essentially and not pay taxes.

[00:02:46] And Trevor basically unpacks that or pay very little tax or mitigate or defer. And so that's what we're going to talk about today. Tell us about our guest. We've got Trevor Caressa, who is a highly accomplished attorney. He's worked for a litany of major firms. He's been general counsel at some major firms. He actually worked for Amazon for a number of years up in the Washington area.

[00:03:09] But today, his own working for himself with a company called Hibiscus Legal. And as he says, making CPAs look good, offering advanced tax strategies to high income professionals and business owners and like. So he obviously focused on a lot of different areas. But today we wanted to really dial in on the deferred sales trust, which is an installment sales strategy. So with that, let's get into it. Let's do it.

[00:03:43] Welcome to Passive Income Pilots, where pilots upgrade their money. This is the definitive source for personal finance and investment tactics for aviators. We interview world renowned experts and share these lessons with the blind community. So if you're ready for practical knowledge and insights, let's roll. Trevor, thank you so much for joining us. Hey, happy Friday. I'm happy to be here. Trevor, you do some unique stuff. We were kind of catching up in the before the show.

[00:04:11] You know, you have quite the legal background in M&A, tax structuring, debt, finance, things like that. And, you know, I think we were kind of talking about our listeners just really kind of getting their arms around some of the things that you do and how they can benefit. You know, as we speak to mostly, you know, 90% of our audience is airline pilots and, you know, they may have had some highly appreciated assets that might interest them in what you have to do.

[00:04:41] But before we do that, would you mind just giving us a little bit of background about who you are, kind of what you're specializing in today? Yeah, I'm a corporate and tax attorney. First 10 years, I was on the tax and legal side, primarily of M&A transactions. And then I went in house for about six years. I was the general counsel of a large healthcare company. And about six months ago, I stepped away and I just started helping private clients.

[00:05:06] So I'm primarily in the areas of mergers and acquisitions, fractional general counsel. And then most importantly, I help really, you know, clients with tax strategies and issues with their income tax and their capital gains tax. You know, one thing that our listeners are probably like thinking about a lot and what we talk a lot about on the show is that they're high W-2 income earners, right?

[00:05:33] So they get really good paychecks from the airline and now they're paying more taxes than they've paid probably in what they've made an income, you know, just five years ago. So taxes have become kind of in the spotlight of what we talk about on the show. We've talked about things like depreciation, working interest in an oil and gas deal.

[00:05:51] We've talked about getting that bonus depreciation with a COGSEC study or even becoming an active real estate professional, you know, on the show, which, you know, requires a lot of activity and work. What advice do you have for airline pilots like looking to save on taxes or kind of change their strategy? Yeah, I mean, the first step is to get a really good tax preparer CPA to maximize their deductions. If they have a good CPA, it's going to make all the difference.

[00:06:21] And then the second step is to look for those alternative strategies that you were just talking about. And this might be in the form of, you know, a depreciation strategy. You know, W-2 is hard. It really is because you're limited. And so you may have to get more creative. The big, beautiful bill has some interesting tax benefits for solar right now. So you just kind of have to keep your eyes open. There's this concept called the Augusta rule.

[00:06:49] Yeah, I mean, there's there's options out there. The real question is whether in your situation, if if the benefit exceeds the cost. So, yeah, step one, get a good CPA. So I work hand in hand with your CPA. I like to say that my goal is to make the CPA look good. But and then step two is to explore some of these other strategies, knowing that there is going to be some sort of a cost to them, whether it's time or actual money.

[00:07:17] And then once you model it out, does it make sense? It's so interesting. I was actually sitting down with my financial planner yesterday and they asked me a question. They said, does your CPA give you tax strategy? And I was kind of like, hmm, not really. And they're like, well, do you want us to introduce you to somebody that does tax strategy? And I my response to them was, well, my tax CPA just kind of repairs my tax return.

[00:07:44] It's interesting that you said I work with your CPA to make sure that they're to make them look good. Can you kind of elaborate a little bit more on that for people who are to have CPAs who are just sort of like having their prepared return and that's it? Or maybe even a lot of our listeners are probably just using TurboTax and not getting any advice from anybody.

[00:08:03] Yeah. So, I mean, I really feel for CPAs, right, who prepare tax returns because they have two deadlines a year and their heads are down and they're just trying to get through it. They're focused primarily on being compliant and they don't have a ton of time, at least in those tax seasonal, you know, in those tax seasons to really focus on, you know, maximizing your deductions or reducing your taxable income.

[00:08:32] They're focused more on just getting everyone compliant, everyone, everyone filed. So if you can work with your CPA in those non tax seasons, that's helpful. But really, a lot of the times the CPA coordinates everything because they know your situation better than anyone. So when we come in or when I come in, right, I have a team. We like to sit down, ask the CPA, number one, because they have to sign the tax return.

[00:08:57] So we ask them, what's your comfort level? You know, how risky do you think we should be? You know, we start to develop a relationship there, but then we just start introducing, you know, a lot of these strategies that maybe they just didn't have time to research or they knew about, but it slipped their mind, something like that. Right. So the average CPA has anywhere from one to two thousand clients.

[00:09:21] And then so if you just think about how long it takes to prepare your tax return, that's they're working overtime. Right. They're they're overworked and underappreciated. So we really just want to put the CPA in a position to succeed as well as the client. That makes sense. Well, Trevor, today we wanted to focus on one specific strategy, which is the deferred sales trust. And we've talked about the Delaware statutory trust on this show before.

[00:09:46] I won't dive into exactly what that is right now, but for anyone listening, it's it's basically a way to 1031 exchange into a passive deal. There are some limitations on those deals, though. So they're usually core. The returns are fairly low. So they're they kind of are a an emergency eject handle to avoid capital gains tax. The end of a failed exchange versus a full on strategy on divestiture of your assets.

[00:10:14] So for anybody out there that might have highly appreciated assets in the form of, let's say, a business or a piece of real estate or otherwise. Let's dive into the other DSTs. What is a deferred sales trust? Yeah, deferred sales trust is a tax deferral strategy that allows sellers of highly appreciated assets to defer capital gains tax over several years. So that's it in one sentence. Right. So a couple of things I like to really hammer home. It's a tax deferral strategy.

[00:10:43] We're not minimizing your tax. We're deferring it out. So a lot of people are familiar with 1031s. A lot of people are familiar with qualified opportunity funds. Same concept. We're just pushing that tax into the future. So there's there's really just five steps and then we can go deeper into each step. But the seller sells the highly appreciated assets to the trust in exchange for a secured promissory note. Okay. A promissory note. It's just like a loan with your mortgage.

[00:11:12] You know, it requires someone to pay you principal and interest or interest only with a balloon payment, whatever the terms are. Secured just means that the buyer is going to put some sort of collateral or assets. It's usually the assets themselves to secure the promissory note. Right. So the step two is the trust goes and finds a buyer and sells the assets to the buyer in exchange for cash.

[00:11:41] So now we have the seller who is sitting there with a secured promissory note on one hand, and we have the trust that is sitting there with cash on the other. The trust will then invest the cash in a diversified portfolio. And this is important on a pre-tax basis because their basis was equal, generally equal to the price that they sold it for. So we're getting investments now on a pre-tax basis.

[00:12:09] And then comes the actual principal and interest part. So the trust makes principal and interest payments to the seller as provided in the secured promissory note. Upon receipt of those payments, the seller pays capital gains tax on the principal payments and income tax on the interest payments. And so you're just doing that in perpetuity. So there's two real benefits, right, to a deferred sales trust. The first is you defer the tax over time.

[00:12:36] The second is the trust will invest the proceeds of the sale pre-tax. Right. Right. And so if anyone's ever used like a compound interest calculator, you know, when I was in high school, they made us do that. I don't think kids use calculators anymore, though. I don't know. But, you know, if you start with a million dollars, right, over 20 years or you start with 700,000, it doesn't take long for that difference to start piling up.

[00:13:05] Right. So, yeah, those are the two. That's the deferred sales trust in a nutshell. And, you know, for when it works, it works. And it's a good strategy for those people who, you know, they're selling highly appreciated assets, but they don't necessarily, you know, need the cash right now. And they're forward thinking and they have lower time preference and they're saying, let's just get this thing invested and compound interest going. You just unpacked a lot of information.

[00:13:35] And actually, I've heard the explanation of a DS, a deferred sales trust in the past, and I didn't quite understand it. And the way you said it, I've heard it like the fifth time, but I'm sure our listeners heard it for the first time today. So I'd love to go through like a very specific example. So like, let's just say I buy a hundred thousand dollar rental property 20 years ago, and now it's worth a million bucks. And maybe I've taken out a mortgage of $500,000 a couple of years ago when interest rates were low.

[00:14:05] And so now I have a million dollar property that's appreciated 900 grand, and I've got a half a million dollar mortgage. What you're saying, I understand the first step is you create the trust, right? So you have to probably do some kind of a trust setup. So you go to someone like your firm and you guys set up a trust for the client. And then you said the second step was to sell the property into that trust. Can you kind of walk us through that?

[00:14:32] What that looks like when there's like a mortgage already on the property and what actually happens there? Yeah. So it's just like any other sale. And so you would have the seller selling the real estate to the trust. At this point, we would usually use a real estate broker in your state to get everything titled correctly. The mortgage, the bank would usually require the mortgage to be paid at closing.

[00:14:59] So it would just be like a standard real estate transaction. We can get into the internal revenue code, but to satisfy the internal revenue code, the trust actually cannot be a related person. So you're dealing at arm's length with the trust. So the easiest way to explain it to the layman is your transaction with the trust is just like any other unrelated third party transaction.

[00:15:26] And in this case, you are the seller to be very clear. So you're having to wire in a million dollars or are you or is there some kind of how's that money exchanging exactly like like who's sending what to who? Yeah, so the seller would be titling the property to the trust. And then at that point, the trust would make no wire to the seller.

[00:15:53] It would just give them a secure promissory note in exchange for the property. And that $500,000 mortgage, does that have to get paid off or is that just that? Yeah. Yeah, usually there's a covenant in the mortgage that requires it to be paid off under a change of control. So the bank would almost certainly require it to be paid off. Okay, so you'd have to come up with that cash somewhere. The trust would have to be in. So the trust would have to be sent money 500,000 in this case to pay off that mortgage.

[00:16:23] But if the property was free and clear, you know, then that wouldn't be as complex because when you said there's a promissory note, you know, what Trevor is saying is that, you know, that mortgage probably has a rule that you can't put another lien or another mortgage on top of that mortgage is what I suspect. That's right. And then now, you know, the mortgage that's given to the trust or the promissory note is now the only one. Right.

[00:16:51] That's by in between now the seller getting paid. It sounds to me like doing this with leveraged assets. It doesn't really make sense. It probably doesn't make sense with leverage assets. Right. Right. And that's and that's why is because you'd have to wire in the difference between the sale price and the amount of equity that you had in the asset. Right. Yeah. Very interesting. All right. So could I pose a question?

[00:17:17] What is the most common situation that you see in your practice where this is a strategy that really makes sense? Yeah. So two situations, real estate that is not leveraged.

[00:17:59] Okay. So I would say that you would have to pay a buyer of the company and then sell the company to the buyer in exchange for cash. Is this an installment sale or it's similar to an installment sale? It is an installment sale.

[00:18:12] So the first sale, which is the sale from the seller or, you know, the individual, our client to the trust is an installment sale because they are going to receive the entire purchase price over anywhere from five to nine years. So it's spread out over over time. And that's what makes it an installment sale.

[00:18:36] An installment sale is just any sale where the purchase price is paid after the year in which the sale occurs. So in this case, most of our notes are like nine years. The term of most of our promissory notes are nine years. And so if you have a million dollar asset and it's sold, you're going to get paid million dollars plus interest over nine years. Got it.

[00:18:56] And when you make the sale from so you so just to kind of go through this, like you have your business, you sell the stock, it goes into the trust, you get the promissory note, you look for a buyer, the buyer comes in and buys the business from the trust. Right. And so now all that cash comes into your trust. So your trust still owes you the seller of the promissory note for nine years or so.

[00:19:23] And then once that cash comes into your trust, kind of talk about the next thing you buy. Maybe you go out and buy another business. You know, how does that break out? How much of that has to be a business? I think some of it has doesn't some of it have to be like in the market or something. What what are the semantics there? Yeah, so we're talking about the investments of the trust after it receives the cash. So typically the trust will hire a an investment advisor.

[00:19:51] And for most of my clients, I recommend that they have a secure, highly diversified portfolio. So we're looking at low cost index funds, maybe some real estate, some other real estate deals. It depends on how much is in there. And but we want to consider this like a safe asset. And the reason being is because the trust, while it has assets and cash on its balance sheet, it also has the liability of the secure promissory note.

[00:20:17] So we want to make sure that it can pay it, make its interest in principal payments when they come due. And, you know, a competent investment advisor can do that pretty easily. And so, yeah, we're thinking real safe assets and it depends on what the interest rate is. We usually use the prime interest rate for situations like this on the note. So the interest rate on the promissory note is going to be somewhere around the prime rate. So right now that's about 6.757%.

[00:20:43] So we just tell the investment advisor, we want to be right in that 7% to 8% window of the return on the assets. Love it. And the investment advisor, do they have to represent the trust so that it's like an arm's length deal? Is that kind of like the idea? They do represent the trust, but there's nothing saying that the seller can't make a recommendation to the trust of who the investment advisor is. Got it. Understood. Okay.

[00:21:11] So if someone were to sell, let's say, let's say somebody owns a business, it's worth 10 million bucks and they, they sell it. They own a hundred percent of it. And so it's a hundred, uh, excuse me, it's a $10 million capital gain tax event. So they would owe, what would it be? Long-term capital gains of 20%. So they'd owe 2 million to the government and they'd walk home with 8 million. Is that right? Yeah. Wham, bam, easy. Okay. So I want to kind of compare that to using the DST strategy, deferred sales trust, not Delaware statutory trust.

[00:21:40] Of course, what would the mechanics be in terms of taxation, uh, as an alternative to paying a $2 million, 20% long-term capital gains check to the government? Yeah. So seller sells the business to the trust in exchange for a secure promissory note. Right. The seller, um, recognizes zero capital gains. And there's no taxes. Right. So zero capital gain to that point. Zero capital gain because they haven't received any cash.

[00:22:09] There hasn't been a wire to the bank account, anything like that. Okay. The trust takes a cost basis in the business equal to $10 million because that's the purchase price. So now when the trust turns around and sells the business to the eventual buyer, uh, for $10 million, the trust has zero gain. So we've now had two transactions with, with zero taxable income.

[00:22:39] Right. So now we're in that situation. So as the trust makes payments of principal and interest to the seller, the seller will start to recognize, uh, that capital gains at 2 million capital gains on the principal. And then if there's any interest, it's ordinary income. They pay that at 35% or whatever it is. Wait, so wait, you lost me a little bit.

[00:23:04] So as the payments start to be made, the seller will start to realize the 2 million capital gain. Can you unpack that? Yeah. So the way, the easiest way to do it is just do simple math. So let's say that the term of the note is 10 years and we're going to make principal payments equally over those 10 years. So for $2 million, uh, the, the trust is going to pay the seller 200,000 a year.

[00:23:30] So of that 200,000, they're going to pay $40,000 in capital gains tax as they receive it over 10 years. Gotcha. Oh, as the principal balance is paid down, that makes sense. Yeah, that's right. Yeah. So they're paying, are they paying capital gain, long-term capital gains tax on those payments from the trust over that 10 year period? Or are they paying ordinary income tax rates at that point?

[00:23:55] So they're going to pay capital gains on any principal and they're going to pay ordinary income on any interest payments. So, so the majority of it is going to be capital gains. Got it. Yeah. I think a lot of people don't realize like on a seller finance deal that you do get taxed differently on the principal return versus the interest. Right? Yeah.

[00:24:17] As a listener who's listened to all 160 or so episodes of this show, you know, dating back all the way to episode 10, when we talk about different types of tax, like if you're making interest, if someone's paying you interest payments or being a lender that is tax at ordinary rates. And there's nothing you can really offset that against. But if you're making a note that has principal and interest payments, you're going to get taxed on long-term capital gains on the principal reduction. And I, this would be no different. This is no different than, than that, but that's, that's interesting.

[00:24:46] Yeah. Trevor, would you mind? Um, I mean this, you know, a lot of stuff we talked about on the show, like only 2% of Americans know about, I think like less than, less than a fraction of a fraction know about this. You know, why is that? And why is this such a unique strategy that a lot of people don't know about? Right. Cause I, I certainly don't run into a lot of people who've done deferred sales trust. Maybe I have, and I just didn't know they did it, but it doesn't seem like something that is highly talked about like 10 31 exchanges, et cetera.

[00:25:15] Yeah. I mean, I have a really good analysis on my website. It's hibiscuslegal.com. And, uh, there's an entire section devoted to the deferred sales trusts. And I split it out by talking about pre 1980 precedent from the courts and the IRS and post 1980. So prior to 1980, there were a handful of cases. One was called Ren v. Commissioner.

[00:25:44] One was called rushing v. Commissioner. Weaver v. Commissioner. One called PTO. I don't know if I pronounced that right. It's P I T Y O. Okay. So anyways, what's happening here is people are using this deferred sales trust mechanism and the IRS didn't like it. So the IRS was, uh, auditing, um, these transactions and taken going into court and losing. They lost like five really high profile cases in a row.

[00:26:13] So what the IRS always does in these situations is they go to Congress. And in 1980, President Carter signed into law, the installment sales revision act of 1980. And this is where they, they added section four 53 E of the internal revenue code. So I don't want to get too deep into it, but section four 53 E of the internal revenue code controls all of these transactions. So we have to be compliant with section four 53 E to avoid audit risk.

[00:26:43] And what section four 53 E said is effectively that the trust cannot be a related person to the seller. Otherwise they just collapse the transaction. Okay. And so it is relatively easy to be compliant with section four 53 E and have a successful deferred sales transaction. Because six and four 53 E it says the rules. And as long as we're compliant, we're fine.

[00:27:10] This transaction or not this transaction, a similar transaction has actually been on the IRS dirty dozen lists for like most of my career. I've been out of law school, 17 years now. They called those monetized installment sales. Deferred sales trust transactions are not monetized installment sales, even though they look similar. The difference between a monetized installment sales.

[00:27:35] It has all of the transactions or all of the steps of a deferred sales trust, except there's an intermediary step where the trust will then turn around and loan funds back to the seller. And as we know, there's no income tax or capital gains on loans. Right. And so the IRS doesn't like that transaction. And so that's a monetized installment sales. So it's been on the dirty dozen list, the monetized installment sales.

[00:28:04] A lot of people, I don't know a lot of people. I've talked to a lot of clients who think that a deferred sales trust and a monetized installment sales is the same. It is not. We do not monetize the assets in the trust. We pay them out as principal and interest payments on a promissory note.

[00:28:19] So anyways, if you take this perhaps to the average advisor who is just trying to protect their client, but maybe they don't have a strong tax background or they do have a good tax background, but they've never looked into section 453 E or the details of the monetized installment sale. They might get a little confused there and just shut it down immediately. So I think that's it. I think because it's so similar to a monetized installment sale, it's it's had some issues.

[00:28:48] The other issue is, you know, you have to pay me an attorney. You have to go get a, you know, a trust has to be created. There's a trustee of the trust. There's an investment advisor. There's additional costs to these transactions where if the transaction is big enough, they just become negligible. So, you know, smaller transactions, it might make sense. It might not make sense. It absolutely makes sense for larger transactions.

[00:29:14] When you say larger transactions, do you have a ballpark figure of where that line in the sand might be? Um, yeah, I'd say anything over a million. Makes sense. Yeah. Over a million dollar gain. And then, yeah, follow on questions that would be, you know, this is fascinating. I love this stuff. So we talked earlier about the example of the debt on that million dollar property, right? You have $500,000 and that would have to be paid back.

[00:29:40] And so it might be logistically impossible for the seller to generate that cash to pay off that loan. Is there a case where, cause I know some loans don't have covenants that would allow, that would disallow additional notes to be put. Does the same rule apply there? Or could we proceed with an, with a secondary note or a second position that, that even is recorded, right? Maybe the lender lets you record it. Maybe you call up the, maybe it's a hard money lender and they're just like, yeah, you can record a second. No problem. Yeah.

[00:30:09] So it depends on how quickly the trust can find a buyer. Okay. So if the trust can find a buyer quickly, if it's a highly desirable piece of real estate, they can make that for that second transaction, uh, the sale to the eventual buyer, and then immediately make a, you know, a payment back to the seller to pay off the loan or to make, you know, the principal and interest payments on the mortgage. What, what's a best practice for when can you actually start to market the sale? Right.

[00:30:39] So like, if I'm the seller selling to my trust, I'm probably doing this whole thing. So I can eventually sell to a, to somebody. Right. And I mean, that's seems like the intention of this transaction. Can I market it before the trust is set up? Or do you kind of semantically make sure the trust is in place and it's transferred, then you start marketing the asset for sale? Yeah.

[00:31:01] So under section four 53 E, they have this catch all that basically says, if we think this is the IRS speaking. If we think this is some prearranged transaction to just defer income tax liability or capital gains tax liability, we are going to shut it down. Okay.

[00:31:27] So under section four 53 E, we want to make sure that all these transactions are separate. In practice and in reality, the seller usually has a good idea of who the buyer may be, but is up to the trust to go and finalize that deal. Makes sense. Understood.

[00:31:47] And there's nothing in section four 53 E that says that the seller can't go to the trustee of the trust and say, you know, John Doe down the street over there. He's been looking at my company for years, maybe go talk to him. Right. So it's one of those things where we want to be compliant with section four 53 E, especially the catch all provision.

[00:32:12] But in practice, you know, especially with real estate and small businesses, there's nothing saying, you know, I think these guys would make good potential buyers. So I suppose as I'm thinking through this in my own situation, you know, sometime in the future, it's going to depend on what I plan to do with the proceeds. Right.

[00:32:33] Because if you, if you have a real estate asset in mind, if you've got a $10 million business and you want to roll those proceeds into something else, you know, I might just want to take the tax hit and invest in some assets that generate depreciation losses and just sort of keep rolling. But if I'm in a situation where I'm done and I want to get off the ride and I'm going to just go into retirement, this seems like a really good lifestyle play. Correct me if I'm wrong.

[00:33:02] Yeah, you're right. So you're a hundred percent right. So if you're selling a piece of real estate and you just want another buy another piece of real estate, just 1031 it, you don't need a deferred sales stress. Right. If you're selling real estate, but you want to get into a diversified portfolio of stocks, then this might make more sense. If you're selling a business and you don't immediately need the funds because you have other assets to pull on or, or whatever. This also makes sense.

[00:33:30] What I try to do for deferred sales trust is I try to talk my clients out of it. I spent about five minutes trying to talk them out of it. If they still want to do it after that little speech that I give that no one wants, but I give it anyways. Then I say, you're a good candidate for it because you've made up your mind. If you're wishy-washy on it, I always tell them just, just pay the taxes and do something post tax. So that's kind of my philosophy.

[00:33:58] It's worked well because the last thing you want to do, right. Is help a client into a transaction where they have this prom story note and they kind of don't want to be in the prom story note anywhere. They kind of just want the cash. And so it's like, what did we do all that work for? It's just, we should have just sold it straight up. Right. Makes sense. Well, fascinating. Always cool to bring in an expert like this and explore a very unique strategy.

[00:34:25] I know that a lot of our listeners really like nerding out on these, these financial strategies. We have a lot of people that own businesses as well. We have a bunch of business owners, you know, that listen to the show. We've had business owners on the show and, um, and then we have a lot of people that have real estate. And I just think that just going deep on what another strategy is for tax deferrals is worthwhile. You know, people need to, people need to know this stuff is out there. Absolutely. Yeah.

[00:34:51] I would say, um, if you're a small business owner and you're getting crushed in taxes, you, you definitely have a lot of options. They're much more than a W2. Yeah. And, um, if you're a small business owner, that's looking to transact, you think there might be a transaction in the future. Again, you have a lot of different things to think about. There's lots of strategies when you're entering into a transaction. So if you can just get ahead of it, you can save a lot in taxes.

[00:35:21] Yeah. One last question I have, you know, like in states like Washington, there is a capital gains tax on the sale of businesses. Is this a way to potentially kind of skirt around that? Yeah. So, cause state usually follows federal when it comes to recognition. So it's state and federal. Interesting. Very interesting. Yeah.

[00:35:42] Well, Trevor, uh, if people wanted to get in touch with you and learn if this is, you know, get your five minute speech and why they shouldn't do this or, or, uh, or just generalized tax advice to make their CPA look good. Yeah. What's a good way to get in touch? Hibiscus legal.com. Hibiscus, like the flower legal.com. It has my cell phone, has my email. You can call me, you can text me, you can shoot me an email. Email is usually best, but I like to pick up my phone and yeah.

[00:36:12] Happy to just chat. Awesome. Well, thanks for coming on and, uh, sharing your wisdom today. And for those that are listening, uh, we do have a Facebook group. If you like this conversation, jump into our Facebook forum and leave a comment and, uh, and ask a question, whatever it might be. Passive income pilots. Thanks everybody for tuning in. We'll catch you next time.