The Capital Gains Tax Strategy You’ve Never Heard Of (But Should Be Using) with Brett Swarts – EP 245

Justin Donald: What’s up, Brett? Good to have you on the show.

Brett Swarts: Justin, it’s great to be here. Thanks so much for having me.

Justin Donald: Well, this was fun. We got a chance to have me on your show just a moment ago. Now, we get a chance to swap podcasts, and I’m really excited for our audience to learn all the cool stuff you’re up to. And I’m glad we were able to make the time, so thank you.

Brett Swarts: Grateful to be here.

Justin Donald: Yeah. You and I met, I think, we had heard of each other prior to the Wellspring, but we really got to know each other a year and a half or two years ago in that mastermind and it was fun, actually, having a very high level, deep dive conversation with someone on taxes that could hold their own. I’m not used to that. Usually, it’s the least sexy thing that is out there that people don’t want to talk about. They don’t understand it, but I always tell people the number one thing you need to know is world-class tax strategy because it can save you more money than any investment you likely are ever going to make.

Brett Swarts: 100% right. And it really is the thing that’s overlooked. And I actually didn’t plan to be in the space that I am. I just went through the painful experience of the ‘08 crash, which honestly was like, wow, we got blindsided by what we didn’t know, right, and what we could have done differently to avoid the pain. And so, yeah, we could absolutely talk about all of the origin of this, and of course, the strategy and how we help people exit highly appreciated assets and do it in a way that gives them truly passive income.

Justin Donald: Well, let’s talk first about the gain or the horrible experience. I guess, it was probably a lack of a gain, whatever happened during GFC and how that kind of shaped where you are today and the service that you offer for other people because you guys use some really unique products. I mean, I think a lot of people are aware of a 1031 exchange. Not everyone, but plenty. I think less people are aware of what a Delaware statutory trust is. And I think even fewer people are aware of what a deferred sales trust is. So, I think we need to dive into all three today, but before we do that I want to hear how you got to being an expert in those areas.

Brett Swarts: Yeah. So, growing up real fast, I was in the Bay Area of California. We call it Taxifornia these days. And my brother and I and my parents, we built houses at Silicon Valley, East Bay Area, lots of houses, lots of rentals. So, I grew up learning the sticks and bricks at an early age. I knew, I wanted to earn something within real estate long term, but I don’t know what that looked like. My brother was the first to graduate college. I was the second. We both started at Marcus & Millichap when we start to use our intellect with underwriting properties, IRRs, cap rates, just understanding how the broker and structure deals negotiate. And so, this 2006 momentum’s pretty high, right? Things are going pretty good.

And I’ll never forget the excitement from graduating from college. I didn’t graduate until about May, June of 2007. Well, right as I get going licensed and I’m getting momentum and then all of a sudden, it’s like a brick wall. I don’t know if you’ve ever been flat on your back financially. Well, that’s we were. We literally had zero. I had to borrow $5,000 from my dad. I had to speak with my wife and say, “Look, we need to move with our brother to a small condo if we want to survive this thing. We need to borrow money.” But I want to stay at Marcus & Millichap because I’m learning a lot. I feel like I’m called to this. And so, she’s like, “Fine, then you need to get multiple side hustles.” And so, that was what it began.

I started working at Cheesecake Factory nights and weekends, 70-hour weeks, six, seven days a week back to back, so she could stay home full time with our daughter, and so, that we could just keep this thing going. And so, when I was going through this financial struggle, so were my clients, they were going for a different one. They were losing millions. I was just trying to get dollars on the table and they were losing partly because they had too much debt on just liquidity or diversification and they were stuck and we thought was the holy grail of multifamily or 1031 exchanging or commercial real estate, which is these 1031 exchanges, right?

But it actually put them in a compromise position and I saw friends, family, and clients whose half are all of their wealth over basically a three-year period of time. And we said, what could we have done different had we known. And that was the premise for the opportunity to meet the guide who was a tax attorney, CPA genius, by the way, who I started to study underneath and see him put these things back together, put deals back together. And like, the podcast that you talked about, he became the mentor who had been through the blood, sweat, tears, thousands of transactions, had the scars, had the battle victories. By scars, I mean, we never actually had a failed audit, which was the biggest thing people ask about. Never had a failed audit, never had a single change, and literally, billions of assets.

And so, most people, we look around and we’re like, we thought we were Marcus & Millichap. We knew all of the secrets. And we were like, well, how do we not know this one? And so, that began the journey. And fast forward, this is all we do now across the country. I’m able to keep my wife home full time with our children. That’s our goal. Five children now. I retire from the Cheesecake Factory. And yeah, it’s our passion and our calling.

Justin Donald: Well, I love it. And just to give our audience like some perspective on how important these three specific tax strategies are, I did a– we call it the tax advantage, which is a masterclass on tax strategy and it’s one of our most purchased products on our website at LifestyleInvestor.com. And of the 20, I think I did 28 unique tax strategies, which is really less than half of the total that we have for our Lifestyle Investor Mastermind. We have probably closer to 75-plus unique tax strategies that most CPAs have never heard of, but we covered 28 of them, and three of them are deferred sales trust, Delaware statutory trust, and 1031 exchanges. And so, I’m excited to dig in with you on the difference on each of these, why you might use some over the other, but why they’re all worth considering and learning about.

Brett Swarts: Yeah. So, number one, we always start with like what is it you’re trying to accomplish and what matters to you? But we get a little deeper and we say, what matters to you the most, right? We really want to focus on this one or two things that matter to you the most. What is your dream? What is your obstacle? And what if this one thing would change would be the big domino that the rest of the things either are irrelevant or they kind of just go away. And I think for most people, they don’t even know really what the outcome should be because they haven’t spent enough time clarifying what matters to them the most.

Now, here’s what we found what matters to people the most, 9 out of 10 times, it’s this, I want truly passive income, right? And we believe that truly passive income is to your freedom and impact as compounding interest is to your money. Okay? And especially the baby boomers and even especially, we serve purpose-driven entrepreneurs that are having the kids and they’re wanting more. The kids are in certain ages and they’re realizing that 85% of the time we get with our kids is before they’re 18, right?

Justin Donald: That’s right.

Brett Swarts: And they’re saying, I want a lifestyle that is going to be meaningful for relationships as long as I can. And so, what we focus on is in saying, okay, great. Well, what do you have in equity for real estate or business or Bitcoin? Those are the main ones. And what if we could transfer that in a way that produces massive, massive, truly passive income and literally changes your life overnight, like upon the sale? And this is what we’ve done for families. Now, going back, we really launched about five years ago, but we’ve been studying, kind of been in residency since 2009 with the strategy. And so, give you an example, Warren and Catherine is best way to bring this to life. They did multiple 1031 exchanges. They had a $2.5 million, a multi-family property, $120,000 NOI. Well, they had two twin daughters a little bit later in life. They’re like in their early 50s. And they’re saying, you know what? They’re 10 years old now and we only have about eight years left. And I said, well, that’s what matters to you the most.

Now, what if we could increase your NOI from 120 to 190, defer your capital gains taxes, and free up your time and your energy? And it was really simple. They could trade 3 Ts – toilets, trash, and termites for 2 Ts, their twin daughters.

Justin Donald: That’s awesome.

Brett Swarts: And like, this is a no-brainer. And so, we changed their life. We sold. They paid off their debt, diversified. And on top of that, they live in Taxifornia, which means they’re in a high-income tax state. And so, they were able to also defer some of that income tax because that’s the piece here that we can really dive into. So, that’s the first thing. Now, quickly, the 1031 exchange, if you’re in a continuity, you’re wanting to continue on the ownership and you don’t mind being active, I mean, we can do a passive Delaware, but again, what are you trying to achieve? A lot of the equity versus interest rates are still not very attractive, to be quite honest, unless you’re buying something on basis, lower price per units. But even then, the 5% to 6% to 7% is still what we’re seeing, maybe on cash-on-cash return. Debt is at 6%, 7%, 8%, which is sometimes a negative arbitrage situation. So, that’s how part of why a lot of deals have stalled out.

So, we’ve been very more bullish on real estate debt, private debt, paying 10% to 16%. And so, when you look at these, you got to figure out which one can get me to where I want to go and that the 1031 is limited because it’s only investment. Like, kind real estate, you can’t go into debt. Yeah, in fact, you have to stay in debt, which is bad. The Delaware is truly passive, but there’s typically around a 5% return, which you’re locked up for 7 to 10 years. Huge fees, by the way. No control, no liquidity, no diversification, whereas the deferred sales trust, we believe it’s typically the most flexible and the most transformational strategy for what families really want. So, I’ll pause there unless you kind of ask any questions there.

Justin Donald: Yeah. No, this is great. I think there’s a time and a place for everything. If you know you want to kind of level up and kind of grow your real estate portfolio, a 1031 exchange could make sense. I’m in a season, in a situation right now where that likely is not the option that I will pursue because if I sold a portion or all of our real estate or deeded property, I would likely not want to double up. I mean, I would love to find ways to mitigate taxes utilizing the IRS tax code the way that it’s intended. But it likely wouldn’t be that strategy.

DSTs, I think that they can serve their purpose. Delaware statutory trust, I think they can serve their purpose if you’re comfortable with that type of a return being locked up in a single vehicle. I mean, ideally, it’s probably good to go with several of them, but if you remember back to 2008 to 2012, a lot of the DSTs failed. There were a lot of them that went out of business.

Brett Swarts: Train wrecks, right? They’re more known as TICS, Tenants in Commons. And we’re so glad we stayed away from those with our clients during that time. Now, we didn’t know before the ‘08 crash. I didn’t learn about the deferred sales trust in 2009. So, a lot of these things do come in. By the way, I mentioned a couple things. 1031 exchange only works for investment real estate. So, if you’re selling a business, Bitcoin, stock, primary home, artwork, collectibles, crypto, our deferred sales trust works for all of those, whereas the 1031 only works for investment real estate. By the way, the Delaware 1031 only works for real estate. Okay, investment real estate. And so, I actually call the Delaware 1031 and the regular 1031, we call that Blockbuster, right? And we call ours Netflix, right? It’s a good analogy. You don’t have to return in three days.

One of the biggest things though, the mindset here shifted to consider is you have a debt flow mindset, a tax flow mindset, and a cash flow mindset. Most people operate in just one. Just cash flow. They don’t have a tax flow mindset. They don’t have a debt flow mindset, and that’s where they get caught and they just let the tax tail wag the investment dog. They just follow the mantra of just do the 1031. Boom, boom, boom. But you’re right. You’re absolutely right. If you can find a great 1031, by all means, buy it and you can pull it off and the timing works. Man, it’s a commodity. It’s less expensive. We’re a third-party trustee. You don’t have to give up any controls, at least only for 45 days to 180. And you can just continue to do that.

And we love it when you can find a great deal. We have the best 1031 exit plan by the way. We’re one of the few that has done Delaware’s 1031s and deferred sales trust and closed all three of those. So, we’re experts in all of those. The question is sometimes you need to buy fractured one. We’re working on a large opportunity right now for a seller who has this debt over basis issue. And what we’re seeing with the 1031 challenges is that if you sell and your debt is low right now and you go to try to exchange before your debt adjusts, well, it’s so out of balance that you might not even qualify for the debt. The deal doesn’t make a lot of sense to buy anyways, and it’s going to sink the entire ship.

And so, what you got to say is, hey, let me do a debt flow math. How do I get out of debt right now if it’s going to sink my ship? And this is where we come in, we call it the Dave Ramsey Debt Free Plan. We do a partial Delaware zero coupon into something like an Amazon warehouse where you have a low loan to value about 20% that replaces the debt over basis and gets the debt out of your name. So, that’s number one. Like, just get the debt out of your name.

Number two, we can go into the deferred sales trust with a remainder. And now, it’s like you have your fresh set of dry powder, right? And you can start putting into private businesses. You can put it into private debt, you can put it into some Bitcoin. You could do your model we talked about with like the UBS family offices and you can follow their whole asset allocation and just think about that, right? You have the ability to dollar cost average with what we do. You have the ability to be out of debt with what we do, liquidity, diversification. You can also do your own deals. You can be an entrepreneur so you don’t have to be completely passive.

And this is where, once you understand, you peel back the onion, where people get caught is they just don’t know how to execute on these things. They get overwhelmed because their CP hasn’t heard about it, and they just go, well, I’ll just do the 1031 because I’m fearful that I don’t know what I don’t know. Or it’s like, hey, we’re here to guide you and educate those folks and even level up your team to do this. But once you see it and once you experience Netflix, you’re not going back to Blockbuster.

Justin Donald: Yeah. Makes tons of sense. So, let’s peel back the onion here. Let’s talk about it. So, what is a deferred sales trust? And how does it work? Because I’ve got to imagine we have a lot of people in our audience that, I mean, in our mastermind, we’ve had over 50 people have exits in the last few years. Our larger audience is much greater than that. And so, I would imagine at any given time, you have people that are literally sitting on cash from an exit or just about to exit.

Brett Swarts: Yeah. So, a simple answer, a deferred sales trust is a business trust. That’s combined with installment sale reporting. Okay? There’s a 1.0 and a 2.0 version. I’ll start with the 1.0. Okay? Now, what is installment sale reporting or what is an installment sale? Well, if Justin owned a building for $10 million and he owned it in California and had a zero basis, he’s going to pay it probably about 37% to 40% in capital gains tax and depreciation recapture. So, Justin could sell it to a buyer and just take the cash and have $6 million, or he could sell it on an installment sale. Let’s say he did 100% financing for somebody, and he’d have a deferral state. Their $4 million is still owed, but it’s in a deferral state and he can take payments and pay it over time.

So, we all know installment sales. It’s simple. We know seller carrybacks. There’s a number of reasons why people don’t typically do them for the most part. It’s actually just an advantage for the buyer, typically, not the seller. But in our scenario, we say, hey, don’t finance a buyer, but finance a second buyer, if you will, the trust. First, sell it to the trust, and the trust will sell it to the buyer. So, that’s how it works. It’s a simultaneous close. And this is the great part about it. The trust buys it for $10 million from you, Justin, and sells it for $10 million to the buyer that you already had lined up. The buyer’s coming with all cash or getting financing somewhere else. They get everything they bargain for, they’re gone, and the trust gives you a promissory note back for $10 million. Let’s make it at 8% or 9%, maybe 10% rate, right?

And the funds hit Charles Schwab and now, they’re liquid. And then we can start to invest wherever you would like. You can use a financial advisor if you’d like. We could put it back into your own private fund, Reg D fund, which is beautiful thing about this because you can’t 1031 into a Reg D, right? But the trust can invest as a passive investor into this. You can go into whatever you want, but that’s simply how it works, quick on the track record, close to 30-year track record, thousands of transactions, billions and billions and billions of assets sold using it. And there’s been about two and a half dozen no change audits. So, there’s never had a change. And so, that’s the really important part. So, I’ll pause there. Justin, what do you think about that?

Justin Donald: Yeah. So, by the way, it’s brilliant. It’s a brilliant strategy that is honored. It falls under IRS code. So, there’s precedent. Obviously, you’ve had no audits that have…

Brett Swarts: We’ve had audits.

Justin Donald: You’ve had audits, but…

Brett Swarts: Yeah, which is important, right? Because these other strategies that claim different things or copycats, but you’re like, but they’ve never been through the fire of the audits. That’s not a good thing. We’ve been through the fire promoter audits, formal audits, state level audits. We’ve never been on an IRS watch list, we’ve never been on a dirty dozen, and we’ve never even had a single change on any of the audits, which is remarkable, right? So, we’re batting a thousand there. So, keep going, yeah.

Justin Donald: Yeah. So, I love everything so far that you have shared. And I’ve done my own deep dive on this, but I’m going to pretend like I don’t know as much for those that are listening. So, you said one of the options is a Reg D fund. So, explain that and explain what you’re able to do there. And by the way, for those of you that are Lifestyle Investors, this is the type of investing that we do inside of the Lifestyle Investor Mastermind with alternative investments.

Brett Swarts: Yeah. So, a Reg D fund is typically a private equity or private debt, right? And you can be a passive-passive investor. So, in a traditional 1031 exchange, that’s not like kind investment. So, you can’t just 1031 exchange into a Reg D fund. It’s just completely separate. So, the beauty is we’re not using 1031 for the deferred sales trust. We’re using a business trust with an installment sale reporting. And so, there’s a section that says any entity of which all of its equity owners or accredited investors can invest into a Reg D fund, right? So, it’s just simple. The entity and everyone’s accredited, right?

By the way, we only do deals that are a million dollars or greater in net proceeds and gain. And so, everyone has at least a million-dollar net worth that’s important to understand on this. So, these are for the larger transactions. We work on a conditional basis and we’ll walk through all of that. But yeah, and so, the beauty is a lot of people are coming out of real estate and they want to get double digit returns. And they don’t want to have to do the work, but they can’t sell unless they’re going to pay the tax and pay 20%, 30%, 40%, 50% of the proceeds. So, they’re stuck between a rock and a hard place, and so, they just throw their hands up and then so we become that bridge, the DST is that bridge into the Reg D fund.

So, it’s great also for, yeah, the folks that you coach on this too, Justin, who have their own Reg D funds, right? Not just the investor, but the people who are actually looking to, we call it unlock capital versus raise capital. Most folks are raising capital for their fund. You’re going to make 5% to 7% or 8% to 10% and 13% to 15% IRR over this timeframe, and they’re selling the thing inside of the Reg D, the stuff, right?

We’re saying open up the box. There’s an extra 20%, 30%, 40%, 50% more proceeds that can show up to your box if it’s tax deferred, right? And then, by the way, once it’s in the box, they don’t have to take income right away. So, they might be in a high tax state like New York or New Jersey, Taxifornia, Illinois, and they’re selling and they’re moving into a Florida or Texas and they don’t need to take the income from the trust right away.

And here’s the really cool part. It’s like an IRA. So, this is where another one of the secrets that people miss. They think that the DST is just deferring the 20% to 30% to 40% and they go, well, why don’t you just pay the tax today? Because it’s never going to be lower and you’re probably right, right? But here’s the key. You have a compounding effect, not just on the capital gains tax that you’re deferring, but on the income tax that you don’t have to pay in the year that you don’t take it.

So, let’s walk through this. $10 million goes into the trust, right? Let’s put a 9% interest rate on the note. Let’s say we’re making 11%, Justin, on one of your deals. Okay? And so, the trust owes you about, let’s make it 9%. Trust owes you 9%. You make it 9%. Okay? Exactly. Boom, boom. It’s all lined up. The trust isn’t paying any tax at its level and you take no $900,000 payment. You owe no tax in that given year, no cap gains tax, no income tax. We do that again and we defer it, so it’s compounding.

Second year, you don’t take a payment and the trust earns that and doesn’t pay any tax. No tax again. Now, each year, you can’t just defer income tax forever. You need to take some payment, but you don’t have to take the full payment. You can take a partial payment, partial interest payment, and let the other amount of crew. So, you have a compounding effect of the income tax deferral, which is probably the most overlooked thing about the deferred sales trust that people miss.

The third way to do this is through a new depreciation schedule. So, I’ll do a story of a client. I sold his apartment complex in Sacramento. He has another one that’s worth $14 million now. At the time, it’s worth 10. And I said to him, “Hey, your cash flow is about $500,000.” But he had no depreciation. Well, one of the number one rules for real estate is to get depreciation offset the cash flow. Well, if you don’t have any depreciation, it’s all just going to be ordinary income tax, right? It’s massive.

So, here’s what we got to solve for. We got to get a new depreciation schedule. What the problem is, if you do a 1031 exchange, the old depreciation schedule travels, so you don’t have as much depreciation on the next deal, maybe next to nothing if you buy something of the same value. So, you’re in a rock and a hard place. So, here’s what we do. We sell the asset, we defer the tax, we give them a note, but then you can partner with the trust. And this is probably the best secret of this entire show right now, right? And this number one reason I started this company is you can now sell high and then buy low, no timing restrictions, by partnering with the trust. And here’s the cool thing, you get a brand-new fresh depreciation schedule. Okay?

Justin Donald: Wow.

Brett Swarts: Okay, now, here’s the key thing here. You can’t take it 100%. We got to make it commercial and reasonable, so you get about 80% the way we structure it. But just think about that, right? We’ve deferred your capital gains tax, maybe an extra 20%, 30%, 40%, 50% depending on the state you live in, the depreciation recapture. We’ve helped defer your income tax at least for two years, and then also, beyond that, probably just half the interest. And then we’ve been able to invest into assets that have a new depreciation schedule, which you can get 80% of.

And so, this is where people’s heads exploded. They’re like, “What do you mean? It’s too good to be true. How could you do all these things?” And you’re like, “Well, sit down with us. Let’s walk through it. Let’s show you how and why the math works.” And it works. Is it more complex? Yes. Does it take trustees on our team to execute? Yes. Do you pay ongoing fees? Yes. It’s about 1.5% to 2% ongoing fees, about 1.5 percent, one-time setup fee. So, there are these things. But if we unlock and double your cash on cash, which we typically can, we can get you a new depreciation schedule, which we know we can, right? And we can also defer your income tax to the extent you don’t need it, like it becomes transformational for families.

Justin Donald: Yeah. I mean, no doubt. I mean, eliminating tax or at least creating a season or a window of tax-free growth is massive, right? That’s part of the reason why I’m such a big proponent of whole life insurance, right? Permanent-grade life insurance. And then secondly, that resetting of the depreciation schedule is massive. So, for a guy like me that’s utilized cost segs and all the things I’ve taken accelerated depreciation, this would be a strategy that would be very beneficial for me if I ever sold that real estate that I’m going to have a recapture on whenever I sell it, right?

Brett Swarts: Yes. Let me give you some Achilles heels on this. Okay? To the extent you have debt over adjusted basis, which you might, especially if you’ve done accelerated and you have debt, we cannot defer that piece of it. Okay? That’s basically, you’ve taken the income, but you haven’t been taxed on it. So, you can’t get your cake and eat it too on this one, right? So, you’d have to either pay down the debt or we do a partial Delaware 1031. This is when the Delaware is our friend when we want to go back to Blockbuster because we can replace the debt over basis, which typically is Amazon real estate coupon deals, a whole ‘nother kind of thing here, right?

The other part of it is, it depends if it’s 1245, 1250, accelerated, and the amount that it has been, how long you’ve owned the property, there’s some Achilles heels to that. The last thing I’ll say is we have a 2.0 version that typically can also help with the accelerated portion. Okay? This 2.0 is outside of installment sale reporting, and it removes it outside your taxable estate. So, any listeners who have a massive $10, $20, $100 million, a billion-dollar business, real estate exit, you have what’s called a debt tax issue. If you’ve seen the show, Yellowstone, Kevin Costner has a billion dollars’ worth of land in Montana. Beth, the daughter, is like, “Hey dad, you got to sell the land.” And he goes, “But I don’t have to going to sell the land. It’s in the family forever.” Like, “But Dad, if they kill you, the debt tax is going to kick in and they’re going to take the land anyways.” And Kevin goes, “I’m not going to sell the land.”

And then, so this is where I get up and I scream and I go, “You, Kevin, use the DST 2.0 and we’ll eliminate the estate tax.” Yes, you have to sell the land while you’re still alive, but there’s no life insurance, no gifting, no charity required. Okay? And this is powerful because all the other strategies tend to have to be very expensive with life insurance. Nothing wrong with life insurance, by the way. We love it. But why not exit, defer your tax, eliminate the baseline estate tax forever, and then go buy life insurance with that money, with the trust. And all of that’s just gravy for the estate, right? Not having just to use it to offset the estate tax because it’s tax free on the death. So, these are the things that we teach people and we want to solve the root cause of it, and then massively impact their ability for freedom and ability to multiply their freedom and impact.

Justin Donald: And what’s the timeline where you would have to take some sort of minimum distribution or payout on that installment sale?

Brett Swarts: So, we’ll do 1.0 first. We typically like to see some payments starting about year two or so. Okay? But even then, it’s about half of the interest on the note. So, if we had a $10 million deal at 10%, that’s a million a year. We want to say like $500,000 is a good number, Justin, starting at about year two. Okay? But that could be adjusted higher or lower throughout the cycle of a 10-year term. Every 10 years, you can renew for 10 years. You can pass it to kids, they can step into your shoes and continue the tax deferral. So, that can go on for as long as you want. Most clients just live off the interest or partial interest for the entire part of the trust, and that $10 million principal never moves. Okay? So, that’s 1.0.

2.0 is a little different. One of the Achilles heels for that is once it starts paying you, it doesn’t stop paying you until you die and your spouse, if you’re married, dies. And what it does pay you, pays your partial interest and partial principal, and it’s like a water faucet that just keeps going, whereas the other one, you can kind of turn it on and turn it off, okay, with flexibility. And so, you are paying some cap gains during your lifetime. However, upon your death, it should pass capital gains tax free and estate tax free to your children who can be the beneficiaries, but you’d be paying some cap gains during your lifetime.

So, we typically do one or two trusts depending on your net worth and what we’re trying to solve for, kind of like your strategy when you’re like the first property is for general expenses. The second property is for lifestyle, right, and on and on and on, right? Ours is like, the first property. It’s like, let’s get a first exit on the trust. That’s like they get you that $10 million. Let’s get you that truly passive income number. Let’s dial that in, give you flexibility for your lifetime. Anything above $10 million, generally, we’re working out, getting outside the taxable estate, and then sometimes we’re doing a little, maybe 20 or 30 on the 1.0 depending on where you’re at and what your needs are, we’re going to design it. But there should never be more than two trusts in your family, and you can exit as many assets as you want – Bitcoin, business, real estate, all into these two trusts and then simply get promissory notes back, and so, you’re collecting promissory notes is a good way to think about it versus just being an owner of property.

But the flywheel, you can still be an owner of property. You can partner with the trust and create a new LLC, which gives new ownership entity, which then you can exit again and flow back into the trust with another promissory note. And so, it’s just using what we’ve always had. We’ve always had the ingredients. We just didn’t know the recipe until now.

Justin Donald: And just to confirm, with the 1.0 version, since it’s just interest on the promissory note, there’d be no capital gains on that interest, right?

Brett Swarts: Exactly. If a tree falls in a forest and no one’s around to hear it, does it make a sound, right? Most people never dip into the principal. They only live off the interest. Now, the interest is ordinary income tax. You get a 1099 for that. But to the extent you’ve got new depreciation schedules on assets and you’ve got some bonus depreciation, if Trump brings back the 100%, too, and your real estate professional status, there’s some cool things there where we’re looking at tax flow mindset, offset depreciation with cash flow that’s coming in and it’s balancing those two. And then be careful on the debt flow. Make sure we’re being smart about that. This is where we become ninjas with you in this fight. It’s like a, we’ve got our shields and our spears and the government’s like trying to come in and they’re trying to waste our money and just give it all away to crazy stuff, right, that we’re seeing the last 150 days.

But this $84 to $100 trillion is happening, right? And we’re on the front lines. We call it the reverse tea party, the largest wealth transfer in the history of the planet. And we’ve got this window where we can help families steward the capital to multiply freedom and impact, create more jobs, create more housing, end the housing crisis, but if they don’t take action, the money does nothing or worse, it gets gobbled up by estate tax or crushed by capital gains tax. And so, this is where we come in and we need to build these plans. You got to set it up prior to the close of escrow. You got to get with this early. We also have the best 1031 exit plan that gives you the ability to do a little bit of both. So, those are probably the things that I would say. And I know we’re pretty much out of time. Justin, what do you think?

Justin Donald: We are, we are. Well, real quick, just recap the fees on this so people can understand that.

Brett Swarts: Yeah. So, I’ll do a simple deal. Let’s say it was a million-dollar deal. It’s $15,000 one time through the tax attorney, covers lifetime audit defense. He’s my business partner. He’s amazing. Okay? Our fee as a trustee, we’re on the AUM or the net proceeds. Let’s say it’s a million or about 1.5% to 2% on a recurring basis. However, we cash flow our fees and we typically return 7%, 8%, 9%, 10% compounding net of our fees. Okay? And so, we’ll find great groups like Justin and investing in different groups. We’ll get a balance. Let’s say, a balance 10% nets you 8%, right? Let’s say, we can get 12 depending on your risk tolerance, we can net you 10%, right? And so, these are the kind of things that we look at and we cash flow that, but that’s how we make our money on a recurring basis as trustees.

Justin Donald: Very good. And where can people learn more about you, Brett? And what you’re doing, your book, everything?

Brett Swarts: Yeah. Go to CapitalGainsTaxSolutions.com, everybody. Okay? You can check out our book called Building A Capital Gains Tax Exit Plan. And here it is right here and it’s on Amazon and it’s got Kevin Harrington from Shark Tank. We got Tony Robbins, CPA, in there as well. I wish I would’ve known Justin when we got it because he would’ve had it, he would’ve been in here. We have Don Wenner in the book. We’ve got all these amazing people, but basically, it’s our journey from zero to where we just talked about in the last 30 minutes. I want you to check it out and just go to CapitalGainsTaxSolutions.com or just look up Building A Capital Gains Tax Exit Plan on Amazon.

Justin Donald: Love it. Well, thank you so much for spending the time with us today. This has been awesome. And I love wrapping up with one last thing. I ask a question every week of our community. And for those of you that are watching or listening, here’s my question. What is one step you can take today to move towards financial freedom and really just move towards the life that you truly desire on your terms, so again, not a life by default, but a life by design? Thanks. We’ll catch you next week.