December 7, 2021
Best Ever CRE Community

Big Domino-Tipping Advice for High-Net-Worth Financial Clients

I was reading Expert Secrets by Russell Brunson when I came across a fascinating story about Tim Ferriss, author of The 4-Hour Workweek. In the book, one woman asks Tim what it is that he does all day. Tim responds, “Most people wake up every morning with a task list of a thousand things to do….Instead of looking for all the tasks that I could do, I try to identify the one Big Domino — the one thing that, if I could knock that down, all the other dominos would either fall down or become irrelevant.”

How does this relate to you as a financial advisor? Well, serving your clients may include tasks like helping them clarify their current financial situation, assisting them in assessing their projected financial needs, helping them evaluate their risk tolerance level for investments, and providing options and solutions for achieving their goals and objectives.

However, it is important to ask yourself: “What is the one big domino that, if knocked over for my client, all the other dominos would either fall down or become irrelevant?”

The Big Domino for High-Net-Worth Clients

If you serve high-net-worth individuals, you are likely aware that one of their major concerns is paying long-term capital gains taxes on assets that have increased significantly in value such as cryptocurrency, real estate, or businesses. The table below illustrates the different long-term capital gains tax rates your clients might currently be facing.


2022 Long-Term Capital Gains Tax Rates

Tax filing status 0% rate 15% rate 20% rate
Single Taxable income of up to $41,675 $41,675 to $459,750 Over $459,750
Married filing jointly Taxable income of up to $83,350 $83,350 to $517,200 Over $517,200
Married filing separately Taxable income of up to $41,675 $41,675 to $258,600 Over $258,600
Head of household Taxable income of up to $55,800 $55,800 to $488,500 Over $488,500

Short-term capital gains are taxed as ordinary income according to federal income tax brackets. Don’t forget to add an additional 2.9%–13.3% state capital gains tax and 3.8% for net investment income. Collectively, this can be around 25%–37% of your client’s gain.

A Deferred Sales Trust is one way to provide your high-net-worth clients with a capital gains tax solution that would allow them to defer paying capital gains taxes and solve estate tax challenges. 

How a Deferred Sales Trust Can Help

A Deferred Sales Trust is “a specialized installment sale.” You may also know it as a “seller carryback.” Installment sales are allowed under Section 453 of the Internal Revenue Code and have been around for over 90 years.

A Deferred Sales Trust is a creative and proprietary installment sale that can be set up for your client where you can manage the DST funds all pre-taxed. This gives you a unique opportunity to solve your client’s capital gains tax challenge and manage more wealth, so you grow your business. The DST funds can be invested into:

  • Real estate
  • Businesses
  • Stocks
  • Bonds
  • Lending businesses
  • Annuities
  • Life insurance

Determining if the DST Is a Good Fit for Your Client

  1. Do they have any highly appreciated assets that they’d like to sell, delay the tax, diversify the money, and then invest in tax-deferred real estate or securities?
  2. What would it mean to them to convert their highly appreciated asset — which may or may not be providing any or enough cash flow — to cash flow from passive or active real estate or other investments?
  3. If they could sell their asset(s) and move their equity outside of their taxable estate, how much would that save their heirs?

Here is to growing your business and helping your clients knock over the big domino!

Have clients who have highly appreciated Bitcoin or other crypto assets and want to learn more about the DST? Be sure to check out this recent post: Using a Deferred Sales Trust to Sell Bitcoin

About the Author:

Brett Swarts is considered one of the most well-rounded Capital Gains Tax Deferral Experts and informative speakers in the U.S. He is the Founder of Capital Gains Tax Solutions, is an exclusive Deferred Sales Trust Trustee, host of the Capital Gains Tax Solutions & eXpert CRE Secrets podcast, and an eXp Commercial Multifamily Broker in Sacramento, CA.

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

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