realize that you can sell a business with zero taxes? Yeah, you can. Not only
can you sell a business, but if you have a highly appreciated asset, you could
sell that and not pay any taxes upon the time of sale. And you're like, "Justin, come on
dude. I usually follow you, but that's too good to be true. No, see this
is where tax planning comes in. So I had a particular client that had a business
for sale, and this was a nice business, and it was nice as far as a sales price.
And the client came and said, "Man I really hate the fact that I'm gonna pay this
much in taxes." So after we finished the planning, the client was able to sell the
business with zero taxes. Further, he was able to reduce this year's taxes so far
down that we were able to take a significant amount of money out of the
IRAs, out of his 401(k)s, and go ahead and remove the taxes on that. "How
in the world, Justin?" you say. There's a tool that is used by planners called a
charitable remainder trust, a CRT as some people would have it. And this particular
candidate was prime perfect example for the person who wanted to use a
charitable remainder trust. So what is a charitable remainder trust? First of all
it is irrevocable, and that is perhaps the biggest downside to this particular
planning tool. Once you've made the decision, you can't change it. They were
in their mid-60s, and they had about a twenty-five year life expectancy, and the
numbers, and the planning, and their overall financial structure work so this
particular irrevocable tool
can be used to their maximum benefit. The second thing is is a charity is involved.
At some point in the future a charity will receive the asset. I'm gonna
oversimplify a very technical matter, so you have to excuse me on this one.
For those planners who are watching this, yeah, it's gonna be super super simple. I
know all the techniques. I know all the details that go to these. I'm not gonna
even go there today. In short, our client gave his
business to a charity. Being they are a legal charity, the charity does not pay
any taxes. So once he gave the asset to the charity, the charity and the client
entered into an agreement which stated that the client would receive income
from the asset for the remainder of their life. Thus, a charity (charities
involved), remainder (the income would be there for the remainder of their life),
and it's a trust. It's irrevocable, so it's outside the estate. There's all
sorts of little goodies that went into that one little description. So our client
gave their business to the charity, and the business sold, and the full value of
the business was received in the charitable account to which our client
can receive income for the rest of their life. That's pretty powerful, so let's
walk through the numbers let's assume our client's business was worth a million
bucks. Many times the taxes could be two hundred, three hundred, four hundred
thousand dollars or more depending on the type break down of the tax
classification. So let's assume in this case it was thirty percent taxes. Well
first of all, our client didn't pay three hundred thousand dollars in taxes, thirty
percent of a million. He didn't pay that. Instead the full million dollars is
inside the account. Not only that, but he also received a charitable deduction now,
a huge charitable reduction. So with that, it reduced his current year's tax bill
significantly, so much so that we were able to go and grab some of his
retirement monies and pull them out and minimize the taxes there. Now in our
client's case, he had enough assets other places that all we needed was about
three percent distribution off of the million dollars, or $30,000 a year.
Well, the charitable remainder trust document easily provided for that 3% for
the rest of his life, so instead of taking 3% of 700,000 he took 3% of a
million. That was $30,000 that he received. It was an amazing tool. You guys,
if you're contemplating the sale of your business, if you're contemplating the
sale of a highly appreciated asset, if you're contemplating the sale of a piece
of real estate, maybe you have a lot of equipment that you've already 179
depreciated down, if you go to sell that equipment, you're gonna pay recapture tax.
A charitable remainder trust is an unbelievable tool. My only requirement
that I tell folks when we start talking about this is, you have to be philanthropic
because at the end of the day unless you do some replacement planning of that
income, the charity is going to receive the asset. In my client's case it was a
large amount of money. In the meantime, though, he's going to receive a nice
distribution, or an income stream, off of this asset, and in effect he was able to
sell his business, day one, without paying any taxes. Now, there are planning
techniques we can use to replace the asset; that's not the topic of this video.
If you have any questions on that, shoot me an email. Shoot me a tweet. Shoot me
something on Facebook, and I'll be sure to follow through with that particular
conversation. So guys, look. Life is hard. Business, planning, especially at
this size, it's complicated, and you're gonna have to have a good CPA, a good
tax attorney, and a good CFP. Until then let's continue to make our lives, at