The Strategy
Bob purchased a book containing the copyrighted trust and was provided assistance in making use of those materials. He received his Certification of Trust, and corresponding Employer Identification Number( EIN) issued by the Department of the Treasury, with the proprietary Trust Agreement and supporting documents. Bob then prepared to sell his duplex into the trust by calculating his“ Basis”. Taking the purchase price of his property($ 500,000) and adding what he spent on improvements($ 200,000), Bob subtracted from that($ 700,000) amount the depreciation already taken($ 200,000) and had his“ basis” amount for his sale($ 500,000).
Purchase Price + Improvements( Less Depreciation) =“ Basis”
In keeping with contract law, a Bill of Sale was prepared for Bob and he sold the duplex out of his individual name and into the trust at the agreed upon amount of $ 500,000. A Promissory Note was executed in financial consideration for the sale, and title was transferred by Quitclaim or Warranty Deed. The duplex was listed for sale at $ 1.5 Million and Bob signedoff on all the closing documents in his capacity as trustee of the trust. After the property was sold and the closing completed, the entire $ 1.5 Million was transferred from escrow to the bank account under the name and EIN of the trust.
Bob did not incur any capital gains taxes on the sale of the property into the trust, as the amount of the sale was equal to his aftertax investment in the property, and saved him between $ 154,478( Married Filing Jointly) and $ 177,239( Married Filing Separately). Likewise, the Irrevocable Spendthrift Trust did not incur any capital gains tax from the sale of the duplex as, in accordance with the copyrighted trust agreement and IRC
§ 643( a)( 3), the entire sale amount was allocated to the corpus( or body) of the trust.
IRC § 643( a)( 3) – Capital Gains and Losses
“ Gain from the sale or exchange of capital assets shall be excluded to the extent that such gains are allocated to corpus and are not( A) paid, credited or required to be distributed to any beneficiary during the taxable year, or( B) paid, permanently set aside, or used for the purposes specified in § 642( c). Losses from the sale or exchange of capital assets shall be excluded, except to the extent such losses are taken into account in determining the amount of gains from the sale or exchange of capital assets which are paid, credited or required to be distributed to any beneficiary during the taxable year. The exclusion under § 1202 shall not be taken into account.” [ Emphasis Added ]
The Savings
The entire $ 1.5 Million from the duplex property sale is now firmly in the trust’ s bank account, without any taxes having been removed. Bob is the acting trustee over the trust and authorized signatory over the trust bank account. Thus“ Trustee Bob” may, at his sole and absolute discretion, determine the“ how, what, when, where, why, or even if” trust assets shall be utilized. Under the original and proprietary trust agreement, there are no requirements whatsoever for the trustee to distribute any monies to the beneficiaries during the taxable year. So, Bob is now free to paydown existing trust debts and / or re invest those monies into any other form, including but certainly not limited to, precious metals, cryptocurrency or even additional real estate investments which may, or may not, be of like kind all in a time frame of his choosing. Here is what Bob saved on this transaction alone, and he could only imagine what that amount might grow to over time!
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