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