All in the Family

We had just engaged a CPA firm when a client of the firm called and said that her family was selling property in New York that had been in the family for two generations. The property was farmland that the family leased, and the client had been receiving $14,000 a year for her portion.

Her portion of the sale was $3 million with no basis, and she faced just under $1 million in state and federal taxes. Before we looked into her options, we brought her through our proprietary process to help identify her purpose, goals, and desired outcome. It was determined that, due to her recent retirement, her most important priority was increasing her income. She also wanted to make sure that she left money for her children and future generations.

We looked at two solutions for her, one being a Delaware statutory trust and the other a 1031 exchange. Both would eliminate the tax today and give her the desired income, but the 1031 exchange would pass the full value to her children with no taxes at death due to the step up in basis.

We brought in one of our very best solution providers that builds personal and commercial real estate portfolios, and were able to 1031-exchange $3 million from the sale of the farmland into her portfolio. The portfolio will generate $15,000 per month of income, $5,000 per month additional income due to using money that would have been sent to Uncle Sam—a huge increase from the $14,000 per year she was receiving. By managing the portfolio, she will be able to postpone the taxes due until her death, when there would be a step up in basis, and the family will receive the full value.

This project produced amazing outcomes; the client could not be more appreciative of the results of the sale. With the substantial increase in income, she can live the retirement that she had only dreamed of, and she knows that her children, grandchildren, and future great-grandchildren will be taken care of.

As for the CPA, we started the engagement to bring more value to the firm’s clients, implement value-based billing, and create more time for what is most important to the CPA. These were all accomplished on the very first client engagement.

The outcome for the client:

·  The client postponed $1 million in taxes that will be eliminated through a step up in
   basis at death.
·  The client has personal use of the additional $1 million.
·  The client’s annual income increased from $14,000 to $ $180,000.
·  The client will pass on $3 million for future generations.
·  Next year we will work on reducing the income taxes owed due to the increase in income.

The outcome for the CPA:

·  The CPA brought amazing value and has a very dedicated client.
·  The CPA, through value-based billing, charged $40,000 for this transaction.
·  The CPA received three introductions.
·  The CPA is beginning to be known as the “Tax Saving Guy.”