Tax Deferral Solutions in Estate Planning, with Lyndon Grey

0:01 Hey, good morning. Welcome to Estate Planning Podcast. I'm your host Bill Gross at Bill Gross Probate Social Media and really excited. You know, people talk about tax deferral strategies. Obviously, one is not to pay your taxes. That's not a good one. One's not to fill your tax return. That's not a good one. And oftentimes in real estate, people know about 1031 exchanges, which is a great tool for the right people. Although I would say, and I go along with Grant Cardone in this, not such a great tool because in my experience, many customers end up with an inferior real estate investment by trying to defer the taxes, they're not going to make the profit on their property they might. And so somebody I've worked with for years now, I want to say both pre-COVID, during COVID, he's a local contact at the real estate events I go to. Who we've also talked in the past on my other podcast, Lyndon Gray, who among other things, he's estate planner, deals with wealth management, is with LPL, one of the largest financial companies in the world, but has some unique strategies on tax deferral. Lyndon, thank you so much for making time for us today. Thank you very much, Bale, for having me. I enjoy speaking on these topics because as I as I speak to different groups around the city or attend the apartment owners associations and so on and so forth, it's amazing that clients who have built these assets up and amass 10 20 different properties and so on and so forth. They're just not aware of these tools out there to defer, reduce, and in some cases eliminate the tax hit. So my job today would basically be to expose some of these tools that are out there as opposed to you built this x amount of wealth, you just don't want to give 3040 cents on the dollar because you sold an asset and now it's out of the estate and now Uncle Sam gets that 3040 cents. You can use these tools to defer that tax hit.

1:59 One of the things that shocked me in my real estate education of the last few years, one of my favorite real estate investor, coaches, mentors is Grant Cardone. And he said something that I haven't heard anybody else say, but it's so true in my experience as a real estate broker, which is why he never uses a 1031 exchange. And when he and he said he said why, because every time he got ready to exchange, he would search for properties. He had a limited time. He'd find one property that he thought was great. He'd find one that was kind of average. One because you have to name three that you had to throw in. Inevitably, the great one didn't come through for whatever reason. You do due diligence or you get over bid or something happens and he'd end up with a average property or below, but he would make his money on the buy side, not on the on the tax deferment side. And so he felt that he rather just pay whatever he had to and move on to the next transaction. That's one strategy. But for people who aren't looking to continue to invest and build up that ladder, but perhaps want to hold on to the chips they've made, there's tax deferral strategies. And one that you brought up, just shocked me I didn't know more about it was the DST, Delaware Statutory Trust. Yes, the Delaware Statutory Trust. It's out there in the tax code. It's IRS revenue code 2004-86 which basically says someone can take a percentage ownership of a DST portfolio to satisfy 1031 exchange. So it's ideally suited for that 60 plus 65 plus year person who's amassed this these assets but now they're really getting overbeared with the laws by in California the regulations and so on and so forth. You can't kick someone out. You can't evict them and all of these things and they just had it up to their eyeballs.

3:57 Sell that out. But there's a couple things I've noticed. One is that as you build property today in California, almost every deal is a value ad. So the buyer's faced with if I'm going to trade up, I have to come up with more capital, buy a property, fix it up, go through that whole process, a year or two to turn it into an incomeroucing asset. Might be a great investment, but some people towards the end of their career don't want to continue that game. They just want to reap the benefits. And the other one is that again on the 1031 exchange rather than ending up with an average property, what I noticed was some of your DST investment opportunities are fantastic property. So you have a little piece of a fantastic property and you use that to defer your taxes. Exactly. The portfolios can be industrial, it can be multifamily and student housing or senior living. Two very distinct multif family asset classes. They can be grocery anchor portfolios. They can be net lease portfolios, self- storage, etc. So, you have quite an array of asset types that one can diversify outside of their normal multifamily, duplex, 8 units, etc., and go into other asset classes outside of their main state. So, most clients have their assets in the state they're in.

5:16 But this allows you to own assets in other states which are more friendly friendlier to the landlord as opposed to California, New York and so on where you have a lot of obstacles just to get someone out of your property. In Georgia and Florida and Texas, etc. You have a multif family over there. If someone is not paying the rent, you don't have that leniency like you do in California. It's days pay or quit and they're and they have to move out. So, it's a much more friendlier situation in other states than to have 100% of your assets here in California. And you might not want to take all of your asset into another state that you can't watch, maybe not familiar with, but you can use DSTs and invest in several to diversify your investment. Several states. I invest as a limited partner. I'm not reinvesting with those tax deferred money but new income but I don't invest here in California. So I'm in Florida and Texas. Similarly, somebody who's at their end of their career investing wise can take some of chips and put them in those other states. But find companies that are up established project with a track record of income and a track record of good management. So talk a little bit about the kinds of companies, not just the product which you mentioned and the geography which you mentioned, but talk about the kind of companies that you're able to bring your customers to. So yes, if we step back for a moment and look at the economics of the vendors that we patronize, whether it's your favorite grocery store, your Whole Foods, your CVS around the corner, your etc. When you look at the economics there, you realize these companies do not own the properties they're in. They basic is too economically too much too much capital will be

7:21 Spent if they did that. They acquire the land, they build the structure out, they hire the employees, they put all the products in the in the in the in the in the in the complex, etc. Is just too much. So they outsource that heavy piece of that project which is the actual place that they're going to do business in. They outsource that and they reach out to companies like Inland Exchange right etc that are basically the landlords to corporate America. These companies have been around 30 50 years plus and they just have amassed a portfolio of assets in a variety of spaces. So when they're ready to when they're the ones that by the way that lobbyed Congress along with the National Real Tire Association and other groups to come out with the 2004 legislation in terms of the DST because they realized that mass affluent demographic as they age they had no place to go other than go into another property and have the headaches that have. So the they the they the they lobby Congress. This was passed and now they have the ability to open up some of their portfolios to attract that mass affluent client who is 71 but has health issues has properties that they don't want to manage anymore. Their grown kids don't want to manage these assets themselves. They have their own careers.

8:51 They're living in other states. They have young kids etc. So this gives them an out. They basically can go in with and be partner with some of these companies and own an asset a percentage ownership of that asset and reap the rewards. So these companies are well healed well financed deeped they can withstand the 089 crisis like we went through. They can withstand the COVID dynamic. It's not two guys on a truck trying to make a deal around town. They're very well capitalized and can stomach the gut punches that the economy can throw at you and still move forward. These are companies that are of the size and quality, at least the ones I've looked at that you've shown in the past that you might otherwise expect to be publicly traded where you could buy stock or a mutual fund you can buy stock in. But the format of investment makes more sense as a DST because the kind of investors invest has assets that they want to defer the taxes on or a portion of it. They might have mixed capital structures but one capital structure they have is DST which is because they're big enough they can offer that and it becomes a tool that individual investors can play along with the large Wall Street companies on some of these investments.

10:13 Indeed. Indeed. So once they're familiar with this, they realize, okay, I can get rid of that headache property or I got an unsolicited offer because of my properties close to SoFi Stadium in Los Angeles and now I don't know what I'm going to now I know what I'm going to do with the 2 million. I might take half a million and pay taxes on that and roll the remaining 1.5 in three different portfolios, give me income, and that income is passed on to the next generation. And I might add as an estate planning tool, it can be very helpful because as you know clients who have built up the estate, they have in their mind, oh my kids will take over these assets, but then the kids have their own career paths they want to achieve and kids and so on. So now they're stuck with handing off assets to clients or to their kids who are busy themselves. And then when grown kids inherit three, four properties, it becomes a real headache because there's a lot of acrimony, a lot of fighting that can happen. One person says, "I'm going to manage it." And because I'm managing, I'm going to take more a bigger cut and there's a fight amongst the other siblings about when a property should be sold or when should the proceed how should the proceeds be split. It can be get really ugly. So a DST tool can be utilized to force some discipline in terms of an asset is sold while the mom and dad are still healthy and alive and in sound mind. Those assets go into a DST portfolio. Later on, mom and dad passes away. The income from the DST now is split amongst the kids. Whether it's two kids, three kids, it's split evenly.

12:08 There's no argument there. And then when the asset sells, they can then take their cut and go their separate ways and say, one can say, you know what, I'd like to roll back into a DST myself. The other might say, you know what, I want to take my share and 1031 into another part, a duplex in Riverside, etc. Or the other one can say, you know what, just send me the cash. I'm going to use it for my personal needs. So then it lessens the acrimony. It gives the funds some a degree of discipline and strategy as opposed to the fighting that can happen among siblings when someone passes and the nature of some of these companies that you've presented in the past are that they're always doing something and so those who want to cash out camp but those who want to continue usually if they like that magic company they felt they had a good experience and I know those companies work hard to create good reputation ations and good relations with their clients, they typically are offering because they know when they sell a property, they know, you know, they want this money invested in another project of theirs, they're going to offer attractive alternatives so that somebody has a easier path to continue versus and I see this all the time where people inherit a multif family unit and it's kind of run its course.

13:27 It's time because the loan value is so low, the leverage is low, the area is changing. It's time to sell. The problem is what do you buy? Well, if you're not if you don't own several properties in the area, you don't know the area that well. But again, one of the advantage of DSTs is you have kind of these companies, it's more like a to me more like a stock or mutual fund where you're investing along with a company and then hopefully over time you build a relationship with them that you feel either they're good and you stay with them. And I've done that with several limited partnerships I've been with or you're not happy with them. And you know, if you have two or three, you could pick the winner and leave the loser and move on to somebody else. So, you know, all this sounds great, Lyndon, and look, you and I are nice guys. People watching this might say, "Wow, I'm really interested." what percentage of time does somebody come to you directly and versus what percent of time are they coming to you, let's say they're an attorney or professional, and they want to learn more from you to work with you to refer their clients? It's kind of a hybrid. Occasionally in a week I get a call from an agent or I get a call from a client or someone who referred them to me because they spoke to a client of mine, etc. And I would say it's a it's a mix. And I welcome those calls. And I find out what their scenario is, what are they trying to accomplish and answer have a Q&A and then if they're thinking about it for the next x amount, maybe next year or later in the year, I invite them to lunch and learns that are held around the city, Pasadena, Beverly Hills, Manhattan Beach, etc. And they can come in and hear about this information, have a Q&A session and these lunch and learns are hosted by those very same companies I mentioned earlier. So there's a lot of like-minded people in the room that's that look that's looking for some answers. And so it's kind like being invited to a Wall Street meeting where these are big companies

15:30 Very professional and through Lindon you get a chance to at least see what they have to talk about and meet with Lynden, meet with the company and usually there's several different investment options presented at these meetings. And then mostly it's just a overview of their legislation. They don't necessarily spec put present a portfolio specifically because it's just a general crowd how program works and when we have a one-on-one then we can drill down as to a specific portfolio and so on and so forth. But it's it first of all goes over the general legislation that the DSG 1031 sits on because like I said a lot of people in jail just aren't aware of it. And you have these meetings throughout Southern California. You also meet people on the phone. I have your contact information up here. So if you want to get in touch with Lyndon and move forward, he is with LPL Financial. They're a huge corporation, but it's about the individual. And Lynon really is a guy who explains this, believes in this product and has been active out in the marketplace helping teach people these opportunities. So best way to reach you is your direct office number or your cell phone? Cell is good. Either one, but cell is good. I always have that on me. And if I may touch on another piece, the DST 1031, because of the fires we've had here in Southern California, there's a piece in the legislative code that's known as a 1033, a lot of people just aren't familiar because unless you went through a disaster like the fires or some other disaster in another state or imminent domain where the city, state, municipality wants your property for the betterment of the public such as the expansion of the airport for example. There's a whole swat of properties that were just bulldozed down and bought out. Those were 1033 if you need if they needed your spot to

17:35 Build in the train station, etc. That's a 1033 possibility. So, a lot of times people aren't familiar. They might not wish to rebuild, but if they got the insurance check from their settlement, their house burned, they got an insurance check. If they just pocketed that insurance check and not rebuild, it is a taxable event, believe it or not. So you can utilize the 1033 tax code to basically continue your tax deferral with those dollars, get income, and then the land that the structure was on, you can then sell that land to a builder and use the 1031 code to defer. So now you have two codes working for you. The 1031 for the land that's still there because it doesn't didn't burn down. The structure burned down and then the settlement money from the insurance company that's the 1033 you put them together you have 100% tax deferral you get income etc. Well, there you go. So, some additional tax strategies on the fire worth calling him directly. Lyndon Gray. Cell phone number again is Oops, I lost my spot there. Save 31 [phone number]. You can email him at lindon.graylpl.com. For some reason, you lose that information, reach out to me.

18:59 I'm glad to help. Lyndon, as always, it's great to see you. Great it's better to see you in person. I don't know if we'll see you next week at the real estate event, but always great to see you and talk to you and learn from you about the things you're offering. Thank you for your time today. I really appreciate it. My pleasure. Anytime. And for us, this is Estate Planning Podcast. We do a podcast every week where we interview State Planning attorneys, vendors, people who can help all of us in the business understand our clients needs and be more effective. We have a Facebook group to continue the conversation if you have questions or referrals or looking for more information. I'm Bill Gross on Bill Gross Probates on social media. I'd love to have any questions you have or reach out if I can help in some way. As always, make today your best day