Episode Transcript

Speakers: Craig Andrews, Corwin Davidson, Compliance Choir

[0:00] Craig Andrews: You never know how much time you have.
[0:02] Craig Andrews: For me, that stopped being an idea and became reality on August 22nd, 2021.
[0:09] Craig Andrews: The doctors put me on a ventilator and told my wife to call hospice so she could prepare
[0:14] Craig Andrews: for the day they planned to pull the plug.
[0:17] Craig Andrews: Six weeks later, I woke up to an entirely different reality.
[0:20] Craig Andrews: I could not walk, I could not talk, I could not even lift my own arm, and I woke up realizing
[0:26] Craig Andrews: something else, I had not made the right preparations for my family.
[0:30] Craig Andrews: The plans I thought were pretty good fell through when it mattered most.
[0:34] Craig Andrews: That is why fiduciary alchemy welcomes voices that would have warned me about the holes
[0:39] Craig Andrews: in my plans.
[0:40] Craig Andrews: My hope is that you live a long and prosperous life, but I also hope you make better plans
[0:45] Craig Andrews: than I did.
[0:46] Craig Andrews: So tune in, take notes, and stay with us through the end when bluesman grindle and the compliance
[0:51] Craig Andrews: choir.
[0:52] Craig Andrews: Bring a word of caution.
[1:00] Craig Andrews: Today I want to welcome Corwin Davidson.
[1:02] Craig Andrews: He is a wealth advisor and tax strategy doctor.
[1:07] Craig Andrews: Yes, you heard that right, a tax strategy doctor with break-line wealth and tax.
[1:12] Craig Andrews: He helps high income and high net worth clients align investments, tax strategy, and long-term
[1:18] Craig Andrews: financial decisions.
[1:21] Craig Andrews: Today he is wearing a lab coat because guess what, helps a lot of people in the medical
[1:25] Craig Andrews: field, but not just them.
[1:26] Craig Andrews: Really, it is any high earner who needs complex tax strategies to pay as little in tax because
[1:35] Craig Andrews: he says how much you pay in tax is a choice.
[1:39] Craig Andrews: Corwin, welcome.
[1:42] Corwin Davidson: Thank you, Craig.
[1:43] Corwin Davidson: Thank you.
[1:44] Corwin Davidson: It is great to see you, man.
[1:45] Corwin Davidson: It is good to see you.
[1:46] Craig Andrews: We should tell folks we know each other, we have a little mastermind group that we formed
[1:53] Craig Andrews: amongst ourselves.
[1:54] Craig Andrews: We do.
[1:55] Craig Andrews: So you are not some stranger, good friend, and the resident doctor?
[2:02] Corwin Davidson: Yes, the resident doctor, it is exciting, it is awesome to get on a guest on your podcast,
[2:09] Corwin Davidson: Craig.
[2:10] Craig Andrews: No, I have been looking forward to it, I have been looking forward to it.
[2:17] Craig Andrews: Why don't we start with this?
[2:18] Craig Andrews: Because this is something that happened in the mastermind group, how did the whole origin
[2:23] Craig Andrews: of the tax strategy doctor?
[2:26] Corwin Davidson: Yes, that was a really good, because I am in the processor, I was in the process at that
[2:34] Corwin Davidson: point of branding myself, and I brought it to the mastermind group, and I am a nerd
[2:42] Corwin Davidson: for tax strategy.
[2:44] Corwin Davidson: And so I brought it to the mastermind group, like, "Hey, guys, I'm going to brand myself
[2:48] Corwin Davidson: as the tax strategy nerd," and lo and behold, it was just like, "No, no, no, no.
[2:56] Corwin Davidson: Like how about you not do that?"
[2:58] Corwin Davidson: And think about tax strategy doctor, a more authoritative designation or branding for what
[3:09] Corwin Davidson: you do, and yeah, and it fit really well, and it got me here with the lab coat, right?
[3:15] Craig Andrews: Yeah, when you went to an event recently wearing a lab coat, which was kind of, that was a
[3:21] Craig Andrews: bold move, that was a little scary.
[3:23] Corwin Davidson: It was, it took some reinforcement from the mastermind group, and some outside folks,
[3:30] Corwin Davidson: one of the guys that I was going to sponsor that event with.
[3:35] Corwin Davidson: And so yeah, checked in with the mastermind group, and it was like, "Yes, full go, let's
[3:40] Corwin Davidson: do this," and so get over your own ego, Corwin, put on the physician's coat, and what a success.
[3:50] Corwin Davidson: You know, stuck out in that event, you know, stuck out in that event in the most positive
[3:56] Corwin Davidson: of ways.
[3:57] Corwin Davidson: You know, everybody came up wanting to talk to me, you know, saying, "Hey, you're obviously
[4:04] Corwin Davidson: a doctor," so like, you know, "What do you do?"
[4:07] Corwin Davidson: And so yeah, it was awesome results, and you know, it was great.
[4:13] Craig Andrews: Well, you know, one of the challenges in your field is there's 450,000 financial advisors
[4:22] Craig Andrews: in the US, and you all do, at a high level, you all do the same thing.
[4:27] Craig Andrews: And I see it as a marketer.
[4:30] Craig Andrews: I mean, one, I'm thankful because I help market in that field.
[4:33] Craig Andrews: I'm thankful that everybody says, "Oh, we're different, we're fiduciaries," or something
[4:40] Craig Andrews: like that.
[4:41] Craig Andrews: Like, nobody can tell the difference between you all, and I love the choice that you made
[4:46] Craig Andrews: because it really helps you stand out, helps make you memorable.
[4:51] Corwin Davidson: Yeah, no, I appreciate that.
[4:53] Corwin Davidson: And you know, in this space, you know, fiduciaries, one of my most critiqued words, you know, because
[5:03] Corwin Davidson: it really takes the essence of, you know, the way it's written, you know, Reg B, Reg BI,
[5:12] Corwin Davidson: and you know, what it says is, you know, act in every action and every thought process,
[5:17] Corwin Davidson: act in the best interest of the client.
[5:19] Corwin Davidson: And you know, one of the things that separates us is this tax strategy piece, but the vast
[5:28] Corwin Davidson: majority of the investment advisors, they don't have access to the tax strategy part.
[5:33] Corwin Davidson: And so, are they actually fiduciaries?
[5:35] Corwin Davidson: Is one of the big things that I fight with a lot, you know, when folks are, you know,
[5:40] Corwin Davidson: I constantly get asked, "Are you a fiduciary?"
[5:42] Corwin Davidson: And it just, it sets me down this path.
[5:45] Corwin Davidson: Yeah.
[5:46] Craig Andrews: Well, I first encountered this back in 2016 when I was working with a client.
[5:53] Craig Andrews: And you know, they wanted to promote, now, the main sales guy in the account came from,
[5:58] Craig Andrews: I'm not going to say their name, but you've seen the little graphic I made mocking.
[6:01] Craig Andrews: I call it King Fisherman Investments.
[6:03] Craig Andrews: I got you.
[6:04] Craig Andrews: You know, for different, we're fiduciaries.
[6:06] Craig Andrews: And but he came from that organization and he really wanted to put on the website, we're
[6:12] Craig Andrews: a fiduciary.
[6:13] Craig Andrews: And we kept writing in the compliance, you know, and complaining, "You can't say that.
[6:16] Craig Andrews: You can't say that."
[6:19] Craig Andrews: And she smugly threw an 80-page document at me and said, "You need to read this."
[6:24] Craig Andrews: And thinking it was just, "I'd never read it by a Reddit," and I came back and I asked
[6:29] Craig Andrews: her, I said, "If I quote the SEC Chairman, would that be compliant?"
[6:35] Craig Andrews: And she said, and she kind of paused thinking it was a trick question.
[6:38] Craig Andrews: And she's like, "No, that would be compliant."
[6:41] Craig Andrews: Well, right there in that SEC document, the Chairman of the SEC said, "In some A-words,
[6:47] Craig Andrews: the term fiduciary is meaningless because it's defined so broadly.
[6:51] Craig Andrews: You know, the way I put it, these are my words, these are not his words, compliance don't
[6:56] Craig Andrews: get upset with me.
[6:57] Craig Andrews: I'm just claiming these are my words."
[6:59] Craig Andrews: It was written so broadly, you could drive a bus through it.
[7:03] Craig Andrews: And I had the SEC Chairman saying that, so we actually put an exact quote of that on the
[7:07] Craig Andrews: website and said, "But here's how we do it."
[7:11] Craig Andrews: And I think that's something everybody needs to think about.
[7:14] Craig Andrews: They get hung up on this term fiduciary.
[7:17] Craig Andrews: It's a meaningless term, and that's not my opinion.
[7:20] Craig Andrews: That's what the Chairman of the SEC said.
[7:22] Corwin Davidson: Yeah, I agree with you there.
[7:25] Corwin Davidson: Again, getting asked that question so frequently, I usually start the answer to that with, "Alright,
[7:33] Corwin Davidson: so this is my favorite and least favorite question at the same time, and go through,
[7:41] Corwin Davidson: what does that actually mean to you?"
[7:42] Corwin Davidson: And I think it's important from an advisor's standpoint to have a firm-wide definition.
[7:50] Corwin Davidson: What does this mean to our firm as opposed to what is being put out in regulation?
[7:56] Craig Andrews: Yeah, and that's exactly what we did.
[7:59] Craig Andrews: We say, "Here's what the Chairman of the SEC said, here's how we put it in practice."
[8:02] Craig Andrews: And I think that's the question everybody needs to ask, "How do you handle that?"
[8:06] Craig Andrews: If somebody wants to buy an insurance product that has a commission, how do you handle it?
[8:13] Craig Andrews: And let me just ask, how do you handle that?
[8:15] Corwin Davidson: Oh, yeah, so I mean, full transparency with fees is really important, and so a lot of
[8:24] Corwin Davidson: our clients will ask us, especially at the outset, and even in our presentation, our
[8:28] Corwin Davidson: initial proposal presentation, this is how we get paid, this is what it looks like specifically
[8:35] Corwin Davidson: for you as we've gone through and detailed everything that you've told us, to everything
[8:41] Corwin Davidson: that you've sent over in documentation as we put this proposal together, but I think
[8:45] Corwin Davidson: transparency in fees is really the best policy.
[8:49] Craig Andrews: Yeah.
[8:50] Craig Andrews: Yeah.
[8:51] Craig Andrews: Yeah.
[8:52] Craig Andrews: And I think almost any situation of importance, you just kind of ask questions, and boldly
[9:03] Craig Andrews: ask questions of whoever you're working with, whether it's your doctor or your tax strategy
[9:08] Craig Andrews: doctor.
[9:10] Corwin Davidson: I completely agree.
[9:11] Corwin Davidson: Well, that and the part of not every product is blanket should be recommended across the
[9:21] Corwin Davidson: spectrum of clients.
[9:22] Corwin Davidson: And so really having a detailed approach to discovery, to data collection, and to initial
[9:30] Corwin Davidson: proposal build, to make sure that there's nothing in a plan that doesn't link specifically
[9:36] Corwin Davidson: back to a goal or objective, whether that be short term or long term.
[9:43] Craig Andrews: Yeah.
[9:45] Craig Andrews: So let's talk a little bit about the, let's talk a little bit about the tax strategy.
[9:51] Craig Andrews: Yeah.
[9:53] Craig Andrews: And yeah, so I see a lot of, I see a lot of firms that don't have a strong tax component.
[10:02] Craig Andrews: They pull in someone, we had a prior guest that at one point, he decided to start doing
[10:11] Craig Andrews: taxes for his clients.
[10:13] Craig Andrews: He brought in CPAs because he kept bumping into CPAs that were given his clients bad advice,
[10:21] Craig Andrews: you know, tied to RMDs.
[10:24] Craig Andrews: First off, what are RMDs and why would, you know, why would that confuse CPAs?
[10:28] Corwin Davidson: Well, RMDs are required minimum distributions, they happen in retirement accounts, not including
[10:35] Corwin Davidson: Roth accounts, but they happen in, you know, tax deferred retirement accounts, starting
[10:39] Corwin Davidson: at age 73.
[10:41] Corwin Davidson: And so the reason tax strategy comes into, into that conversation is because once the
[10:48] Corwin Davidson: IRS starts forcing money out of these tax deferred retirement accounts, they, those dollars
[10:55] Corwin Davidson: they get forced out of the accounts show up as earned income to those, to those account
[11:02] Corwin Davidson: owners in the year that they receive them.
[11:04] Corwin Davidson: And so the older you get, the more the IRS forces out.
[11:09] Corwin Davidson: And so it's essential to make sure that once those RMDs start happening, especially if,
[11:15] Corwin Davidson: you know, the retirement accounts haven't been utilized, you know, maybe the client has
[11:21] Corwin Davidson: had a ton of outside assets and was just saving the retirement accounts for inheritance.
[11:27] Corwin Davidson: But once you get to that RMD age, they start kicking these, you know, income taxor, this
[11:33] Corwin Davidson: income out that is followed by taxes.
[11:36] Corwin Davidson: And it's something that you should as a, you know, as an advisor be able to control whether
[11:41] Corwin Davidson: that be between, you know, the between the relationship of the CPA or the, and the advisor,
[11:46] Corwin Davidson: or you know, be awesome if the advisors got tax strategy in house.
[11:52] Corwin Davidson: Yeah.
[11:53] Corwin Davidson: What, what are some of the complex issues?
[12:01] Corwin Davidson: So I know, you know, I know you specialize in, in higher net, you know, higher income
[12:08] Corwin Davidson: professions.
[12:09] Corwin Davidson: Yeah.
[12:10] Corwin Davidson: You know, like, you know, some medicals, one, you mentioned construction.
[12:15] Corwin Davidson: What are some of the unique challenges that those folks run into because in terms of not
[12:20] Corwin Davidson: only their wealth strategy, but their tax strategy?
[12:24] Corwin Davidson: Yeah.
[12:25] Corwin Davidson: So I'm going to give you both a couple of sides of it.
[12:28] Corwin Davidson: So, you know, from the high W two earner, and this is something, you know, when we, when
[12:34] Corwin Davidson: we think about the tax code, the tax code in our team's opinion was not designed to
[12:39] Corwin Davidson: generate revenue.
[12:40] Corwin Davidson: It was designed to control investor behavior.
[12:44] Corwin Davidson: And a lot of people think that that's a, you know, it really suits the business owner
[12:48] Corwin Davidson: most.
[12:50] Corwin Davidson: And it's simply not true.
[12:52] Corwin Davidson: The tax strategy is for both W two employees and business owners, whatever structure they
[12:57] Corwin Davidson: run for their business.
[12:59] Corwin Davidson: But particularly W two income is without tax strategy for high earners is basically a
[13:07] Corwin Davidson: goldmine for the IRS and most W two earners don't understand that there are options available
[13:14] Corwin Davidson: to, you know, place money in this, you know, in this area or this area of the economy and
[13:21] Corwin Davidson: get tax breaks for it, reduce income and reduce taxes on the other side of that.
[13:26] Corwin Davidson: And we'll just take kind of a one off position of somebody who, you know, a business owner
[13:33] Corwin Davidson: and employee who's done an amazing job at funding tax deferred retirement accounts.
[13:39] Corwin Davidson: And now they're looking at this, you know, huge piece of their wealth that every time
[13:44] Corwin Davidson: they take a dollar out, it creates attacks.
[13:47] Corwin Davidson: And so using strategies like a discounted Roth conversion to be able to place money in
[13:54] Corwin Davidson: an area where the IRS is designated for, you know, for a tax deduction and actually convert
[14:00] Corwin Davidson: at a discounted value from an IRA to a Roth IRA and ultimately pay less tax through that
[14:07] Corwin Davidson: conversion.
[14:08] Corwin Davidson: Yeah.
[14:09] Corwin Davidson: And there's plenty more areas that, you know, we could get into, but high level, those
[14:15] Corwin Davidson: are two really impactful pieces that I think on the W two employee side that just a lot
[14:21] Corwin Davidson: of people don't know is available to them.
[14:24] Corwin Davidson: And on the side of highly accumulated wealth in retirement accounts, there is a relief
[14:31] Corwin Davidson: valve available.
[14:33] Craig Andrews: Yeah.
[14:34] Craig Andrews: And so some things I've heard is if, if your RMDs, you know, your acquired minimum distributions
[14:42] Craig Andrews: are high.
[14:43] Craig Andrews: Yeah.
[14:44] Craig Andrews: If you're counting on social security at all, and that most high earners probably aren't,
[14:49] Craig Andrews: but if you are, I've heard social security gets taxed at like some insane rate.
[14:55] Corwin Davidson: Yeah.
[14:56] Corwin Davidson: Yeah.
[14:57] Corwin Davidson: And this administration actually tried to ease that for social security earners.
[15:04] Corwin Davidson: But in general, if you're making more than I believe, you know, 18,000, 18,500 dollars
[15:10] Corwin Davidson: once you go on social security, the moment you go over that threshold, 85% of your social
[15:16] Corwin Davidson: security becomes taxable. And so it's really important, especially now, because there's
[15:22] Corwin Davidson: a, there's really a trend over the last 10 years where, you know, folks are understanding
[15:28] Corwin Davidson: that retirement, you know, American retirement, you know, live off your assets and, you know,
[15:34] Corwin Davidson: don't do anything anymore. You know, I've finished my work and career. That program doesn't necessarily
[15:41] Corwin Davidson: work for the vast majority of people now. And they're wanting to stay active. They want
[15:46] Corwin Davidson: to stay with their groups. They want to continue, you know, if they're, you know, had the, you
[15:51] Corwin Davidson: know, occupations where they worked with their brain, work part time, be involved in philanthropy.
[15:58] Corwin Davidson: But you know, staying active in your older years is really popular now. And in a lot of
[16:04] Corwin Davidson: cases, you know, people want to generate an income off of the time they spend doing that.
[16:09] Corwin Davidson: And so making sure that one, you know, the rules, but two, that there are assets outside
[16:16] Corwin Davidson: of the social security system that you are, you know, either supplementing, or, you know,
[16:22] Corwin Davidson: in best case, yeah, you know, that's where the vast majority of your retirement income
[16:27] Corwin Davidson: comes from, would be, you know, would be really advantageous in this kind of new realm of retirement.
[16:34] Craig Andrews: Well, I had somebody put it to me one way, they said, you know, during your working years,
[16:40] Craig Andrews: you know, the highest spend day of the week is Saturday. You spend more money on Saturday
[16:45] Craig Andrews: than any other day of the week during your working years. During your retirement years,
[16:50] Craig Andrews: every day is Saturday. Yes. And there's this mindset that, hey, when I'm retiring, my costs
[16:59] Craig Andrews: will go down and in reality, people end up spending more in retirement because every day is Saturday.
[17:04] Corwin Davidson: And that's actually there's a there's a there's a model or a trend model on that where that
[17:12] Corwin Davidson: lasts for about the first three years, you know, somebody, you know, a couple goes into retirement,
[17:17] Corwin Davidson: and you see this kind of like sweeping bell curve before it comes back down of figuring out how to
[17:25] Corwin Davidson: exist seven days a week without, you know, without an occupation. And for me, like in inside of me,
[17:34] Corwin Davidson: I believe purpose is one of the most amazing things a human can have, you know, whether that's
[17:40] Corwin Davidson: purpose and working purpose and giving back purpose in spending time with the family,
[17:46] Corwin Davidson: whatever that looks like hobbies, woodworking, making sure that you've got a purpose in every day
[17:54] Corwin Davidson: so that you get out of bed, and you've got a drive to go with not necessarily achieve something,
[17:59] Corwin Davidson: but achieve something for that day. Yeah. It is so important to really longevity.
[18:05] Craig Andrews: Yeah. Well, I keep hearing stories about people who retire and then die in a few years.
[18:11] Craig Andrews: And and I think unfortunate. I think it's what you're talking about. It's not that their bodies
[18:17] Craig Andrews: wore out. It's that they, I think what you're saying is they lost their purpose. Yeah. And so,
[18:22] Corwin Davidson: you know, we talk with, you know, we work with a lot of business owners and some of the business
[18:26] Corwin Davidson: owners we work with, they're like, hey, I want to sell my company. The first thing, the first
[18:31] Corwin Davidson: question I'm going to ask him is, all right, you sell it tomorrow for the amount of money that
[18:35] Corwin Davidson: you want for it. What does Wednesday look like? Like, what does two days from now look like when
[18:41] Corwin Davidson: you wake up, what are you going to do? And most of the time, they can't answer that question.
[18:47] Corwin Davidson: They've never experienced what that looks like. And so, you know, in one case, you know, a couple
[18:53] Corwin Davidson: of years back, gentlemen actually answered the question, he said, hey, you know, I've always loved
[18:58] Corwin Davidson: woodworking. I was like, have you ever done it? He said, no, I was like, well, you've got the means
[19:03] Corwin Davidson: and you've got the shop. I was like, go, you know, go get what woodworking tools that you would,
[19:08] Corwin Davidson: you would want to have to be able to do what you want to do with woodworking. And, and let's come
[19:14] Corwin Davidson: back six months from now and let's see how things are going. So we meet back up six months from then.
[19:19] Corwin Davidson: And I was like, so how's woodworking is like, I hate woodworking.
[19:22] Corwin Davidson: I was like, all right. But the concept still rains true is, you know, if you find out you don't
[19:29] Corwin Davidson: like woodworking, so you're woodworking tools. And what's next? Yeah, I was hoping you were going
[19:35] Craig Andrews: to say he loves woodworking, because I have some antique molding planes I'm trying to get rid of.
[19:41] Craig Andrews: And they, I've only used them as decoration. I've never used them for real work. But for,
[19:46] Craig Andrews: but they're like extremely scarce. And there's a part of me that can't throw them away. Yeah,
[19:52] Craig Andrews: for historical reasons. But no, that I mean, that makes so much sense. And I don't know. I mean,
[20:03] Craig Andrews: for me, I don't know what retirement's going to look like. I, I don't, I don't, I don't see myself
[20:11] Craig Andrews: as a retiring type. And I hear, you know, Karen and I've made some friends here in, in Bastrop,
[20:18] Craig Andrews: where he was, he was the executive chef at Apple. The dude has prepared meals for Steve Jobs. Yeah.
[20:28] Craig Andrews: And, which I figure was kind of like feeding the king, you know, you feed the king something you
[20:33] Craig Andrews: don't like off with your head. And, but he, he obviously did very well and he retired.
[20:40] Craig Andrews: And then he got bored. So he got a job as executive chef at UT. They retired from that. They got
[20:48] Craig Andrews: bored again. And, and, you know, he discovered that retirement, you know, he needs to do something.
[20:55] Corwin Davidson: Yeah, he has the means to do nothing, but he has the need to do something.
[21:00] Corwin Davidson: And that's one of the big pieces of especially business owners in that exit phase is it doesn't
[21:09] Corwin Davidson: matter if you sell it for exactly the amount of money you need or 10 times that amount of money.
[21:16] Corwin Davidson: Money is not going to fill your time. Money is not going to give you purpose. You have to have,
[21:21] Corwin Davidson: that has to come from the heart. That has to come from desire. Yeah.
[21:25] Craig Andrews: Well, let's talk a little bit about when somebody sells a business because if somebody's built up
[21:33] Craig Andrews: a business and they sell it, this is about to be their biggest tax event in their life. Hopefully.
[21:37] Craig Andrews: And it's easy to feel like, well, hey, if I sell for 10 million, you know, the IRS is going to take
[21:47] Craig Andrews: four or five or whatever they're going to take. Yeah. Is that true? That is true. That's about
[21:54] Corwin Davidson: and depending on, you know, especially depending on how you sell it and what state you sell it in
[22:00] Corwin Davidson: will differ pretty tremendously. But in the state of California, I think you can get up to a 52
[22:10] Corwin Davidson: or a 54% effective tax rate selling a business, you know, selling a business for cash.
[22:17] Corwin Davidson: And, you know, there are a lot of opportunities available to the business owner. Now, this isn't
[22:24] Corwin Davidson: something where you sell the business in, you know, December 1st of any given year and try to go
[22:29] Corwin Davidson: figure out the tax strategy or the tax plan, you know, after you sell the business, this is
[22:34] Corwin Davidson: definitely going to need, you know, pre-planning. But there are strategies available to pay, you know,
[22:43] Corwin Davidson: really as much of the tax as you want, depending on how patient you can be with capital.
[22:48] Craig Andrews: Okay. All right. What's that mean? That I got, yeah, I got you. And so
[22:56] Corwin Davidson: between trust structures between 1031 exchange, charitable donations, there are particular tax
[23:08] Corwin Davidson: strategies that lock money up for specific periods of time. Let's talk about qualified
[23:13] Corwin Davidson: opportunity zones for a second. So you move, you move the assets, you know, that's now cash from
[23:20] Corwin Davidson: your sale of your business into a qualified opportunity zone investment. Well, if you hold
[23:26] Corwin Davidson: that investment for 10 years, all of the taxes are forgiven. Huh, but you got to hold the, you got
[23:33] Corwin Davidson: to hold the investment for 10 years. And so what we typically see is that there's not a silver bullet,
[23:39] Corwin Davidson: you know, a single silver bullet for tax strategy. We're really layering different tax strategies
[23:46] Corwin Davidson: on top of each other to make sure that maybe half of, you know, depending on what the, you know,
[23:51] Corwin Davidson: depending on what the monetary value of the sale is and how much of that you need immediately
[23:59] Corwin Davidson: will really dictate what we're doing in terms of layering tax strategies. But between trust
[24:04] Corwin Davidson: structures 1031 qualified opportunity zones and charitable, charitable donation strategies,
[24:11] Corwin Davidson: you know, we can provide not only liquidity and access, but long term tax deferral, long term tax
[24:20] Craig Andrews: elimination through this stacking of tax strategies. And so let me ask a question just listening to
[24:28] Craig Andrews: what you're saying. And, you know, and for the sake of compliance, you know, none of this is
[24:34] Craig Andrews: legal or tax advice. This is just educational. Yes, but what you just talked about with that
[24:40] Craig Andrews: opportunity zone. So let me go back to my example. If I'm selling a business and I sell it for 10
[24:45] Craig Andrews: million dollars, you know, I was on the hook for, let's say, 4 million in taxes. But instead,
[24:53] Craig Andrews: I decide to take 5 million of the 10 and put it in one of these opportunities zones. And I say,
[25:00] Craig Andrews: you know what, I'm going to take whatever the post tax of the remaining 5 million
[25:07] Craig Andrews: and live off that for the next 10 years, then I get 10 years out. That remaining 5 million is
[25:15] Corwin Davidson: potentially untaxed. Correct. And then even in the 5 million that you keep using a 1031 strategy,
[25:26] Corwin Davidson: if that's available based on the sale that you make, using a 1031 strategy to generate an income
[25:33] Corwin Davidson: off of a portion of that 5 million so that you can kick the big tax down the road indefinitely
[25:40] Corwin Davidson: inside of that investment. And it's still kicking off an income where you're paying a smaller tax,
[25:48] Corwin Davidson: but the principal hasn't been taxed yet. And then so maybe you do 2 and 1/2 million for, you know,
[25:53] Corwin Davidson: just taking numbers and splitting them in half here. And on the initial run, we're going to take
[26:01] Corwin Davidson: 2 and 1/2 million of that $10 million sale and pay taxes on it. And so then what we've done is
[26:10] Corwin Davidson: essentially, we've paid a quarter of the tax that was due on the 10 million. And we've deferred,
[26:17] Corwin Davidson: we've deferred the tax. And in the opportunity zone, we've deferred it to a possible tax free
[26:26] Corwin Davidson: after that 10 year period on 7 and 1/2 million of the 10 million dollars worth of taxes.
[26:34] Craig Andrews: Wow. Yeah. Okay. Now, tell me about this opportunity zone again. What is an opportunity zone,
[26:40] Corwin Davidson: what would an investment that look like? Yeah. So there are several different investments
[26:46] Corwin Davidson: inside of Opportunity Zones. Opportunity Zones are federally designated areas in the country
[26:52] Corwin Davidson: that are ripe for development, that the US wants to see development in those areas. And so what
[27:00] Corwin Davidson: they do, and usually it's based off a zip code. And so what you do is you'd find an opportunity
[27:05] Corwin Davidson: zone or an investment inside of an Opportunity Zone and several different, you know, investment
[27:11] Corwin Davidson: firms, private equity firms have these investments. But what they're doing, whether it's real estate,
[27:18] Corwin Davidson: whether it's, you know, one of them, one of them that we really like is Wyoming Reserve.
[27:23] Corwin Davidson: They're the third largest precious metals vault in the world. They just so happen to be located
[27:29] Corwin Davidson: in an Opportunity Zone. And so there's a lot of different types of investments, but as long as
[27:34] Corwin Davidson: they are domiciled in an Opportunity Zone, they get to take advantage of this portion of the tax code.
[27:40] Craig Andrews: So if I'm selling my business, how long does it take to plan to put, you're already said,
[27:46] Craig Andrews: don't start the planning after the sale, start the planning before the sale. Yeah.
[27:51] Craig Andrews: How long does it take to do this planning?
[27:56] Corwin Davidson: One to three years, depending on how complex it's going to be. You know, and I'm a big advocate
[28:03] Corwin Davidson: of exit planning as well, like get ahead of your exit on your business and make sure that you
[28:09] Corwin Davidson: create transferable value, you know, and know that you've got it. And so that's like one piece of it.
[28:15] Corwin Davidson: But along with the exit plan comes the tax plan. If you know you're going to sell a business
[28:19] Corwin Davidson: for 10 million bucks, you then know you're going to have a tax problem. And so creating your exit plan
[28:28] Corwin Davidson: and your tax plan for that exit, I think those two go hand in hand.
[28:34] Craig Andrews: Yeah. Yeah. And I just, you know, I keep hearing stories about people that decide to sell their
[28:41] Craig Andrews: business, somebody made them an offer. And they're like, sure, I'll take that. And then they hope
[28:46] Craig Andrews: that they can put everything together in the two or three months before the business closes.
[28:51] Corwin Davidson: Yeah. And that can be, you know, it can be totally doable. It can be very stressful.
[28:58] Corwin Davidson: And in the, you know, short term planning, and that's why we talk about this, you know,
[29:03] Corwin Davidson: for exit planning, that three to five year sweet spot of get ahead of it,
[29:08] Corwin Davidson: is because, you know, get a professional in there and make sure that, you know, when it comes to
[29:14] Corwin Davidson: value drivers for businesses, you know, delivering transferable value, that you got all your ducks
[29:20] Corwin Davidson: in a row and that your business will sell at or at multiples of what you think it's worth.
[29:26] Craig Andrews: Yeah. Well, we've talked about a lot of specifics here. And so I just, again, you know,
[29:32] Craig Andrews: we won't emphasize, you know, we got a cool song. If you're listening, listen to, to the end,
[29:37] Craig Andrews: it's called the compliance blues. It's a cool song. But one of the things that say, you know, we,
[29:42] Craig Andrews: none of this is tax legal or financial advice. This is just kind of educational. And anybody
[29:49] Craig Andrews: who's listening should, you know, seek a professional and, and get, you know, qualified advice. So I
[29:59] Craig Andrews: just, just saying that for the record. But this is, this is fascinating. I mean, it's,
[30:07] Craig Andrews: for me, it helps me see some of the, you know, some of the pathways to, you know, one, how
[30:14] Craig Andrews: complicated next it can be. But it reminds me of something you said, you said how much you pay in
[30:20] Craig Andrews: tax is a choice. And you have to start making that choice sooner rather than later. Yeah.
[30:28] Craig Andrews: To get the desired result and, you know, to your point, every case is different.
[30:35] Craig Andrews: Every, you know, in a lot of cases, every state is different. And so making sure that
[30:40] Craig Andrews: what you believe to be true is true is the best path forward. And if you're right, awesome. It's,
[30:48] Craig Andrews: you know, the planning fees will be less. But if you're wrong, you don't want to find up,
[30:53] Craig Andrews: find out at the deal table. Yeah. Well, Corin, you're, you're a fount of knowledge.
[31:01] Corwin Davidson: How can people reach you? Find me on LinkedIn, find us online, break line wealth and tax.
[31:08] Corwin Davidson: Those are probably the two best ways to get ahold of us.
[31:13] Craig Andrews: Excellent. Well, thanks for coming on fiduciary alchemy. Yeah. Thanks for having me, Craig.
[31:18] Craig Andrews: Thank you for tuning in to fiduciary alchemy. The coolest financial podcast you're likely to find.
[31:27] Craig Andrews: We go looking for voices like the one you just heard, because I want you to dodge the mistakes
[31:32] Craig Andrews: that I made and learn it without the coma, without the drama, without nearly paying the man.
[31:37] Craig Andrews: I don't know why I lived. When so many others die, that part's still a mystery.
[31:43] Craig Andrews: Now some folks ask, Craig, what is it you do? Well, I'm telling you now that's no mystery at all.
[31:48] Craig Andrews: We solve hard marketing problems in crowded markets. So good folks like our guests can rise
[31:54] Craig Andrews: above the noise, become visible, memorable, irresistible and grow like never before.
[31:59] Craig Andrews: If organic growth is your problem, reach out, call me. Let's make a plan and bring your next steps
[32:06] Craig Andrews: into the light. But don't leave yet, stick around a minute more and listen to bluesman
[32:11] Craig Andrews: grendel and the compliance choir deliver a word of caution just for you.
[32:25] Compliance Choir: This podcast is for information, education that is all.
[32:40] Compliance Choir: It is not financial tax or legal advice to guide your call.
[32:45] Compliance Choir: Nothing here's an offer, nothing here's a buy or sell.
[32:53] Compliance Choir: No recommendation, no solicitation. I'm saying it plain and well.
[33:10] Compliance Choir: [Music]
[33:15] Compliance Choir: Past performance ain't no promise of what tomorrow brings.
[33:21] Compliance Choir: Markets turning people loose on all kinds of hopeful things. Every investment carries risk.
[33:34] Compliance Choir: Prince of pork and fade away, what works for one won't fit us all.
[33:40] Compliance Choir: That truth is here to stay, fade away, fade away, hear to stay, yeah that's the compliance
[33:55] Compliance Choir: blues. Lord the compliance blues. Get your own financial tax and legal help before you make your move.
[34:07] Compliance Choir: That's the compliance blues.
[34:19] Compliance Choir: Fire, your situation's yours alone. Your needs are not the same, different facts and different goals
[34:32] Compliance Choir: can change the whole damn game. So talk to somebody qualified before you choose your role.
[34:44] Compliance Choir: Because the weight of every money move is your own load, your own load, your own load, your own load.
[34:58] Compliance Choir: That's the compliance blues. Lord the compliance blues.
[35:06] Compliance Choir: Get your own financial tax and legal help before you make your move. That's the compliance blues.
[35:36] Compliance Choir: [Music]
[35:50] Compliance Choir: Get qualified financial tax and legal advice.
[35:54] Compliance Choir: That is right for you.
[36:06] Compliance Choir: [Music]