How an Appreciated Asset Exchange Works
- An Appreciated Asset Exchange enables owners to sell highly appreciated assets to a trust owned LLC, in exchange for a promissory note.
- The transaction utilizes installment sale law, enabling the owner to defer capital gains until they receive principal payments from the trust.
- The asset(s) is then sold by the trust to an ultimate buyer and the funds from the sale are invested by a third-party trustee.
- The trust then makes payments of principal and/or interest to the original owner according to payment instructions detailed in the promissory note.
Frequently Asked Questions
What will be the amount of the payments from the promissory note?
The payment amounts will be completely dependent on the amount of the note, the term of the note, the importance of tax deferral, and the need for cash by the seller. The promissory note is designed completely based on the facts and circumstances of the sale and the cash needs of the seller.
How long will the taxes on capital gains be deferred?
The period of deferral depends primarily on the design of the promissory note. We work with the sellers to build a plan that fits their goals and objectives.
Can the promissory note payments be structured to avoid probate if the seller dies?
Yes. There are actually a number of ways to achieve this result. The seller’s trusts and estates attorney can be involved in the transaction to assist with this or the transactional attorneys designing this structure can assist with this directly.
Can the seller keep some cash from the sale?
Yes, the seller can receive cash as part of The Asset Exchange. If the seller wants a percentage of cash at closing and the rest in The Asset Exchange, the structure will be designed with this in mind.