This is a very common question that is asked of us in our presentations. Often, the interaction goes like this.
Client: “why haven’t I heard of this before?”
Our team: “when was the last time you went to coffee with a billionaire?”
Our team: “how many billionaires does your CPA work with?”
Client: nods affirmatively with a nice grin:-). They get it that
there’s a lot that goes on amongst the wealthy that they
do not know about or understand.
That’s the simple way to answer, making it a little fun. But it gets the point across: lots of transactions happen by the wealthy, using different tax strategies, that most of us have no clue about. When OfficeMax used the MIS strategy with approximately $1.5B of a sale they consummated, we can assume that they had really smart tax professionals to advise them on a level that we don’t deal with or know anything about.
Now, let’s take a little bit of a deeper dive at the question and what could be behind it.
Genuinely inquisitive. There is a lot of information out there. The internet has made everything fairly easily accessible. However, the more we know, the more we realize that we don’t know!
Many clients will ask the question simply because they haven’t heard of it and don’t know why they haven’t. They do not yet know where they can find this kind of information and want to learn more so that they can make the best decision for themselves.
It’s just as simple as that!
Concern and/or Fear. It is very reasonable to be very cautious when one has not heard of something before. There have been lots of scams that have been costly financially to good hearted people as well as lots of prison time to the scammers who were actually caught. Clients should not jump into a tax process without proper investigation. When there is a lack of exposure and knowledge, one ought to have some level of concern. However, that concern will hopefully not paralyze them. It should drive them to investigate!
That is why it is important for a prospective client to consult with their own tax professionals. Those are the client’s true advisors. They are there to provide the proper tax advice that the client needs.
That said, please understand that tax professionals don’t know all of the tax codes and the strategies employed using them. For some, that’s a shocking or surprising statement! Tax professionals don’t know everything there is about the tax code? They do not. It’s a beast to try to know everything. The question is, are the tax professionals willing to do the work for their client to investigate what they don’t know or are they going to simply advise the client to not do something because they have never heard of it? That’s the difference, sometimes, between a tax professional that wants to learn the most for their client or one that wants to operate in their own comfort zone thereby limiting the value to their client.
Pride. Too often, prospective clients think too much of themselves. Actually, all of us do in one form or another! However, in this case, people often think that they know everything that is worth knowing on a particular subject (like real estate tax strategies) and that if they haven’t already heard of it, it must not be good or could be a scam.
Again, all of us have a certain level of pride, so in cases like these, grace still needs to be offered when answering the question. Otherwise, my competitive side might come out and I could ask them, “so, tell me what you know about the tax benefits of Malta Trusts, Zuckerberg Trusts, Dynasty Trusts, Dynasty LLCs, Delaware Statutory Trusts, CRT’s, CRUT’s, CLT’s, CRAT’s, and so on in order to show them that they don’t know nearly as much as they think they do.
I could be very easily stumped as well and I’m a capital gains tax strategist! There is a lot out there.
However, the positive side of those that have the pride issue is that they often step up and investigate what they don’t know because they can’t stand to learn that there is something out there that others know and they don’t!
Wrap up. Regardless of whatever the heart issue is behind asking the above question, it is a very fair question to ask! It should be answered in a manner that satisfies the client and helps them to decide if it is in their best interest to employ the strategy.
That’s why we try to provide as much information as we can and have tax professionals available if needed. In each case, we have tax professionals that represent the prospective clients and not the asset dealers.
Disclosure: While this is general information about capital gains tax strategies, it does not constitute legal or tax advice. The best way to get guidance on your specific legal issue is to contact a lawyer.