The Legacy Installment Trust™ at Davis Miles McGuire Gardner

If you are planning to sell your business, particularly if you plan to do so in the next 24-36 months, this strategy could help you defer capital gains (potentially saving you millions) while optimizing the benefit from your exit and protecting your hard-earned wealth.

In the current tax, inflationary and interest rate climate, 2022 through 2025 could be called the years of the exit. From boomers who may produce a “silver wave” of business sales, to hot Web3 entrepreneurs who want to capitalize on appreciation, we have never seen a climate quite like this one.

When a Seller is looking to exit and wants to sell either the equity or assets of their business there are three significant concerns:

  1. Seller is taking a well-protected asset (an entity protected by state specific limited liability statutes, assets of the company are insured, etc.) and converting it to a horribly unprotected asset (cash and/or its equivalent).
  2. The Seller’s estate planning will need to be updated with the change in assets.
  3. Without careful planning, the income/capital gains tax hit on the sale of the entity assets will likely be astronomical.

The Legacy Installment Trust™ addresses these issues by strategically selling a portion of the equity in the Seller entity to an irrevocable trust, *prior* to the sale to the cash Buyer. In this transaction between Seller and Trust, rather than paying cash to Seller, the Trust finances the purchase of the equity in the Seller entity with a promissory note wherein the Trust is the “maker” who owes the money, and Seller is the “holder” who is owed the money.  In other words, this third-party trust first purchases a portion of the asset and pays the Seller back over time. When the subsequent sale to the cash Buyer is effectuated, cash is allocated to the Trust proportionate to the Trust’s equity ownership in Seller, that cash is invested, with that principal and interest held in Trust used to pay Seller pursuant to the terms of the promissory note between Seller and Trust.

In order to address the three concerns of the Seller listed above (asset protection, estate planning, and tax consequence), the Trust must be a true third-party, and the transaction between the Seller and Trust must be an arm’s length transaction, at fair market value. A third-party fiduciary serves as the Grantor and Trustee of this Trust.  We suggest naming a fiduciary we have carefully vetted to serve in this role.  The beneficiaries of the Trust cannot be the Seller (or Seller’s principals where Seller is an entity), otherwise, it isn’t a true third-party, arm’s length transaction. However, the beneficiaries can be selected by the Seller (i.e., Seller’s children, etc.).  As previously mentioned, the sale between the Seller and the Trust is structured as an installment sales contract. Payment terms on the promissory note can be set in advance.

The Legacy Installment Trust™ can be used with any kind of business entity formation – from Sole Proprietors to S-Corps, to LLCs and LPs.

Over time, the Legacy Installment Trust™ can generate significantly more wealth than a traditional business sale.  While you will need to get guidance from your tax advisor to decide which strategy is most appropriate for your circumstances, this mechanism may be substantially more beneficial to you than a charitable remainder trust, or other installment-type trust structures.

Why have us create your Legacy Installment Trust™?

Your business sale transforms what may have been a relatively secure asset, such as an LLC with solid insurance, into an “exposed” asset in your individual name in the form of cash or cash equivalents. The Legacy Installment Trust™ converts that liquidity into a “no-liability asset” where the principal of the Trust is uniquely protected from creditors.

Utilizing the Legacy Installment Trust™, and depending on the advance planning and terms of the promissory note, you may be able to provide an inheritance to named beneficiaries of your choice, outside of the federal estate tax thresholds. Further, when you sell your appreciated business or capital assets, capital gains can be deferred through a Legacy Installment Trust™ and paid as you receive installment payments on the promissory note.

What is my next step? You can use this form for a complimentary consultation.

For detailed technical information, have your CPA contact us for a full legal and tax explanation.  Contact Alan Soelberg at (480) 344-0963.


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Alan Soelberg


Mike Ferrin


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