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Calabasas CPA Helps Clients Defer Capital Gains

The high capital gains taxes levied on business and real estate transactions in California often discourage owners from going through with a sale. Calabasas-based certified public accountant Craig Szabo, however, aims to give sellers a better deal through what is known as a deferred sales trust. The trust, called a DST, facilitates the sale of an asset and transfers the proceeds to a diversified investment account. The seller pays nothing in capital gains at the time of the transaction and instead receives taxable installments from the trust over an extended period. This not only defers the seller’s tax liability, but since capital gains rates are lower for smaller earnings, shrinks the total amount paid to the state and federal governments. “It’s a way for clients to invest pre-tax instead of after-tax,” said Szabo. “It’s like a hidden secret.” Last month, Szabo and his business partner, fellow Calabasas CPA Ben Levine, founded DST Advisors to manage the deferred trusts. The company operates under the umbrella of Indian Wells-based tax advisory firm Estate Planning Team, which has trademarked its DST process. The group has closed more than 3,000 deals over the past 22 years. Szabo, one of just 13 DST trustees in the country, said he is currently managing more than $100 million. Setting up a DST has become a popular option for business owners and high-net-worth individuals looking to downsize as they age or retire, Szabo said. Sellers in Los Angeles’s hot real estate market are also turning to the trusts. “Because the market is pretty high, it’s a good time to sell but not a good time to buy,” he said. “This way, sellers can use proceeds to buy a new property when the time is right.” Szabo has been meeting with local real estate agents to educate them on how DSTs can help their clients. “Most agents don’t know this a viable option,” he said. Sellers setting up a DST can decide when and how often they want payouts by the trust, which bear interest at around 5 percent. They are also not locked into any set installment plan and can pull the total sum out at any time. Costs to set up an account include a 1 percent fee to an investment advisor, a 1.25 to 1.5 percent lawyer’s fee and an annual .05 percent fee to the trustee. With total capital gains rates as high as 37 percent on large transactions in California, Szabo believes DSTs will become increasingly popular with business and real estate owners. “We feel this will free up a lot of transactions,” he said. East Coast Acquisition B. Riley Financial Inc. has agreed to a $22.9 million deal that will give it a majority stake in New York financial services firm National Holdings Corp. The Woodland Hills-based firm has already purchased 24 percent of National Holdings shares at $3.25 a share. It plans to buy New York-based Fortress Biotech Inc.’s 32.1 percent share in the company for the same price. “This investment represents an exciting opportunity, both from an investment and strategic point of view,” said Chairman Bryant Riley in a statement. “We have been impressed with the operational and cultural changes implemented by National Holdings’ new management team over the last two years. We believe our shareholders will benefit from this opportunity to strategically invest in a growing, profitable business, below book value and near cash value.” National Holdings offers retail brokerage and advisory services, institutional sales and trading, equity research, financial planning and other services. It earned $167 million in revenue over the first three quarters of this year. The company will continue to operate independently under Chief Executive Michael Mullen. Gallagher Goes Tech Insurance brokerage Arthur J. Gallagher & Co. has acquired JP Tech Insurance Services Inc. and will move the staff to the San Fernando Valley. Terms of the deal between Gallagher, in Rolling Meadows, Ill. and JP Tech Insurance were not disclosed. JP Tech President Joseph Plascencia and his associates will relocate to the Glendale offices of Gallagher from downtown Los Angeles. They will be under the direction of Scott Firestone, head of Gallagher’s retail property and casualty brokerage operations in the southwest region. JP Tech provides liability and commercial insurance to the life science, technology, financial institution, REIT and hedge fund industries. “As part of Gallagher, we can explore opportunities to expand their existing relationships while strengthening our capabilities in their highly specialized areas of expertise,” said Chief Executive Patrick Gallagher Jr. in a statement. Staff Reporter Ethan Varian can be reached at (818) 316-3130 or evarian@sfvbj.com.

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