So you’ve heard of an exciting new tax-saving tool in Florida, but you’re still not sure if it will work for your clients? Join me on a whimsical time travel:
Rich with the money from his success as a playwright, William Shakespeare impulsively bought a bauble for his beloved wife: a condo in Florida. They both became US citizens residing in Florida.
The Bard was not a financial problem, however. He had heard of the Florida Community Property Trust, or CPT, law, and he was intrigued.
Yet puzzled over the literature on the CPT, Shakespeare became confused. Thinking he was alone on his seaside balcony, he lamented loudly: “To the CPT, or not to the CPT; that is the question.”
Sitting on his nearby balcony, Blaise Pascal, his neighbour, the brilliant 17e French philosopher and mathematician of the century, heard the bard.
Pascal interrupted his philosophical reflections. “Will,” he offered from his balcony. “Did I just hear you thinking about a CPT?”
Shakespeare shyly admitted that he was talking to himself. “Yes, my confusion is as boundless as the sea,” he says. He has significant unrealized capital gains in his property portfolio, which includes a fully depreciated building occupied by actors. He despises taxes on recaptured depreciation and he doesn’t like paying the net investment tax of 3.8% on gains. Above all, he hates paying capital gains taxes.
Pascal listened attentively. Shakespeare’s dilemma was an intriguing opportunity to implement his famous philosophical argument dubbed Pascal’s wager. “Will,” he said, “there are four outcomes to consider.” He patiently explained the following:
- Will employs a CPT, and the strategy succeeds in generating generous savings. The tax base of the stock portfolio he shares with his wife, their depreciated real estate and even the appreciation of their home, would increase to fair market value. Significant taxes have been avoided.
- Will employs a CPT and the strategy fails. Its losses are minor transaction costs to set up the CPT.
- Will decides against a CPT, only to learn too late that this strategy would have succeeded. His losses would be considerable. To quote King Lear, “Nothing will come out of nothing.” At this news, Shakespeare playfully feigned a dagger to the heart as his own words were thrust upon him.
- Will decides against a CPT and later learns the strategy would have failed. There is no cost and no benefit.
So, concludes Pascal, Shakespeare should make the bet. “At the risk of being overly dramatic, sir, my risk and reward analysis suggests a compelling reason to opt for a CPT, QED”
Delighted with the clarification of his decision, Shakespeare raised his pen to his neighbor. “Sage Pascal, I realize now that our doubts are treacherous, and cause us to lose the good we could often gain, by fearing to try.” And quietly, to himself, the bard thought, “Don’t kill all the lawyers yet – until I get my CPT.”