Safety

To ensure the safety of your exchange funds, 1031 Exchange Specialists, Inc. only deposits 1031 funds with FDIC insured institutions in segregated escrow accounts, in a manner that provides liquidity and preservation of principal.

As a Qualified Intermediary of 1031 exchanges and the recipient of, in some cases, individual’s life savings, I am occasionally asked “How safe are my funds?”.  Generally, the question is not asked as the majority of our business is from referrals from trusted professionals, such as attorneys, accountants and title agencies.  With the growing use of Google to find service providers, more and more of our business is coming from random internet searches.  In anticipation of this growing market, we include numerous testimonials from trusted professionals on our website with their respective contact information and encouragement to contact these individuals for further information about us as Qualified Intermediaries.

Spending the first half of my career as a practicing CPA and auditor with companies such as Price Waterhouse and Hertz, the invaluable training in the area of safeguarding assets has remained with me throughout my life.  The establishment of adequate internal controls and safeguards has been applied to every business and transaction I am involved in.

Having said that, what controls do we incorporate to prevent the loss of client funds?  We strongly focus on the controls to “prevent” loss, as once the horse is out of the barn, so to speak, then lawsuits, police and insurances are the only remedy.

First, we only utilize banks that are financially strong.  The fear of bank failures was foremost in the public mind for many years.  For that reason, we have chosen TD Bank, N.A. and Capital One Bank, N.A. for all of our client escrow accounts.  These selections were not because of account earnings but on the soundness and strength of these two banking institutions and the availability of a secure escrow system managed outside of the local branch. 

Each bank offers a principally-preserved escrow system whereby, client funds are established in separate accounts “for the benefit of” the client and maintained by client federal identification.  The client receives 1099-Interest statements directly from the bank and each account is FDIC insured.  Many Qualified Intermediary companies co-mingle all client funds into one account to maximize interest earnings.  Doing so limits the FDIC insurance availability.  Other Qualified Intermediaries do not utilize principally-preserved accounts, once again, to maximize interest.  By doing so, FDIC insurance is generally forfeited and the client risks losing all or a part of their principal.  This later scenario occurred in the Land America case several years ago, whereby, client 1031 funds were invested in non-principally preserved accounts to maximize interest earnings.  The result of doing so lost over 400 million dollars of client funds.  The client 1031 exchanges failed and resulted in significant tax liabilities, Land America filed for bankruptcy protection, and the clients had to stand in line with other creditors to attempt to retrieve a portion of their lost funds.  To protect the client funds from bankruptcy and other creditors, our Exchange Agreement clearly states: “1031 ESI is only holding exchange funds to accommodate the exchange, and does not have unfettered control or ownership of the funds. 1031 ESI shall not withdraw, invest, encumber, or pledge the exchange funds without the taxpayer's express written consent. All exchange funds are being set aside for the taxpayer's exchange and shall not be deemed a part of 1031 ESI's general assets or subject to claims of creditors.”

The escrow system requires the authorization and approval of all activity by two authorized users.  Each user has a separate user identification, password and PIN number.  Once in the escrow system, the approval and movement of funds requires a separate code that is displayed on an electronic fob held at all times by each authorized user.  The fob code changes every 45 seconds.  Once again, funds cannot be transferred without the input of electronic fob codes by two authorized users.  In our company, the two owners, myself and William Steffens, are the only individuals who have access to the escrow system, are the only authorized users, and each carry the electronic fob with them at all times.

Many Qualified Intermediaries taut having multi-millions of dollars in Fidelity Bond insurance to protect client 1031 funds.  What they are not disclosing is that, by definition, “A fidelity bond is a form of insurance protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.”  A fidelity bond does not insure losses caused by fraudulent acts by the owners of a business, nor does it protect against mismanaged or poor investments into non-principally preserved accounts or bankruptcy.  Access to or control of client funds by employees is not permitted in our company and the controls we have implemented would prevent that from occurring.  We do not have a parent company putting undo pressure on its employees to meet stockholder demands by taking investment risks with client funds.  We are two business owners who enjoy helping people save taxes and collect a modest fee for doing so.  We kept our doors open through the toughest of markets and through federal disasters, such as Super Storm Sandy, sometimes without drawing a salary, because our first commitment is to our clients and secondly, because we love what we do.

This year, 2024, marks 27 years as being a Qualified Intermediary, following 19 years as an accountant, auditor and practicing CPA.  During my time as a Qualified Intermediary, I have facilitated over 28,000 exchanges totaling more than $6.0 billion dollars of property.  I can proudly state that not a dollar of client funds has been misplaced, misdirected or lost while under my watch, nor have any of my client’s exchanges been audited, reviewed or reversed.  Our reputation for honesty, integrity, experience and knowledge is why our phone continues to ring.  We maintain offices in Florida and New Jersey, facilitating 1031 exchanges in all 50 states.  We appreciate your business and work every day to earn your trust.

George M. Christofely

Founder & President

1031 Exchange Specialists Inc.

Attributes

Expert  *  Trusted  *  Knowledgeable  *  Experienced  *  Professional  *  Ethical

These are just some of the words used by Attorneys, Accountants, Realtors and others to describe George M. Christofely, CPA* and William T. Steffens in their role as "Qualified Intermediary" of 1031 Like-Kind Exchanges.

George M. Christofely, CPA*,  President/Owner of 1031 Exchange Specialists, Inc., is a 1978 graduate of Saint John's University in New York.  Mr. Christofely went on to earn his Certified Public Accountant license* in New York and New Jersey.  Mr. Christofely held a fellowship in the American Institute of Certified Public Accountants and the New Jersey Society of Certified Public Accountants for over 25 years.

Mr. Christofely's background included a position with Price Waterhouse and Fortune 500 companies:  Xerox Financial Services, The Hertz Corporation, and Prudential Real Estate.  He was a founding partner of the regional New Jersey CPA firm of Ruane, Christofely & Associates.  Mr. Christofely began serving as Qualified Intermediary for I.R.C. Like-Kind Exchanges approximately 26 years ago and later became Vice President and General Manager of Jersey Realty Exchange Corporation.