Deferred Sales Trust (DST) Trustee
Capital Gains Tax Deferral Solutions
What is a Deferred Sales Trust (DST)
If you own a business or real estate with a large amount of gain and are not selling your property because of capital gain taxes, or can’t find suitable, qualified property exchanges, then you may want to consider a Deferred Sales Trust™ (DST). The DST utilizes a legal and established method that allows the seller of the property to defer capital gain taxes due at the time of sale over a period of time that is selected by the Seller/Taxpayer in advance.
Deferring taxes legally is not new. Some commonly used tax deferral methods include 1031 exchanges, charitable trusts, and traditional seller carry-back installment sale contracts. Trust law predates the formation of the U.S. law and tax law. Various types of trusts are used by millions of Americans in order to protect and preserve their wealth for themselves and their heirs.
The DST can be used with any kind of entity, e.g., LLC's, S or C -election corporations, as well as individuals who own real estate , rental properties, vacation homes, commercial properties, hotels, land, industrial complexes, retail developments, and raw land, to name a few.
How Does the DST Work?
The process starts with initial due diligence and prospective marketing and market research. If the transaction is viable, the trust and property owner will negotiate to reach terms with regard to the asset(s). If the transaction is feasible, the property owner, (“Seller/Taxpayer”), selling ownership of the property/capital asset to a dedicated trust (the “Trust”) that is set up specifically for the Seller/Taxpayer and the contemplated transaction.
Significant Benefits to a Seller Using the Deferred Sales Trust™ When Selling Their Asset:
1. Tax Deferral: When appreciated property/capital assets are sold, capital gains tax on said sale is generally deferred until the Seller/Taxpayer actually receives the payments.
2. Estate Tax Benefits: May accomplish an “estate tax freeze” for estate tax purposes.
3. Maintains Family Wealth: When properly structured, the principal inside the subject installment sales note can be preserved with “interest only” or partial principal payments creating the potential to pass on a large portion of the note principal to your legal heirs with proper estate planning.
4. Estate Liquidity: Converts an illiquid asset into monthly payments.
5. Retirement Income: Provides a stream of income that can be used as retirement income.
6. Probate Avoidance: With proper estate planning.
7. Eliminates Risks Associated with Ownership: By utilizing the DST, you have taken an asset that is otherwise “exposed” or liability prone and converted it to a “noliability” asset.
Wealth Generation Long Run
Nothing is required to be given away to charity as happens with the competing strategy known as a Charitable Remainder Trust. The DST allows all due principal and accrued interest to be paid to the Seller/Taxpayer via a custom prepared installment sales agreement, whereas the Charitable Remainder Trust often pays income (interest) only. The DST has the potential and likelihood to yield more bottom line dollars to the property/capital asset Seller/Taxpayer than a Charitable Remainder Trust.
The DST has the ability to generate substantially more wealth over the long run than a direct and taxed sale. It may be superior to the Charitable Remainder Trust (CRT), installment sale or like-kind property exchange in many respects. Consult your tax advisor to ascertain the potential benefits of this option.
How do you determine my payments from the Trust?
The payments are based on what you, the Seller/Taxpayer, arrange and pre-negotiate with the DST Trained and Approved Trustee. Depending on your income goals and other objectives, the amount and length of term of the installment sales note are your choice and subject to your approval.
Is the amount and frequency of my payments flexible?
Yes. The DST Trustee in his or her absolute discretion may allow you to renegotiate the terms of your installment note.
When the trust sells the property may I keep some of the cash from the sale?
Yes, in that case you would pay taxes only on the capital gain portion of the money which you kept for yourself outside the trust.
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