DSTs, or Deferred Sales Trusts, are taking the investment world by storm. This flexible investment opportunity allows you to sell assets and avoid paying taxes on capital gains at the time of sale by deferring them up to many years into the future. This can potentially result in millions of dollars saved, and subsequently earned, depending on the size of the gains. Even smaller investments can see big returns: capital gains tax can take over 20% of your gains plus state taxes away, depending on the situation.
DSTs can be used to mitigate the capital gains tax in a variety of solutions, making this investment extremely versatile. Here are three situations where a DST saved the day (or at least a lot of money):
#1: Edna’s “No-Liability” Asset
One of the best aspects of a DST is that it can turn potential liabilities into nothing but profit. For instance, Edna owned some concentrated but highly-volatile stock that was currently on the rise. Since Edna was nearing retirement, she wanted to get out of the concentrated position and into something more diversified with a bit less risk. A DST allowed Edna to sell the shares to a Reef Point-managed DST, and then the trust sold the stocks to an interested buyer. The buyer, in turn, paid the DST for the stocks. In this way, the DST was able to retain the full amount of capital gains, rather than losing 15% to 20% if Edna had been the one directly managing the transaction.
On behalf of Edna, and with her input and approval, the DST was able to reinvest in a variety of lower-risk assets. This allowed Edna to fund a secure and happy retirement.
#2: June and John’s Family Wealth
Due to a combination of smart investments and very successful careers, June and John were enjoying a comfortable retirement. They had an eye as to what would happen to their considerable accumulated wealth when they were gone. They were aware that passing their wealth down to their heirs was going to be a tricky process, and they wanted to ensure that they could pass along as much of the note principle as they could.
A DST helped them with this task. June and John were able to sell their assets to a Reef Point-managed DST, and the DST then sold the assets to June and John’s designated buyer. By incorporating specialized estate planning provisions into the trust, June and John are able to pass down all of their investments with no or minimal estate taxes.
#3: Susan’s Secure Retirement and Lineage
The main ‘competitor’ for the DST is the CRT, or the Charitable Remainder Trust. The DST and the CRT offer many benefits to the grantor: both allow the grantor to receive payments from interest while shielding the principal from capital gains tax upon the sale of assets. Susan was deciding between at DST and CRT while planning for retirement. However, she was very concerned with ensuring that she left as much of her estate to her heirs as possible. While a CRT requires that the trust go to a charity upon the death of the grantor, a DST does not.
With a DST, Susan was able to secure a very comfortable retirement and live happy in the knowledge that her estate would stay in the family when she died.
Explore a DST Today
DSTs can be used in a number of creative ways to help you maximize your investments. Contact us today at Reef Point to learn more.