Attorneys & DSTs
Capital gains tax makes property owners reluctant to sell and business owners anxious over the after tax impact of selling their business in order to retire.
Owners of highly appreciated assets including homes and commercial real estate may be reluctant to sell because of high capital gains tax and depreciation recapture costs.
Business owners looking to sell at the opportune time or looking for a way out for health reasons, or simply to retire and enjoy life more can face unexpected realities and adjustments beyond the sale when after tax proceeds of sale cannot deliver their expected financial goals in retirement.
What if you could solve this problem in a way your competition can’t? A Deferred Sales trust allows highly appreciated investors to liquidate and reinvest in real estate or a business on their own timetable, or reallocate for income while delaying capital gains taxes.
Don’t pay the capital gains, defer them… with your help.
We offer a legal, proven and tested proprietary solution with a 25 year perfect track record based on IRC 453
It may be that you are a tax attorney who is not intimately familiar with the intricacies of the Deferred Sales Trust (DST) strategy, or you may be your client’s primary legal advisor.
It may be that your client learns about this before you do and asks for your opinion or assistance with vetting the DST for their possible consideration. Or, perhaps this is a strategy you feel you should study and get in front of so that when your client comes to you regarding his or her exit strategy, you have options to review with them that your competition does not… yet.
Consider the following needs your client may have, where the DST could be the perfect solution.
- An exit strategy for investment real estate, a highly-appreciated primary residence, or a business
- A 1031 alternative to park your real estate sale proceeds and wait for the right deal vs. the limited time and investment options in a 1031 exchange
- A 1031 Rescue: If the seller cannot find and/or close on a suitable 1031 exchange due to its rigid rules and short deadline (clients have 45 days to identify exchange property and 180 days to close), A DST may provide a seller with more time to find the right upside or wait for better market conditions to buy into
Key Features and Benefits that can be realized from the Deferred Sales Trust
- An elegant form of an installment sale under IRC Section 453
- Defer tax until you actually receive the money
- Reserve control over investment choices
- Modify your distribution payments to meet your needs
- Legal, proven and tested
*Enhances the advantages offered under a conventional installment sale, while eliminating key disadvantages
DST Comparison Scenarios
Explore some of our one-page analysis case studies that help to showcase the benefits of the modern Deferred Sales Trust strategy in real life scenarios. In the section below, you will find case study worksheets that reveal hypothetical scenarios using the DST strategy. These case studies cover different geolocations or compare different assets. Click on any of the images below to download the full view PDF scenario.
Interested in more case studies that dive deeper into the benefits of the Deferred Sales Trust? Click any of the buttons below to find additional information.
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Sample Real Estate Scenario
So, let’s say you were selling a property for $1 million. Instead of selling directly to a buyer, you would draw up an installment contract with a third-party trust with the promise that it would pay you over a predetermined period. You would transfer the property to the Trust, and the Trust would be allowed to sell it to the buyer.
Because you sold to the Trust in agreement to be paid over time, you wouldn’t have to pay taxes on the sale until you start receiving those installment payments from the Trust. So instead of having $700,000 or $800,000 left over after taxes, the whole million is there for the Trust to reinvest in stocks, bonds, real estate, annuities or any other type of investment that would generate a greater income stream for the Trust to pay you under your agreement with the Trust.
You can agree to take your payments over a 10- or 20-year period, or over your lifetime. You can even defer your initial payments and not take anything in earlier years if you don’t need the income. Meanwhile, the money is invested and growing. All the money, not the money minus the taxes.
If you choose to take your payments over a 20-year period, and structure the payments in your installment contract to be 5% ($50,000 a year), you’ll only pay the capital gains taxes on the principal as you receive the money. The IRS code doesn’t require the payment of capital gains taxes until you start receiving the installments.
Anyone who has dealt with capital gains taxes knows they can be pretty high: 15% for single filers with taxable income up to $418,400 ($470,700 for married filing jointly), and 20% if you earn more than that. Plus, you’ll likely have to pay the 3.8% net investment income tax embedded in the Affordable Care Act. Then there are state taxes to deal with, perhaps another 10%. So now you’re talking about approximately 34%, and if you have a depreciation recapture tax, that’s another 25% (another 5 to 10 percentage points higher than the typical capital gains tax rate). You could easily be paying — depending on what state you’re in — 30% to 40% in taxes when you sell. A Deferred Sales Trust could cut that tax bill in half.
For people who have larger estates, the Deferred Sales Trust strategy also can also be integrated with your estate planning to protect your money from estate taxes.
Sorting through complex tax-deferral and tax-exclusion strategies and structures, tax code changes and new regulations and rulings can be daunting — and if you get it wrong, there are consequences.
