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. This can potentially result in millions of dollars saved, depending on the size of the gains. Even smaller investments can see big returns: capital gains tax can take over 20% of your gains away, depending on the situation.
Although modern trust law traces back to feudal England in the 1100s, citizens of the Roman Republic secretly used an oral agreement called “fideicommissum” (something committed to one’s trust) to work around civil succession laws. This way, they could leave wealth or property to those considered as lower-class, including foreigners, slaves, couples without children or unmarried individuals — an act that was punishable by death.
Capital gains taxes stand to take a big chunk out of your profits when you sell an asset. However, like most taxes, there are many things that go into the exact calculations of the capital gains tax you will pay. Remember that capital gains tax applies to a variety of different assets, including stocks, property and businesses. A unique factor of capital gains tax is that the amount of tax depends heavily on how long you had the asset. Depending on the state you live in, the state government may also levy capital gains taxes in addition to the federal government.
Press Release: California’s Estate Planning Team brings on acclaimed PIMCO cadre to form a first-rate alliance. This newly minted Advisory Team specializes in investment consulting, asset allocation, and EPT’s members-only DST investment strategy.
The Deferred Sales Trust is a tax strategy that uses the proceeds from the sale of virtually any asset to establish a trust held by a certified, third-party Deferred Sales Trustee. Read about two scenarios with varying degrees of post-divorce capital gain realization where the Deferred Sales Trust tax strategy would have been useful.
There is rarely a single person behind any wealth management strategy, and a Deferred Sales Trust is no different.
A DST has two beneficial uses: First, it allows you to structure an asset sale to defer the capital gains tax payments indefinitely. Second, it provides a vehicle for you to invest the full proceeds to best suit your financial and lifestyle objectives.
In Part 1, Charles and Maddie’s story illustrated how life and politics can make a father’s desire to provide for his daughter much harder than it should be. While not ultra-wealthy by any standard, Charles has enough retirement savings that he should be able to structure supplemental income for Maddie for many years should he succumb to heart disease complications or any other premature death.
If your estate is worth $1 million or more, minimizing the cut you will have to give to the IRS upon your death is likely a big component of your planning. In this two-part post, we will discuss the effect that incorporating a charitable trust has on your overall estate plan. This strategy could provide a stable, protected and higher source of income for your survivors than passing your assets to them in your will.