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Can a Deferred Sales Trust Really Help?

Reef Point LLC · May 18, 2023 ·

Can a Deferred Sales Trust Really Help? | Deferred Sales Trust

If you are considering selling an asset, you might receive advice to use a deferred sales trust to defer capital gains taxes. The information about DST is often confusing. While it’s an excellent solution for some, it isn’t always the answer.

Reef Point’s Gregory Reese frequently needs to clarify what a DST is and when it can help clients who haven’t received entirely accurate information. Here, we review what it is and what situations where it works best, so you can decide whether it might be right for you.

What Is a Deferred Sales Trust?

A deferred sales trust allows you to manage your tax exposure when selling an asset. It is legal, but it is most beneficial for highly appreciated assets. You must establish the DST before the asset changes hands and you receive the money from the sale.

When you enter a deferred sales trust contract, you don’t immediately receive the profits from selling the asset. Instead, the Trust receives the proceeds. You receive installment payments in an amount and at a time that you and the Trustee agree upon when establishing the Trust.

You won’t owe the 15%-28% federal capital gains tax if you don’t receive the cash upfront. You only pay taxes on the amount you receive during a tax year. You can start receiving installment payments immediately or hold off until a future date.

When Can a DST Help?

The first considerations for whether a deferred sales trust will benefit you are how much you stand to gain from the sale and your income level. The federal Internal Revenue Service does not levy a capital gains tax if the combined value of income, capital gains and losses do not equal more than $41,675 for individuals, $83,350 for couples filing jointly or $55,000 for heads of household. The government taxes capital gains if your taxable income exceeds these thresholds. The tax rate depends on how much higher your income is.

Any appreciated, high-value asset can tip your income above the thresholds, including real estate, businesses, art, coins or other collectibles. However, there are ways to reduce your tax exposure even when selling these items. We find that a DST is most beneficial — and most common — in the following circumstances:

  • An exit strategy: A DST offers a great exit strategy if you wish to sell a high-value asset to secure your future income and don’t want to purchase another item in the same class.
  • A potential alternative to a 1031 Exchange: If you own investment real estate and wish to diversify your holdings, a DST offers an alternative investment option.

Even if your situation does not fit within these categories, a DST might still help you. It’s best to speak with a knowledgeable professional to determine whether it would benefit you.

Who Can You Talk to About DST?

The Reef Point team can help you understand more about deferred sales trusts, providing insight, given your unique circumstances. Contact us today to learn more about whether DST is suitable for you.

Sources:

https://www.irs.gov/taxtopics/tc409

Deferred Sales Trust Deferred Sales Trust, DST, Exit Strategy, Tax Strategy

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Reef Point LLC was founded by Gregory H. Reese who is one of only 13 Trustees in the US for Deferred Sales Trusts.

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3525 Hyland Ave., Suite 145
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As an authorized and approved Trustee for the Deferred Sales Trust and Member of the Estate Planning Team (EPT), Reef Point, LLC promotes the use of the Deferred Sales Trust™ or other estate planning techniques and is not responsible for recommendations made by other members of the Estate Planning Team, including the Deferred Sales Trust or other tax, legal or estate planning strategies.

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