The Deferred Sales Trust (DST) is a powerful tool for deferring capital gains tax deferral when selling appreciated assets. However, its intricacies can sometimes lead to many questions. We’ve address some of the most frequently asked questions to help you better understand how the DST works and how it can benefit you.
Question 1. How are distributions from the DST to the seller determined?
Distributions from the DST to the seller are determined based on a secured installment note. The trustee and the seller/taxpayer work together to establish a repayment plan. This includes setting the interest rate on the principal, the duration of the note, and the preferred frequency of interest and/or principal payments. This collaborative approach ensures that the seller’s needs and preferences are taken into account when designing the payment structure.
Question 2. Can the installment note and/or payments be modified after payments begin?
It’s important to carefully plan the terms of the note initially to minimize the need for future adjustments. Should the seller’s circumstances change significantly, requests for modifications can be made to ensure the payment plan continues to meet their needs.
Question 3. Are minimum distributions required or can payments be deferred?
One of the key benefits of the DST is its flexibility regarding distributions. No minimum distribution payments are required, allowing flexibility over the amount, timing, and start date for any payments. This means that payments can be deferred according to the seller’s financial goals and needs, providing significant flexibility in managing cash flow and tax obligations.
Question 4. What kind of investments can be made inside of the DST?
The investments made within the DST must be approved by the seller. There are no specific limitations or restrictions on what the trust may invest in. This opens up a wide range of investment opportunities, including:
– Financial investments of all types (stocks, bonds, mutual funds, etc.)
– Real estate investments
– Starting or buying a new business
– Hard money lending
– Private equity
– Syndications
The Deferred Sales Trust offers significant flexibility to sellers looking to defer capital gains taxes. By understanding how distributions are determined, the possibility of modifying installment notes, the lack of required minimum distributions, and the wide range of allowable investments, you can make informed decisions about using a DST in your financial planning strategy.
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Contact Greg Reese or Paul Brar to schedule a DST consultation by calling (866)-867-8633 or info@reefpointusa.com.