If you’re a professional who represents high net worth clients, you know that capital gains taxes constitute one of their main challenges when they sell a highly appreciated piece of investment real estate or a business. Today’s long-term capital gains rates are 15% for taxpayers filing jointly who make between $80,001 and $496,600 per year. For those making $496,601 or more, the rate increases to 20%. In some circumstances, they may owe an additional 3.8% on the lesser of their net investment income or the amount by which their modified adjusted gross income exceeds the statutory threshold based on their filing status.
Worse yet for your clients, as part of his $4 trillion tax plan, president-elect Biden has proposed increasing the top capital gains tax rate to 39.6% for those earning $1 million a year or more.
What if there were a legal, tested and proven way for you to help your clients defer or even avoid paying capital gains taxes? There is. It’s called a Deferred Sales Trust (DST).
What is a DST?
Simply put, a DST is a no-risk seller carry-back financing structure that allows your clients to make use of the Internal Revenue Code’s Section 453 authorization of installment sales. Section 453(b) defines an installment sale as a disposition of property for which at least one payment is received after the close of the taxable year of disposition. Your client must report each year’s taxable payments. A DST is a special type of installment sale.
How Does a DST Work?
Only the Estate Planning Team can set up a DST for your clients. After meeting with the Team to work out the details of the installment sale note, each client sells his or her appreciated asset to his or her own DST. The DST then sells the asset to the client’s intended buyer, usually within a day or two, for the same price. The independent Trustee manages the DST’s money, making investments for and payouts to the client per his or her direction.
A DST puts control back in the hands of your clients. They can earn personal income on the money they would otherwise have paid in taxes. They can also move from risk-prone illiquid collateral to diversified investment-grade collateral, all this while benefiting from stringent seller protections.
What Are a DST’s Main Benefits
A DST offers your clients numerous benefits, including the following:
- Capital gains tax deferral
- Estate tax benefits
- Family wealth maintenance
- Estate liquidity
- Retirement income source
- Probate avoidance
How Do You Fit In?
You can join the Estate Planning Team if you are one of the following:
- An attorney, CPA or other tax professional
- A securities advisor
- A real estate or mortgage professional
- A title insurance representative
- An insurance professional
- A bank or other financial institution
- A qualified intermediary service provider
What Do You Get?
EPT membership includes the following:
- A comprehensive marketing plan
- Personalized lead generation websites
- Customized marketing materials
- Client PowerPoint presentations
- Seminar tool kit
- Weekly training webinars
- Web-based tracking system
- The support of tax and estate planning experts
How Do You Get Started?
It’s easy to start bringing DST benefits to your clients. Simply contact Reef Point today and leave us a message. We’ll get right back to you.
