The Deferred Sales Trust™ (DST) and a Charitable Remainder Trust (CRT) offer distinct advantages in managing assets and tax implications, catering to different financial objectives.
Deferred Sales Trust (DST):
A Deferred Sales Trust serves as a strategic tool for individuals contemplating the sale of appreciated assets like businesses, corporations, or real estate. With a DST, you enter into a contractual agreement with a third-party trust, selling the asset to the trust. In return, the trust commits to paying you a fixed sum over a predetermined future period, often in the form of installment sale notes or promissory notes. This arrangement allows for the deferral of capital gains taxes, granting control over tax exposure, reinvestment terms, and structured installment payments including the ability to have flexibility over the amounts of income you may require over time. Your children or other designated heirs can inherit your DST should you pass before withdrawing all of your funds, somewhat like an IRA.
Charitable Remainder Trust (CRT):
Conversely, a Charitable Remainder Trust operates as a philanthropic and financial planning tool. With a CRT, you place assets, typically appreciated, into a trust, and you or your chosen beneficiaries receive annual payments for a specified time or life. Afterward, the remaining assets in the trust are donated to one or more chosen charities. CRTs offer tax advantages, including avoidance of capital gains taxes in the year of sale, an income tax deduction in the year of the trust’s creation and the removal of the remaining assets from your taxable estate as they move to the remainder charitable beneficiary. CRT’s a pretty inflexible once the Trust is executed. There may be limitations on what the trust can invest in and you are not permitted to change your designated income or access lump sums in case of emergency.
While both trusts offer tax advantages and structured payments, they differ significantly in their primary objectives. A Deferred Sales Trust focuses on managing capital gains taxes and providing control over the sales proceeds and payments after selling an appreciated asset. On the other hand, a Charitable Remainder Trust blends financial planning with philanthropy, allowing individuals to receive income from the trust while supporting charitable causes, benefiting from tax deductions and potential capital gains tax savings through charitable contributions.
Understanding the unique features and purposes of Deferred Sales Trusts and Charitable Remainder Trusts is crucial for individuals seeking to optimize their financial strategies. Each trust offers specific advantages tailored to different financial goals, whether focused on tax deferral, asset management, or charitable giving. Consulting with financial advisors or legal professionals can aid in making informed decisions aligned with individual circumstances and objectives.