When it comes to selling a highly appreciated asset, a Deferred Sales Trust (DST) can provide you with an excellent opportunity to defer capital gains taxes, manage your tax liability, and reinvest the proceeds. One of the key advantages of a DST is its flexibility, particularly in how installment payments are structured and managed.
Here are two common questions about how payments work within a Deferred Sales Trust and how they can be tailored to your financial needs.
Question: Can the Installment Note and/or Payments Be Modified After Payments Begin?
Answer: Yes, they can! One of the benefits of a DST is that the seller has the ability to request modifications to the installment note after payments have already started. However, it’s important to keep in mind that these modifications should be infrequent. This flexibility allows you to adjust your payments to better align with changes in your financial situation or investment goals.
For example, if your income needs shift due to unforeseen circumstances, you may have the option to increase or decrease the payment amounts to suit your current needs, as long as it’s within reason and doesn’t conflict with the terms of the DST.
Question: Are Minimum Distributions Required, or Can Payments Be Deferred?
Answer: Yes, minimum distributions are required, but the good news is that you, as the seller, have the flexibility to influence how those payments are structured. You can decide the amount, timing, and start date for payments, allowing you to customize the payment schedule to suit your financial needs and goals. This flexibility provides you with options to manage your cash flow while deferring capital gains taxes.
For example, if you decide you don’t need immediate cash flow, you can defer your payments until a later date, allowing the trust’s assets to grow tax-deferred in the meantime. On the other hand, if you prefer to start receiving payments immediately, you have the freedom to structure them in a way that supports your income needs now.
The flexibility offered by a Deferred Sales Trust in structuring and modifying installment payments makes it a powerful tool for managing your financial future. Whether you need to defer your payments or make adjustments along the way, the DST can be customized to meet your specific goals.
If you’re considering a Deferred Sales Trust or have any questions about how it can work for you, reach out to us today for a free consultation and analysis.