As a high net worth individual, you likely are all too familiar with capital gains taxes. These taxes that you pay when you sell a highly appreciated asset such as a business, commercial property, investment, collectible or even your personal residence, can wipe out much of the profit you make.
But what if there were a safe and legal way for you to defer your tax liability? There is! It’s called a Deferred Sales Trust (DST), and it can not only defer your capital gains tax liability virtually forever, but also offer you numerous advantages over other tax-saving strategies such as a 1031 exchange or a conventional installment sale.
What is the DST?
In a nutshell, the DST is a proprietary tax strategy offered only by the Estate Planning Team and its nationwide network of legal, tax and investment professionals. Based on the installment sale method authorized by Section 453 of the Internal Revenue Code, the DST makes it possible for you to make your sale tax free and then invest the proceeds into any other “prudent investment” such as the following:
- Real estate
- A Business
- Life insurance
But the DST’s benefits don’t end with giving you diverse investment opportunities. You also get a flexible distribution structure for your proceeds.
How Does the DST Work?
Instead of selling your highly appreciated asset directly to your intended buyer, you sell it instead to an independent, third-party trust in exchange for a secured installment sale contract (promissory note). The trust’sIndependent Certified DST Trustee then immediately sells your relinquished asset to your intended buyer for the exact same sum as you sold it to the trust. Since the trust, rather than you personally, is the seller, you face no capital gains tax liability on the proceeds. Neither does the trust.
Your Certified DST Trustee then manages the trust funds on your behalf, investing them according to your wishes and distributing them to you in accordance with the agreed-upon terms of your installment contract. You will be pleased to know that Greg Reese, your Reef Point DST trustee, is one of only 13 people nationwide vetted, trained and certified to act in this capacity by the Estate Planning Team.
Keep in mind that you will work closely with Mr. Reese throughout the lifetime of your DST. If your circumstances change from those that existed at the time your DST was established, you can change both the type of investments you authorized at that time and the timing and amount of the distributions you receive. You pay no capital gains taxes unless and until a part of any distribution represents a return on the investment you initially made in your relinquished asset.
If you find yourself intrigued with the idea of selling your highly appreciated assets with no capital gains tax liability, contact Reef Point today. We will be glad to answer all of your questions, address any special concerns you may have, and fully educate you on the many advantages offered by the DST.