How To Sell Your Asset Using a Deferred Sales Trust

The deferred sales trust (DST) is a tax strategy that builds on the installment sale concept explained and regulated by Section 453 of the Internal Revenue Code. For nearly a century, this process has provided sellers with capital gains tax relief if they do not receive full payment for an asset at the time of the sale.

It is commonplace to break the payment for large-scale property transactions into smaller, more manageable installments. IRC§453 allows the seller to defer their capital gains tax obligation to match the buyer’s payment schedule.

Reef Point, LLC, can help you establish a customized DST to meet your financial needs whenever you wish to defer the gains taxes on a profitable asset sale.

The Deferred Sales Trust Team

Setting up a DST is a complex process that involves a group of experienced financial professionals known as the Estate Planning Team (EPT).

  • Expert Tax Attorney: The DST is a proprietary  strategy developed by Campbell Law and the Estate Planning Team.  An expert attorney that specializes in tax law and trained in the DST process will work directly with you to establish your DST.
  • DST Trustee: a vetted and certified trustee that specializes in DSTs
  • Investment Advisor: an experienced third-party consultant trained and approved to manage DST funds

If you have already sold your asset and the proceeds are awaiting the completion of a 1031 exchange, you may also work with a Qualified Intermediary who operates independently of the EPT. This will most likely be the case if you attempt to save a 1031 exchange by transferring the sale into a DST.

The Deferred Sales Trust Stages

There is no minimum profit threshold to qualify for a DST. However, determining the worth of deferring taxes on a profit involves a matrix of factors. They are most often unique to each situation, but the primary elements often include the applicable capital gains tax rate, income tax bracket, setup fee, annual trust maintenance costs and financial goals. All those considered, if your gain is more than $250,000, you will likely benefit from a DST.

1. Initial Consultation

It is crucial that you confer with your EPT Trustee to initiate the procedure before you complete the transaction. You must also NOT have constructive receipt of the funds. This means that they are in escrow and that there is at least one contingency remaining before the sale transaction can be considered completed.

Next, our tax attorneys will draft the DST Trust that outlines the terms and coordinates with the people and institutions involved in the sale. You can then begin the closing process with the buyer in accordance with the integration of your DST trust in the closing.

2. Asset Transaction

The DST will conduct the actual transaction according to the sale terms, acting as an intermediary. In exchange for the title, the DST will give you a secured installment note naming you as the payee.

Within about 24 hours, the DST will sell your asset to the buyer for the same amount payable to you on the installment note and deposit the money into the trust’s bank account. This is a controlled account, which means that no one can access the money without your signature authorizing the payout and investment schedule per the trust agreement.

3. DST Distribution Schedule

Before the transaction is complete, you will have negotiated the distribution arrangement with the trustee. These terms will determine the frequency of payments, the allocation of interest and principal and the interest rate.

4. DST Investment Strategy

Theoretically, you can leave the money in the DST forever to earn a negligible interest rate. Still, it is usually preferable to put it to work by directing the trustee to invest all or a portion of the sales proceeds. The EPT’s investment advisor can help you devise a portfolio to make the most of your tax deferred sale. Remember, even though you do not have possession of the funds, the DST cannot invest or use any of your money outside of the trust agreement without your express permission.

Deferred Sales Trusts are not irrevocable. You will meet with your trustee and advisor periodically and evaluate its progress. You can then authorize changes to the trust based on adjustments to your financial goals and counsel from your DST team of professionals.

 Start the Process Today

If you believe you could benefit from a deferred sales trust, request a free analysis from our Certified DST Trustee by phone or through our website. We can help you determine if a DST is right for you.