Under a bipartisan bill sponsored by Elizabeth Warren (D-MA) and Steve Daines (R-MT), congressional members and their spouses would not only be banned from trading stocks, but also be required sell their individual stock holdings and put their other assets in blind trusts.
Entitled “The Ban on Congressional Stock Ownership Act”, this bill looks similar to the ban on individual stock ownership already imposed on the executive branch. However, a provision buried in the bill gives lawmakers a “sweetheart deal” when selling their stocks. This provision allows them to convert their stocks to Treasury bonds or other broad-based investment funds rather than selling them outright. The result? Deferral of capital gains taxes until they later sell these new assets. If they die before selling them, the capital gains taxes would be completely waived.
Financial analysts estimate that the tax savings alone could easily surpass whatever profits the lawmakers would have made from traditional stock trading. In other words, they get the “dual advantage of looking virtuous while also making money.”
Whether or not this bill becomes law, it may surprise you to learn that you have your own “sweetheart deal” readily available to you when you sell any highly appreciated asset, not just stocks. Nor do you have to go through a complicated conversion process in order to avail yourself of it. It’s called the Deferred Sales Trust (DST).
What is the DST?
Simply put, the DST is a proprietary, legal, tested and safe strategy based on the installment sale method authorized by Section 453 of the Internal Revenue Code. Offered only by the Estate Planning Team and its affiliates, the DST consists of a contract between you and a third-party trust wherein you sell your highly appreciated asset to the trust in exchange for an installment note that guarantees to pay you a fixed amount over a certain period of time. This note is often referred to as a self-directed note because you control its terms.
How Does the DST Work?
You begin the DST process by meeting with the Estate Planning Team, whose core members consist of the following:
- Experienced tax attorney
- Registered Investment Advisor
- Independent Certified DST Trustee
You can bring your own advisors, such as your personal attorney, CPA, financial advisor, investment advisor, etc. to this meeting if you so desire.
The purpose of this meeting is to discuss your planned sale, your overall investment goals, your risk tolerance and your income needs and desires. Based on the results of this discussion, the tax attorney structures and drafts your DST accordingly.
You then sell your asset to the DST, after which Greg Reese, as Managing Member of Reef Point, LLC your Independent Certified Trustee, sells it to your proposed buyer for the exact same amount. Since the DST owns the asset, rather than you personally, at the point of its ultimate sale, you incur no actual or constructive capital gains tax liability.
Mr. Reese then begins investing the sale proceeds in the types of investments you approved in meetings held during the process of your sale, and likewise begins paying you in accordance with the promissory note.
Have More Questions?
Bottom line, you don’t need to be a high ranking legislator to defer capital gains taxes when selling any type of highly appreciated asset. But as a savvy investor, you likely have additional questions about the DST and whether it’s the right strategy for you.. No problem. Contact Reef Point today. We’ll be glad to answer all your questions and get you started with the DST process.