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The Top 3 Uses For the Deferred Sales Trust

Reef Point LLC · July 13, 2021 ·

The Top 3 Uses For the Deferred Sales Trust | Reef Point LLC

When you hear “Deferred Sales Trust,” what comes to your mind? In all likelihood, it’s capital gains deferral. Yes, the DST is an innovative tax strategy for deferring the capital gains exposure you face when selling a highly appreciated asset. But are you aware of the top three reasons why savvy investors choose the DST? If not, they are:

  1. Exit strategy for a highly appreciated asset
  2. Alternative to a 1031 exchange
  3. Rescue from a failed 1031 exchange

1. Exit Strategy

Assume that you own some high-value commercial real estate, a valuable antique collection, a business, or even your personal residence that you now wish to sell. However, your asset has substantially increased in value during the time you’ve owned it. If you sell, you will face what could be hundreds of thousands of dollars in long-term capital gains taxes. You need a more viable exit strategy.

By utilizing the DST, you can defer those taxes for many years. How? The DST is a special proprietary type of installment sale that the Internal Revenue Service authorizes under Section 453 of the Internal Revenue Code. After 25+ years of usage, thousands of transactions, 14 field audits and several other IRS reviews, the IRS has yet to issue a negative audit or other adverse result. So there’s no question but that the DST is legal, tested and proven.

As its name implies, the Deferred Sales Trust is a third-party trust created by the Estate Planning Team’s tax attorney for you. You sell your highly appreciated asset to the DST and receive an installment note in exchange. The DST’s Certified Independent Trustee, such as Reef Point’s Greg Reese, then sells your asset to your intended buyer for exactly the same price. The Trust receives the sale proceeds, giving you no constructive or actual receipt of them that would trigger capital gains recognition. Thereafter, the Trustee invests the sale proceeds in whatever type of investments you authorize and begins paying you according to the terms, which you also authorized, of your installment note. Eureka! The perfect exit strategy.

2. 1031 Exchange Alternative 

If you’ve ever done a 1031 exchange, you know that adhering to its stringent rules and time frames is difficult, at best. First, you must exchange your highly appreciated asset for a “like kind” investment. Then you must designate your “like kind” investment within 45 days of selling your asset. Finally, you must complete the swap within six months.

The DST puts none of these restrictions on you. You can reinvest in any “prudent investment” you wish. This gives you unprecedented opportunity to diversify your investments. Even if you wish to reinvest in real estate or other “like kind” properties, the DST gives you the ability to leave the sale proceeds in the trust until such time as the real estate market improves or you find the ideal property that perfectly suits your needs. The DST also allows you to begin receiving installment note payments immediately if you need or desire retirement income.

3. 1031 Exchange Rescue

Even if you’ve already begun a 1031 exchange and a Qualified Intermediary holds your sale proceeds, you still risk having the 1031 ultimately fail because the buyer defaults or you can’t find an appropriate “like kind” investment. DST to the rescue! Simply instruct the QI to release the funds he or she is holding to your newly-created DST rather than to you personally.

Contact Reef Point to discover even more ways that the DST can benefit you.

Deferred Sales Trust 1031 Exchange Alternative, 1031 Exchange Rescue, Capital Gains, Deferred Sales Trust, DST, Exit Strategy, Reef Point

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Reef Point LLC was founded by Gregory H. Reese who is one of only 13 Trustees in the US for Deferred Sales Trusts.

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As an authorized and approved Trustee for the Deferred Sales Trust and Member of the Estate Planning Team (EPT), Reef Point, LLC promotes the use of the Deferred Sales Trust™ or other estate planning techniques and is not responsible for recommendations made by other members of the Estate Planning Team, including the Deferred Sales Trust or other tax, legal or estate planning strategies.

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