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Using the DST to Reduce Your Investment Risk

Reef Point LLC · June 29, 2021 ·

Using the DST to Reduce Your Investment Risk | Reef Point LLC

Advice on reducing investment risk abounds. Unfortunately, however, little of it applies to you if you have a highly appreciated asset, such as a business or a piece of commercial real estate, that you wish to sell, but are hesitant to do so because of the capital gains tax you will face paying. This is where the Deferred Sales Trust may be just the solution you’re looking for.

A DST is the smart, safe and legal way to not only defer your capital gains tax, but also to give you the opportunity to receive cash while diversifying your investment portfolio. Basically, it’s a special type of installment sale authorized by Section 453 of the Internal Revenue Code. But while a DST gives you the same capital gains tax deferral as a traditional installment sale, it offers you considerably more advantages, one of which is investment risk reduction.

Ownership Risk

One of the biggest advantages a DST offers is that of reducing the risks you face as the owner of a highly appreciated business or piece of real estate you sell by means of a traditional installment sale. These risks include the following:

  • You’re acting as your own financing agent.
  • Your only collateral for the installment sale is the property you sold.
  • If the buyer defaults, you must foreclose, a lengthy and expensive procedure.
  • If he refinances, you will be faced with an immediate capital gains tax liability of the entire remaining balance of the installment sale.
  • Either way, you’re at the buyer’s mercy, a situation he can use to his advantage to demand changes to the repayment terms.

A DST doesn’t just reduce these risks, it eliminates them. How? When you meet with the Estate Planning Team prior to the sale of your highly appreciated asset, this circle of legal, tax and financial professionals listens carefully to your investment goals and objectives before setting up your personalized DST. Once it’s established, you sell your asset to the DST in exchange for a secured installment note. Per your instructions, your Reef Point Independent Certified DST Trustee then sells the asset to your intended buyer, placing the sale proceeds into the DST which owns them rather than them coming to you personally. He subsequently begins implementing the investment strategy you authorized.

The result? By utilizing the DST installment arrangement, you can convert the collateral security, i.e., your old business or property, for your payments from an asset that is otherwise exposed or prone to liability to a “no-liability” asset, such as diversified financial instruments.

Additional Available Investment Risk Reduction Strategies

Your DST continues to give you investment risk reduction opportunities throughout its term, including the following that investment advisors invariably recommend:

  • Setting your risk threshold
  • Diversifying your investment portfolio
  • Striking a risk balance
  • Reviewing your asset allocation and diversification strategies regularly
  • Avoiding the temptation to “follow the herd”

When you choose Reef Point to create and manage your DST, you are assured access to your Independent Certified DST Trustee whenever you need or want to discuss your investments with him. You consequently stay on top of all your investments and how they’re performing.

Capital Gains, Deferred Sales Trust Capital Gains Taxes, Deferred Sales Trust, DST, Investment Strategy, Reef Point, Risk

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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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3525 Hyland Ave., Suite 145
Costa Mesa, CA 92626
714-581-5376
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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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