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What is an Estate Tax Freeze?

Reef Point LLC · November 29, 2022 ·

What is an Estate Tax Freeze? | Reef Point LLC

An estate tax freeze is an asset management strategy by which you transfer ownership of some of your assets to your family members or other beneficiaries without triggering capital gains tax liability. Actually, the more appropriate term is estate freeze because what you’re doing is “freezing” the value of the transferred assets at their current fair market value. Their future appreciation will be attributed to your beneficiaries, not you. An estate freeze also gets the transferred assets out of your estate, thereby decreasing its value and the estate taxes it will have to pay upon your death.

Estate Freeze Goals

You may wish to consider an estate freezing strategy if your goal is one or more of the following:

  • To minimize and defer capital gains taxes
  • To allow your family members to take over your business so you can retire
  • To fund your retirement with frozen assets
  • To split income with your family members who are in lower tax brackets than you are
  • To avoid probate and its inherent costs and fees

Utilization of the DST Plus

Various strategies exist for structuring an estate freeze, but one that is quickly gaining in popularity is Reef Point’s newest offering: the DST Plus.

Savvy investors have long used the Deferred Sales Trust (DST) when selling a highly appreciated asset. Some of its main advantages include:

  • Using it as an exit strategy from your business, a commercial real estate investment, portions of your investment portfolio, or even your private residence
  • Using it as a beneficial 1031 exchange alternative 
  • Using it to rescue yourself from a failed 1031 exchange or one that’s about to fail
  • Using it to convert an illiquid asset, such as a business or a real estate investment, into a liquid one, and receive periodic payments from the sale proceeds
  • Using it to diversify your investments

The DST Plus still gives you all of these advantages, but adds unique ones of its own. That’s because while the DST is based on Section 453 of the Internal Revenue Code that authorizes installment sales, the DST Plus conforms to Section 72 of the same Code.

Installment Sale Note Provisions

When you sell your asset to either your Standard DST or to your DST Plus, you receive a secured installment sale note, i.e., promissory note, in exchange. With the Standard DST, not only do you have complete control over the length of your note and its payment provisions, but you can change these if and when necessary. In contrast, the term of your note under the DST Plus is your lifetime and, if married, the lifetime of your spouse. In addition, your promissory note distributions are determined actuarially and cannot be changed once begun.

Estate Tax Treatment

When you (or you and your spouse) die, the assets remaining in your DST Plus are immediately transferred to your designated heirs or beneficiaries outside of your taxable estate. This could save estate taxes in excess of 40% that your estate would otherwise have to pay.

Want To Learn More?

If you’re intrigued with the idea of freezing the value of your estate by means of the DST Plus, contact Reef Point today. We’ll be happy to answer all of your questions and explain how establishing a DST Plus, or combining the Standard DST with the DST Plus, can work to your advantage.

Estate Planning, Tax Strategy

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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
info@reefpointusa.com

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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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