In Part 1 of this series, we explained how you can use a bifurcated 1031 exchange and Deferred Sales Trust (DST) to meet your investment and financial goals. In Part 2, we now offer you an alternative to the bifurcation approach.
To review your current hypothetical situation, you own investment property you bought while living in Hawaii. Now you want to sell that property, move to Nashville and purchase investment property there. However, what you’d really like to do is put part of your sale proceeds in financial investments so as to achieve a side income stream. In addition, you’d like to have as much flexibility as possible regarding the types of financial investments you can make, plus as much control as possible over the investment purchases themselves.
Using a DST as your sole vehicle to sell your Hawaii property accomplishes all of these goals. As a major side benefit, it also relieves you of the necessity to adhere to the strict rules and time frames inherent in a 1031 exchange, even when bifurcating your sale and subsequent purchases of investment property.
How a DST Works
In a nutshell, a DST works as follows:
- You meet with Reef Point’s Estate Planning Team (EPT) and its tax attorney before you sell your substantially appreciated Hawaii property.
- The tax attorney creates a DST for you.
- You sell the Hawaii property to the DST in exchange for a secured installment note.
- The DST more or less immediately sells the Hawaii property it now owns to your originally intended buyer for the same price as it bought the property from you.
- The sale proceeds go into the DST, which now owns them instead of you personally owning them.
- The Trustee thereafter places the proceeds into a controlled bank account in the name of the DST that requires not only the Trustee’s signature, but also yours and the bank’s in order to open.
- The Trustee begins investing said proceeds in financial assets of your choice, such as stocks, bonds, commodities, investment real estate, life insurance, etc.
- Per the terms of the installment note, the Trustee begins making periodic payments to you.
- During the initial term of the installment note, usually 10 years or less, the Trustee manages the money in the DST, making investments as recommended by your registered investment advisor and approved and directed by you.
Your Position on The DST Team
When you choose Reef Point to create, manage and maintain your DST, you can be assured of being surrounded by a circle of professionals from beginning to end. Your core Estate Planning Team members include a tax attorney, an Independent Certified Trustee and an investment advisor. Depending on the types of investments you wish to make, you can add any of the following whenever you wish:
- A tax CPA
- A financial advisor
- A real estate broker
- A business broker
- Your own independent attorney
Your team position is that of leader. You are, after all, the secured creditor of the funds held in trust by the DST. Consequently, you can work as closely as you wish with the Trustee and the investment advisor to determine which investments are consistent with your overall financial goals, as well as your risk tolerance.
If all of this sounds like just what you’ve been seeking, give Reef Point a call today. We’ll be happy to talk with you and answer all of your DST questions.