Deferred Sales Trust

Deferred Sales Trust
A Capital Gains Tax Deferral Strategy

 

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alternative strategies

We help facilitate and educate you on the 1031 exchange procedures and guidelines, the fundamentals of DST investments and how 1031 alternative solutions such as Deferred Sales Trust may fit into your overall planning strategy.

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GLOBAL 1031 EXCHANGE

Global 1031 Exchange is a turnkey 1031 exchange and Capital Gains Tax Deferral services firm that works in conjunction with owners of highly appreciated real estate and their trusted advisors to develop a plan that will allow them to relinquish tax-burdened assets more efficiently.

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WHAT IS A DEFERRED SALES TRUST?

 

The Deferred Sales Trust is a Trust that purchases the Seller's property and then resells it to the ultimate buyer. It allows the Seller to treat the sale as a "Seller-carry back" transaction where the buyer pays the purchase price over time. The language in the Trust documents and the purchase documents between the Trust and the Seller cause the Seller's income tax otherwise due on the sale to be deferred until the Seller actually receives the money from the Trust. After the asset is sold by the DST to the ultimate buyer, the Trust may invest the funds in any asset of its choice. There are no investment restrictions, or time-frames for which investments are to be made.

What Types of Assets can be sold using DST?

Just about any asset that is subject to capital gains taxation can be deferred with the DST. These assets include rental properties, primary homes, commercial properties, private stocks and bonds, family businesses and your insurance policies that need to be sold for cash. Most common types of asset sales using the DST are the sale of real estate and the sale of a business. The DST can sometimes be used for other types of asset sales and transactions such as:

  • a 1031 Exchange that would otherwise fail to be properly completed can be "rescued" using the DST.
  • the refinancing of a note receivable from a third party.
  • sales of marketable securities where there are restrictions on the stock or limited trading volume of such stock.

Significant Benefits of a Deferred Sales Trust:

  1. Tax Deferral: When appreciated property/capital assets are sold, capital gains tax on said sale is generally deferred until the Seller/Taxpayer actually receives the payments.
  2. Estate Tax Benefits: May accomplish an "estate tax freeze" for estate tax purposes.
  3. Maintains Family Wealth: When properly structured, the principle inside the subject installment sales notes can be preserved with "interest only" or partial principal payments creating the potential to pass on a large portion of the note principal to your legal heirs with proper estate planning.
  4. Estate Liquidity: Converts an illiquid asset into monthly payments.
  5. Retirement Income: Provides a stream of income that can be used as retirement income.
  6. Probate Avoidance: With proper estate planning.
  7. Eliminate Risks Associated with Ownership: By utilizing the DST, you have taken an asset that is otherwise "exposed" or liability prone and converted it to a "no-liability" asset.

WHEN IS THE TAX ON THE SALE PAID?

The Seller sets up the timeline of when the payments will be made and the amount of each payment. The payments can be structured in any timeline and amount that the Seller wishes. They can be interest only with the principal amount paid in one balloon payment at the end, or where there are even payments paid over the term of the structure. Regardless, the taxes on the gain are triggered when the principal payments are received. Capital gains rates in the year the payment is received is the rate applied to the principal payments as received. The interest earned on the principal is taxed at ordinary tax rates in the year received.

HOW 1031 EXCHANGE WORKS

Global 1031 Exchange