Deferred Sales Trust
KPP Financial proudly partners with the Estate Planning Team to provide quality real estate tax deferral strategies that give you greater flexibility in retirement and a potentially higher rate of return.
What is a Deferred Sales Trust?
The Deferred Sales Trust™ (DST) is an innovative tax strategy that allows sellers to defer capital gains taxes when selling appreciated assets. Here’s how it works:
- The trust purchases the seller's property and resells it to the ultimate buyer.
- This transaction is structured as a "seller-carry back," enabling the buyer to pay over time.
- The seller receives a DST Note, deferring tax payments until they actually receive funds from the trust.
After the sale, the trust can invest proceeds in any asset without restrictions. This flexibility allows for potential growth while minimizing immediate tax liabilities.
DSTs offer tax deferral, customizable payment plans, and potential for immediate or delayed payments. Sellers pay taxes gradually as they receive installments.
Who is this for?
The DST strategy works best for:
- Business owners or real estate owners with a large amount of gain who want to avoid capital gain taxes or the 1031 exchange that requires them to buy more assets to receive the tax deferral benefit.
Primary Benefits
Specific to each taxpayer, repayment terms include anything from minimal repayment of principal or rapid amortization. In addition, payments can be immediate or can be delayed into the future.
Can potentially convert an illiquid asset, like a business or commercial real estate, into a diversified portfolio of liquid investments. Th is can help reduce risk and volatility by preventing overexposure to a single asset class.
Can provide a stream of income for retirement based on the pre-tax proceeds from the sale instead of the aft er-tax proceeds, which are likely to be substantially less.
First, by avoiding a massive drain of equity at the time of the sale, resulting from the immediate recognition of the full capital gains tax liability at the highest rates. Second, by potentially providing significant estate planning benefits. And finally, the DST can provide estate liquidity.
The DST can be combined with additional planning to accomplish an estate freeze for estate tax purposes, and to potentially remove the proceeds of the sale from the seller’s taxable estate, potentially beyond the amounts exempted by the unifi ed credit. Further, the ability to select the state in which to domicile the trust can provide additional tax savings.
Unlike a 1031 Exchange, the proceeds from the sale do not have to be invested in “like-kind” property in a very short timeframe to achieve tax deferral. Moreover, a DST can be used to rescue a 1031 Exchange that is in danger of failing, subject to the 1031 exchange being appropriately set up with a DST certified QI (“qualifi d intermediary”).
When a partnership or other ownership group sells an appreciated asset, they do not need to remain together to achieve tax deferral, as is typically the case with a 1031 Exchange. Each individual owner can have their own Deferred Sales Trust™, the assets of which can be managed to each taxpayer’s own individual risk tolerance and preferences
Can provide a stream of income for retirement based on the pre-tax proceeds from the sale instead of the aft er-tax proceeds, which are likely to be substantially less.
First, by avoiding a massive drain of equity at the time of the sale, resulting from the immediate recognition of the full capital gains tax liability at the highest rates. Second, by potentially providing significant estate planning benefits. And finally, the DSTcan provide estate liquidity.
DST Exploratory Form
See if the Deferred Sales Trust is Right for You
Fill out our DST Exploratory form and one of our advisors will reach out to you directly to schedule a call to discuss your options.
