Those of us who have clients that own businesses, highly appreciated stock, commercial or residential investment real estate assets, are often reluctant to sell because of capital gains taxes associated with the sale.  But what other choice do we have other than a 1031 property exchange?  Is there another way to deal with the capital gains tax liability that so many investors experience when they sell their real estate assets?  The answer may lie in the Deferred Sales Trust™ ("DST").

This capital gains tax deferral and estate transfer tool could save your clients thousands of dollars, and at the same time, make a profit on the money you would have paid to the IRS in the year of the sale.  Obviously, this strategy is gaining popularity among those who have highly appreciated assets.  The DST™ can also be more simply described as a no risk "seller carry-back" financing structure.

The process starts with a property owner, transferring ownership of the property to a dedicated trust.  The trust then sells the property, stock or other capital asset to the buyer of same.  Next, the trust "pays" you.  The payment isn’t in cash, but with a payment contract called an "installment sales contract."  The contract promises to make installment payments to you or your trust, and said payments can even continue to future generations with additional estate planning.  There are zero taxes to the trust on the sale since the trust “purchased” the property from you for what it sold it for.

You can choose to defer the start date of the principal payments.  You may have other income and don’t need the payments right away.  The tax code doesn’t require payment of the capital gains until you start receiving installment payments.  The capital gains tax paid to the IRS is only that portion of the capital gains due in proportion to the number of years established in the term of the installment agreement.

The Deferred Sales Trust™ has the ability to generate substantially more money over the long run that a direct and taxed sale.  It is also superior to a direct installment sale as the concerns of a defaulting Buyer in said installment arrangement are eliminated. 

You are probably already painfully aware that there are numerous tax deferred and tax exclusion strategies available to taxpayers who are selling real or personal property.  The numerous options are extremely confusing and complicated, and trying to decide which tax deferred and/or tax exclusion strategy is most suitable can be overwhelming. 

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Tax Advisors Make Great Sounding Boards

I realize that many taxpayers dread meeting with a tax advisor, but a good tax advisor can be a tremendous breath of fresh air.  They can help you wind your way through the maize of tax planning issues, and take much of the confusion and frustration out of the process.  But, most importantly, they help you choose the most suitable strategy to meet your goals and objectives. 

The Deferred Sales Trust 

One of the most recent additions to the list of tax deferred strategies is the Deferred Sales Trust or DST that allows a taxpayer to sell real estate or personal property (such as the sale of a business or other highly appreciated personal property) and defer the payment of his or her capital gain taxes into the future based on a predetermined time period selected by the taxpayer. 

The Deferred Sales Trust is ideal when the taxpayer just wants out.  They are selling real estate, a business, or other highly appreciated property and do not want to reinvest via a 1031 Exchange and do not want to get involved with any complicated or sophisticated income tax planning strategy.  They are just looking for a way out.  A way out from paying all of their capital gain taxes in one year.  They wish to defer the payment of their taxes over a period of time. 

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This is generally when a Deferred Sales Trust is the most appropriate and most suitable tax deferral strategy for the taxpayer to consider with his or her tax advisor. 

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We can also help.  You can request a free Deferred Sales Trust Illustration to help you analyze whether the Deferred Sales Trust is right for you. 

The name of the game in this new economy is to find new ways to generate additional income whether through the opening of a new business, rolling out new products or services, or enhancing your existing line of products or services.  Survivors will find ways to make a living regardless of the economy.

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Deferred Sales Trusts Create Synergies

The Deferred Sales Trust is ideal for Realtors, mortgage brokers, or other professionals who are already working with clients in the real estate industry.  You can easily start your own Deferred Sales Trust business and/or add the Deferred Sales Trust product as another product or service line to your existing book of business.  And, all you have to do is continue doing what you are already doing by networking with your existing database of real estate clients and prospects. 

No Capital Commitment; Low to Little Operating Expenses

You can now provide another value added service to your clients without having to commit any start-up capital, and your month-to-month operating expenses can be as little as $15.00 per month for two lead generation websites to help you build your business.  You can be as conservative or as aggressive as you like. 

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Build Your Own Deferred Sales Trust Business

Starting your own Deferred Sales Trust business or adding the Deferred Sales Trust product as an additional product or service to your ongoing business is quick and easy.  Click here to begin earning additional income with your very own Deferred Sales Trust business.

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They all have good points and bad points, so it is extremely important that taxpayers meet with their tax advisors to ensure they are choosing the right and most suitable solution for their needs.  Tax advisors can help sort out all of the details and get right down to what is important. 

Deferred Sales Trust

The Deferred Sales Trust is just one of those many tax deferred solutions that is available for taxpayers to choose from today.  It allows the taxpayer to sell an appreciated asset - either real estate or personal property - and defer the payment of their capital gain taxes over a period of time that they choose.

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Installment Sale Treatment

It works very similar to a seller carry back note, but is also very different.  They are both drafted pursuant to Section 453 of the Internal Revenue Code and are treated as installment sales for income tax purposes.  Therefore, the taxpayer can defer the payment of his or her capital gain taxes over the term of the note.

The note must be negotiated with the buyer when using a seller carry back note, but the buyer is out of the picture when using a Deferred Sales Trust, so the taxpayer has complete flexibility over the term of the note.  And, since the buyer is out of the picture, there is no risk that the buyer might default on the note. 

These are just a few of the benefits that came to mind quickly.  There are many more, and there are also reasons the Deferred Sales Trust may not be the right solution for you. 

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I've written an article that briefly compares the Deferred Sales Trust with an installment sale note and a 1031 exchange.  However, meeting with your tax advisor is still a critical component of your analysis as to which tax deferred method is right for you.

You can request a free illustration that can help you and your advisor compare the Deferred Sales Trust to the other options.

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