California Deferred Sales Trust Attorney

Are you planning to sell an asset, like a parcel of real estate, a business interest, or cryptocurrency? If so, you may have read about various tax planning strategies, such as deferred sales trusts. But what is a deferred sales trust? Many people may not have heard about DSTs as traditionally, only the ultra-wealthy have used them to manage tax liabilities. However, a DST might be “The Tax Tool You Didn’t Know You Had.”

Contact 453 Deferred Sales Trust Powered by Pennington Law today for an initial case evaluation. We’ll walk you through the many advantages of deferred sales trusts and how DST strategies can help you mitigate the tax consequences of an asset sale.

Why Choose 453 Deferred Sales Trust Powered by Pennington Law?

Using a complex legal structure like a deferred sales trust requires careful attention to detail and extensive legal knowledge and experience. Choosing legal counsel for establishing a deferred sales trust can ensure you avoid mistakes or pitfalls that may jeopardize your financial interests.

When you want to sell a complex or valuable asset that has significantly appreciated during your ownership, choose a California deferred sales trust lawyer from 453 Deferred Sales Trust Powered by Pennington Law. We’re your best choice because:

  • We provide an all-in-one service. Our firm handles numerous legal and financial matters, including deferred sales trusts. While other firms may rely on outside professionals to assist with various aspects of a client’s case, we have a full-service, IRS-compliant program under one roof to handle all your needs.
  • We have extensive knowledge and experience in complex legal matters, including tax law, estate planning, financial and wealth advisory services, insurance, and asset protection.
  • Firm principal Andre Pennington has earned a national reputation for unparalleled experience in tax, trusts and estate, and investment services, receiving recognition in publications such as The New York Times, Forbes, The Wall Street Journal, USA Today, Super Lawyers, Lawyers of Distinction, and Best Attorneys in America. Our practice was also recognized as the Best Deferred Sales Trust Law Firm in the U.S. of 2024 by Best of the Best.
  • Our team will work tirelessly to preserve the maximum value of your investment, ensuring you enjoy the full value of the business or investments you’ve spent your life building.

What Is a Deferred Sales Trust and What Are Its Benefits?

A deferred sales trust, sometimes called an installment sale trust, is a legal strategy that enables asset owners to spread out or avoid capital gains taxes imposed on the sale of an asset. When correctly set up, a DST allows an asset owner to defer capital gains taxes on an asset sale until they receive principal from the sale proceeds from the trust. Alternatively, an asset owner may structure a DST to pay only income generated by reinvesting the sale proceeds and avoid paying capital gains taxes on the sale proceeds indefinitely.

Some of the financial benefits of DSTs include the following:

An asset owner can use a DST to spread liability for capital gains taxes over the years, potentially allowing the owner to offset capital gains taxes from an asset sale against other capital losses and minimize their overall tax liability from the asset sale. However, when asset owners keep the sale proceeds in the DST, they may avoid capital gains taxes indefinitely.

A deferred sales trust represents one of the 1031 exchange alternatives. Unlike a 1031 exchange that requires a “kind for kind” exchange, limiting an investor to reinvesting the sale proceeds in a similar asset, DSTs impose no limitations on reinvesting, enabling investors to diversify their portfolios. DSTs also do not have some of the strict deadlines of 1031 exchanges.

When appropriately structured, DSTs enable investors to take advantage of an estate tax freeze, ensuring that future appreciation of assets or wealth becomes attributable to an investor’s heirs and beneficiaries.

DSTs allow families to preserve the value of assets like business interests or real estate by minimizing or indefinitely delaying capital gains taxes.

Who Is a Deferred Sales Trust Best For?

Examples of parties who may want to leverage the tax benefits of DSTs include:

  • Business owners planning to sell their company or ownership interest who want to spread out or minimize the tax liabilities that may arise from the sale
  • Owners of investment properties — such as multi-family properties or commercial real estate that have significantly appreciated, as well as market investments and cryptocurrency — who wish to avoid significant capital gains taxes upon the sale
  • Business owners or people with significant investments approaching retirement who wish to diversify their portfolio without triggering tax liabilities
  • Individuals who have inherited assets with substantial value and want to liquidate those assets without losing value to taxes

How Does a Deferred Sales Trust Work and How Is Income Generated?

The process of setting up a deferred sales trust and managing the assets and income in the trust involves several steps, including:

  1. Transfer of Property or Business to the Trust – After creating the DST, the grantor must transfer the asset(s) they wish to sell to the trust. In exchange for the asset, the grantor receives an installment payment contract outlining the terms under which the trust will pay the grantor the principal and income from the asset sale proceeds.
  2. Trust Sells the Asset – After receiving ownership of the asset, the trust must sell it for the same price the grantor sold it to the trust.
  3. Sale Proceeds Held in Trust – The trust must receive the sale proceeds directly from the buyer or through a third-party intermediary such as an escrow. The grantor must not receive or have a beneficial interest in any sale proceeds.
  4. Proceeds Invested – In most cases, a trustee of a deferred sales trust will invest the sale proceeds to generate income. The trust can use that income to pay administration expenses or distribute it to the grantor if the installment payment contract requires it. This allows you to grow the proceeds through various investment strategies while still deferring and, most times, eliminating capital gains tax consequences.
  5. Installment Payments to the Investor – The grantor will receive installment payments according to their contract with the trust. A grantor may receive payments of principal from the sale proceeds, which trigger capital gains taxes when received, or payments of only the income generated by investing the sale proceeds. Your capital gains tax liability will spread and, most times, be minimized over a period of time, rather than your having to pay it all at once.

What Are the Requirements for a Deferred Sales Trust?

A valid deferred sales trust must meet several requirements, including:

A DST must qualify as a bona fide third-party trust, which means the asset owner retains no beneficial interest in the trust or its assets and has no influence or control over the trustee.

All proceeds from asset sales must go to the trust; the asset owner cannot receive or have any beneficial interest in the proceeds.

An asset owner must form the trust before selling their asset to a third party.

The trust must sell the asset for the same value as the prior owner sold it to the trust.

What Assets Are Suitable and Eligible for a DST?

Although traditionally used by the wealthy, DSTs can help manage the tax consequences of sales of various types of assets, such as:

  • Business assets
  • Business ownership interests
  • Real estate
  • Securities
  • Cryptocurrency
  • Stocks, bonds, and other investments
  • High-value collectibles, such as artwork, memorabilia, or rare vehicles

What Our California Deferred Sales Trust Attorneys Can Do

Let the legal team from 453 Deferred Sales Trust Powered by Pennington Law help you with your financial and estate planning when it comes to selling valuable assets or diversifying your portfolio by:

  • Reviewing your financial circumstances and the details of your asset sale. Our attorneys will sit down with you to discuss your personal and financial situation and review the details of your proposed asset sale to understand your circumstances.
  • Discussing your needs and goals to determine whether a deferred sales trust is the right tool to help you meet them. Our team will also discuss your specific financial needs and goals to evaluate the suitability of a deferred sales trust for meeting those goals.
  • Establishing a DST correctly to avoid losing the trust’s tax benefits, paying substantial capital gains tax, or potentially paying penalties, fees, or interest. Our experienced lawyers can ensure that you have a correctly set up deferred sales trust, as mistakes may result in you losing the tax benefits of the trust and paying significant penalties and interest on your capital gains taxes.
  • Structuring your deferred sales trust to meet your unique goals, such as paying out sale proceeds over a schedule that minimizes the financial burden of capital gains taxes or deferring taxes entirely by only paying income from reinvested proceeds. Our attorneys will ensure that your deferred sales trust serves your financial objectives, whether they involve spreading out capital tax liabilities or avoiding such taxes entirely by living off the income generated by reinvesting sale proceeds. Oftentimes, we at 453 Deferred Sales Trust Powered by Pennington Law employ financial strategists that mitigate and, most times, eliminate the impact of the capital gains tax.

Contact a California Deferred Sales Trust Attorney Today

Before you sell a valuable asset like a business or real estate, talk to a California deferred sales trust attorney about your legal options. Contact 453 Deferred Sales Trust Powered by Pennington Law today for a confidential consultation to learn more about a deferred sales trust vs. a 1031 exchange. We look forward to explaining how this valuable and advantageous tool can help you plan your future and preserve your family’s wealth.