Deferred Sales Trust Attorney

deferred sales trust

Do you own high-value assets, like real estate or ownership interests in a sole proprietorship or partnership? Over time, those assets may appreciate. When the time comes to sell them — whether due to retirement, liquidity needs, or as part of estate planning — you may face a significant tax bill due to capital gains. Fortunately, there are various legal strategies that help mitigate or defer the capital gains tax from the sale of assets.

For years, wealthy individuals and families have used a deferred sales trust (DST), also called a 453 trust, to manage tax liabilities from asset sales. However, many small business owners and high net worth investors may not know about this legal structure or the tax benefits of DSTs. If you’re one of these people, a DST could be the tax tool you didn’t know you had.

If you’re looking to keep more of the value gained from the sale of an asset, an experienced deferred sales trust lawyer can help you reach your financial and estate planning goals. Contact 453 Deferred Sales Trust Powered by Pennington Law today for an initial case evaluation. Let our national attorneys explain more about DSTs, how they work, and how they can help you manage or defer costly taxes that would be incurred from selling your hard-earned, valuable assets.

Why Choose 453 Deferred Sales Trust Powered by Pennington Law?

Using a DST to manage tax liability from an asset sale requires careful planning and drafting. Failing to follow the strict requirements under federal tax law can deprive an asset owner of the financial benefits of DSTs. As a result, your choice of legal counsel when pursuing a DST as part of your financial or estate planning strategy can make a difference in preserving your or your family’s wealth.

For years, individuals and families across the U.S. have trusted the legal team at 453 Deferred Sales Trust Powered by Pennington Law to help them establish deferred sales trusts. We are your best choice because:

  • Our firm provides all-in-one service to our clients. Our attorneys and staff handle various estate and financial planning matters, including deferred sales trusts, irrevocable trusts, investments, and tax strategies. While some firms work with financial or accounting professionals from other professional practices, we have created an IRS-compliant program under one roof, allowing us to manage all your financial, estate planning, and tax needs.
  • Our legal team has extensive knowledge and experience in various complex matters, such as tax law, estate planning, asset protection, wealth management, financial advisory services, insurance, and fiduciary matters.
  • We take the time to get to know you and understand your financial situation. Then, we develop legal strategies aimed at helping you preserve the full value of your investment or business, which you have worked hard to grow.
  • Firm principal Andre Pennington has earned national recognition for his in-depth knowledge of tax, trust, estate law, and investment services. This includes major publications such as Forbes, The New York Times, The Wall Street Journal, USA Today, and Inc., as well as the Super Lawyers, Lawyers of Distinction, and Best Attorneys in America listings.

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

So, what is a deferred sales trust? Sometimes called an installment sales trust, a DST allows an asset owner to facilitate the sale of that asset to a third party while managing or deferring capital gains taxes arising from the sale. The trust sells the property and holds the proceeds, distributing them or income generated from the proceeds to the former asset owner per an installment payment contract, making the former owner a creditor rather than a beneficiary.

Some of the benefits of using a DST include:

  • Preserving Wealth Growth – A DST can defer or mitigate capital gains taxes, allowing families to preserve the value gained from an asset sale.
  • Deferral of Capital Gains Taxes Tax benefits of DSTs include deferring capital gains taxes for years or indefinitely, as asset owners pay such taxes only upon receiving distributions of principal from the proceeds of an asset sale.
  • Avoiding Limitations of Section 1031 Exchanges – DST can also provide 1031 exchange alternatives. Some benefits of a deferred sales trust vs a 1031 exchange include avoiding the strict requirements of Section 1031. These include the requirement to acquire “like kind” property from the sale proceeds, which allows individuals and families to diversify their investments.
  • Estate Tax Freezes – DSTs may help shift tax burdens from asset appreciation and decrease the value of your estate, potentially avoiding costly estate taxes after your death.
  • Flexibility and Greater Control Over Financial Planning – Asset owners can structure DSTs to provide children or other family members with a managed stream of income that preserves inheritances.
  • Estate Tax Freezes – DSTs can give individuals and families another option for financial and estate planning.

Who Is a Deferred Sales Trust Best For?

Although traditionally used by wealthy individuals and families, people from all backgrounds can benefit from establishing a DST to manage tax implications from an asset sale and preserve family wealth. Examples of people who may benefit from using a DST include the following:

  • Business owners considering selling their business or cashing out their partnership interest who want to mitigate or defer the capital gains tax impact of the sale
  • Individuals who own investment properties that have appreciated significantly during ownership
  • Individuals or couples approaching retirement who wish to sell assets and reinvest the proceeds to diversify their portfolio without losing hard-earned wealth to taxes
  • People who have inherited valuable assets and wish to sell them for liquidity or investment money while managing the tax implications of a sale

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

The process of creating and operating a deferred sales trust, including the distribution of money to the asset owner, involves several steps:

First, the asset owner must transfer the asset they wish to sell to the trust; they may not retain any beneficial interest in the asset. In exchange for transferring or selling the asset to the trust, the owner receives an installment payment contract entitling the owner to payment from the principal and any income generated from the principal from the asset’s sale.

The trust must conduct the sale of the asset to a bona fide third-party purchaser for the same price as the asset owner sold the property to the trust. The asset owner may not have a preexisting purchase agreement with the buyer.

The trust must receive the financial proceeds from the asset’s sale to the bona fide buyer; the former asset owner may not hold any beneficial interest in those proceeds.

The trust may invest the sale proceeds if the installment payment contract grants the former asset owner the right to income generated from the proceeds rather than payments of the proceeds themselves. Generally, clients are exposed to investments that mitigate and most times eliminate the capital gains tax burden.

Depending on the terms of the installment payment contract, the former asset owner will receive regular income and principal payments from the asset sale proceeds. The former owner pays capital gains tax on any portion of the principal from the sale proceeds distributed by the trust.

What Are the Requirements for a Deferred Sales Trust?

A valid DST must meet several legal requirements. Failure to meet all of them may result in the trust failing to defer capital gains tax for the asset owner. The requirements are:

A DST must have a trustee completely independent of the asset owner, with the owner having no affiliation with or ability to control the trustee; otherwise, the IRS may deem the DST a sham trust and impose full capital gains tax on the asset owner.

The asset owner cannot receive any proceeds from the sale of the trust, with legal title to any cash or consideration held by the trust or passing through a third-party intermediary (such as an escrow agent) to the trust.

An asset owner must form the trust and transfer the asset to the trust before the sale occurs or the applicable tax trigger date.

The trust must receive fair compensation upon selling the asset to a bona fide third-party purchaser.

What Assets Are Suitable and Eligible for a DST?

Asset owners may use deferred sales trusts to manage or mitigate the tax liabilities incurred from selling assets that have appreciated during ownership. Examples of assets that individuals and families commonly place into DSTs include:

  • Sole proprietorships, including corporate stock or LLC member interests in a solely owned business
  • Business ownership interests, including stock or partnership stakes in closely held companies
  • Real estate
  • Stocks, bonds, mutual funds, and other investments or securities
  • Cryptocurrency
  • High-value collectibles, vehicles, artwork, or antiques

What Our Deferred Sales Trust Attorneys Can Do

The deferred sales trust lawyers at 453 Deferred Sales Trust Powered by Pennington Law can help you and your family by:

  • Reviewing your financial circumstances and goals to determine the suitability of a DST for your proposed asset sale
  • Explaining the pros and cons of a DST for your situation
  • Ensuring your DST meets legal requirements to secure tax benefits and avoid potentially costly capital gains taxes, penalties, fees, or interest
  • Structuring the DST to meet your needs and your financial or estate planning objectives, such as spreading out tax burdens or providing yourself or your family with a secure income stream