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What is a Deferred Sales Trust?

Man on laptop researching what is a deferred sales trust?

Selling an appreciated asset like a building or business can be both exciting and challenging due to the sizable tax bill you may incur. Fortunately, there’s an option for helping to reduce your capital gains tax liabilities: a Deferred Sales Trust (DST). But what is a Deferred Sales Trust? Learn more about DSTs, including how they work and how they can help you save on taxes.

What is a Deferred Sales Trust?

A Deferred Sales Trust (DST) is a trust that is used to defer the payment of capital gains taxes incurred when selling a business, art, or other highly appreciated asset. The DST uses installment payments made over time, rather than one large lump sum payment, to help minimize tax liabilities while giving the seller more control over their funds. By using a DST, sellers are able to access funds faster and easier, without having to liquidate assets or pay hefty taxes all at once.

How Does the DST Work?

The DST works by allowing the seller to receive a portion of their proceeds up front, while deferring payment of the capital gains taxes. Upon closing of the sale, the deferred sales trust is created and a trustee is appointed to manage payments. The seller receives their money in installments over time and pays taxes on each installment as they come due. This allows sellers to pay only what they owe at that particular time and can help them take advantage of certain tax rules or deductions.

Benefits of Utilizing a DST.

Using a DST can offer many benefits to the seller, including: 1) Deferring capital gains taxes; 2) Taking advantage of certain tax rules or deductions; 3) Spreading out the financial burden associated with large one-time payments; and 4) Having more control over the timing and structure of payments. By using a DST, sellers may be able to keep more of their hard-earned money from the sale while still meeting their tax obligations.

Setting up and Operational Requirements for a Deferred Sales Trust.

When setting up a DST, certain requirements must be met in order for the trust to be valid under IRS rules. Generally, this includes appointing an independent trustee, agreeing to a written trust document, filing with the IRS and state authorities, and complying with applicable rules and regulations. Additionally, it is important to have a clear understanding of how the trust will operate throughout its life so that it remains valid and can successfully achieve its objectives.

Tax Advantages of a DST Structure.

One of the most significant benefits of forming a DST is the tax advantage that comes from deferring one’s capital gains taxes. This allows business owners to spread out their gain over multiple years and adjust for current market conditions before paying taxes, as opposed to selling outright and paying on the full amount right away. Furthermore, setting up a DST provides additional flexibility when it comes to trust income distributions due to its distinct taxation status.

Let Us Set Up Your Deferred Sales Trust.

Are you looking to sell your property and avoid paying a large amount of capital gains tax? Consider a Deferred Sales Trust (DST) as a tax-deferral strategy. With a DST, you can transfer ownership of your property to a third-party trust and receive payments over time, while deferring the capital gains tax until you receive payments from the trust.

If you are interested in learning more about DSTs and how they can benefit you, contact us today. Our team of qualified financial advisors and tax professionals can help you evaluate whether a DST is the right strategy for your financial goals. Don’t let taxes hold you back from achieving your financial dreams. Take action now and explore the benefits of a Deferred Sales Trust. Call us at 602-443-4888 now.



Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law.