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The Deferred Sales Trust: Become a hero to your clients, while growing your business
Looking to stand out from your competition? Offer the Deferred Sales Trust as a tax deferral solution
When exit planning, Many sellers are hesitant to sell because of the capital gains taxes they’ll face with the sale of their highly appreciated asset. When you become an Estate Planning Team Member, we empower you to remove this considerable obstacle for your clients by providing you with exclusive access to a proven tax deferral strategy, the Deferred Sales Trust.
The Deferred Sales Trust process is a type of nuanced installment sale that starts with initial due diligence. If the transaction is viable, the trust and property owner will negotiate to reach terms with regard to the asset(s). Then, the property owner transfers ownership of the property to a dedicated tax deferred trust. The trust then sells the property, stock or other capital asset to the buyer. Next, the trust “pays” the client with a payment contract called an “installment sales contract.”
The contract promises to make installment sale payments via a promissory note to the seller, and those payments can even be structured to continue to future generations with additional estate planning. There are generally minimal taxes to the tax deferred trust at the time of the sale since the trust often acquires the property from the client for a price that may not be materially different from the sales amount.
Should your client choose, they can defer the start date of the principal payments if they have other income and don’t need the payments right away. The tax code does not require payment of the capital gains tax until the seller starts receiving installment sale payments. The capital gains tax paid to the IRS is only that portion of the capital gains tax due in proportion to the number of years established in the term of the installment sale agreement. The Deferred Sales Trust has the ability to generate substantially more money over the long run than a direct and taxed sale. It is also superior to a direct installment sale as the concerns of a defaulting buyer are eliminated.
Additionally, even in a depressed real estate market, because the seller is making money (an interest payment) on the full value of the sale (the sales price) and not the net after tax dollars, your seller clients can reduce their price, SELL NOW, and still make out better over time via proper tax planning with a qualified tax professional.
Here are just a few of the ways your clients and prospects can benefit from a Deferred Sales Trust:
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Capital Gains Tax Deferral: When appreciated property is sold, tax on gain is deferred until receipt of payments.
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Estate Tax Benefits: Accomplishes an estate freeze for estate tax purposes.
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Maintains Family Wealth: Helps to maintain wealth within the family.
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Estate Liquidity: Converts an illiquid asset into monthly payments.
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Retirement Income: Provides a stream of income for retirement.
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Probate Avoidance: With proper estate planning.
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Structured Sale with Minimal Risk: A more predictable alternative to a 1031 Exchange or traditional installment sale.
Deferred Sales Trust Frequently Asked Questions
Is the Deferred Sales Trust legal?
Yes. The Deferred Sales Trust is an IRS-compliant 453 installment sale structure grounded in contract law and established tax principles.
What assets qualify?
Most highly appreciated assets, including real estate (commercial and residential), private businesses, investment portfolios, and cryptocurrency.
How is a Deferred Sales Trust different from a 1031 exchange?
A 1031 exchange is limited to like-kind real estate, requires reinvestment in a property of similar value, and the seller is subject to 45 and 180-day deadlines. The Deferred Sales Trust does not have such deadlines, offers broader asset eligibility, and more predictable repayment timing that can align with the seller’s needs.
Does the Deferred Sales Trust eliminate capital gains tax?
No. The Deferred Sales Trust defers capital gains tax by spreading recognition over the promissory note repayment term.
When should the Deferred Sales Trust be established?
The DST should be set up before all purchase agreement contingencies have been removed.
Are there limitations to the amount that a seller can put into a Deferred Sales Trust?
Yes, under Section IRC 453, $5,000,000 of capital gains may be deferred per year, per person. A married couple who own the property jointly, can defer $10,000,000 of capital gains per year. This is not actually a limit, though, It simply means that amounts of capital gains deferral that exceed $5,000,000 per person per year are subject to a government interest charge on the amount of taxes that would have been paid on the excess gain.
Is the Deferred Sales Trust “too good to be true”?
The Deferred Sales Trust is a strategic tax deferral structure, not a “magic bullet.” It provides tax deferral but requires careful planning.
Who manages the money in a Deferred Sales Trust?
A professional, independent trustee manages the trust, and the DST assets are managed by the trust’s financial advisor.
Are there ongoing fees?
Yes, for trustee, administrative and investment management services—transparently outlined up front.
Can a Deferred Sales Trust be used for a partial sale?
Yes, allowing tax deferral on the sold portion.
Is the Deferred Sales Trust only for high-net-worth individuals?
The Deferred Sales Trust can benefit any seller with a highly appreciated asset.
Can a seller defer capital gains on the sale of their primary residence?
Yes, this is another potential advantage of a Deferred Sales Trust over a 1031 Exchange.
For more than 25 years, Estate Planning Team has been helping sellers with capital gains deferral through the Deferred Sales Trust
By joining Estate Planning Team and offering the Deferred Sales Trust, you’ll not only deliver incredible value to your clients, but you’ll establish a unique and compelling competitive advantage, and become part of a network of the nation’s top legal and financial service experts dedicated to helping professionals just like you preserve their client’s wealth and protect their estates.
As an Estate Planning Team member, you will…
- Learn how to connect with professional partners that generate referral business.
- Receive access to training, resources and a turnkey marketing plan with step-by-step instructions on how to earn more business.
- Generate leads with your own personalized website.
- Receive guidance on how you can help your clients defer capital gains through the Deferred Sales Trust or other innovative tax solutions.
- Build your business as you deliver powerful tax deferral solutions, and stand out from your competition.
“Joining the Estate Planning Team and incorporating the Deferred Sales Trust into my financial advisory practice has transformed my business and fast tracked it to a level that I could not have imagined as an independent producer. EPT’s unique marketing support and offerings have enabled me to find bigger prospects and have a ton of success establishing long term successful relationships.”
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John Balmer
Financial Advisor