How Deferred Sales Trusts Support Asset Protection Planning

If you wish to preserve the assets or wealth you’ve worked throughout your life to build, a deferred sales trust (DST) can support an asset protection strategy as you end your career and move into the next stage of your life. An experienced deferred sales trust attorney from 453 Trust Powered by Pennington Law can explain how DSTs – The Tax Tool You Didn’t Know You Had – can help you fulfill your legal objectives in asset protection plans. Contact us today for an initial case evaluation to discuss how deferred sales trusts can fit into your legal asset protection strategy and the significant tax benefits they offer.

What Is Asset Protection Planning?

Asset protection planning involves creating a legal strategy to safeguard your assets or property from lawsuits or unexpected, significant expenses, such as the costs of long-term care. Asset protection planning can include tax planning to manage or mitigate tax liabilities that could reduce the wealth you’ve built. Advanced asset protection planning can help you preserve individual or family wealth.

A key aspect of effective asset planning is realizing the tax implications of various maneuvers. At 453 Trust Powered by Pennington Law, our attorneys have an in-depth understanding of the tax code. We don’t outsource tax services to others; instead, we have built a robust, IRS-compliant practice under one roof.

How Do Deferred Sales Trusts Fit into an Asset Protection Strategy?

Deferred sales trusts can form part of an asset protection strategy as the irrevocable nature of a DST means the assets you place in the trust no longer form part of your estate. DSTs can also help with wealth preservation by providing you with an income stream from the wealth you’ve built during your career. DSTs also preserve wealth because they defer capital gains taxes until the trust distributes proceeds from the sale of your trust assets. Therefore, you don’t pay taxes until distribution, thanks to the tax deferral.

How a DST Can Defer Taxes and Preserve Wealth

DSTs can help preserve the wealth you’ve worked hard to create by managing tax liabilities from selling capital assets, such as real property, business interests, investments, or cryptocurrency. A DST utilizes the taxation method outlined in Internal Revenue Code §453, known as the installment method, to defer payment of capital gains taxes on an asset installment sale.

With a DST, you place an asset that you intend to sell into a trust managed by a bona fide independent third-party trustee. This third-party trust manager must have the sole power to control the asset. The original asset owner cannot exercise any control or influence over the trust or trustee.

In exchange for the asset, the trust provides the owner with an installment payment contract that outlines how the trust will distribute the proceeds from the sale of the asset to the owner. The trust then sells the asset to the ultimate buyer and receives the sale proceeds, which the trust can invest to generate income.

The trust pays principal and income from the asset sale per the terms of the installment payment contract, with the former owner paying capital gains taxes only when they receive payments of the principal from the sale proceeds. As a result, a DST can spread the capital gains tax bill from an asset sale over multiple years, thereby managing the tax burden and providing the former asset owner with an income stream from the principal and income generated by the sale proceeds. At the same time, property owners can benefit from long-term capital gain as the asset remains in the trust without having to make an immediate tax payment for this appreciation in value.

Is a Deferred Sales Trust a Smart Alternative to Traditional Asset Protection Tools?

Depending on your financial future, circumstances, legal needs, concerns, and goals, a deferred sales trust can provide an effective alternative to other traditional asset protection tools. DSTs can help manage tax liabilities from selling highly appreciated assets when you want to reinvest your wealth to serve your financial needs and goals in the next stage of your life.

DSTs also do not have other restrictions for reinvesting the proceeds of liquidating assets common to other types of asset protection tools, including rules on the timing of the reinvestment or the kinds of assets you can reinvest into (like in 1031 exchanges). For example, you don’t have to reinvest in just real estate if you sold an investment property. Instead, you can take advantage of other investment opportunities.

Finally, DSTs can help shift tax burdens from asset appreciation, potentially helping to avoid costly estate taxes after your death.

Legal and Regulatory Considerations for Asset Protection with DSTs

Utilizing DSTs to protect assets and wealth entails various legal and regulatory considerations. First, DSTs must comply with the requirements and restrictions outlined in Internal Revenue Code Section 453. As a result, a DST must use an independent trustee that the asset owner cannot control or influence. For example, selecting a family member to serve as trustee of a DST may attract regulatory scrutiny. Furthermore, asset owners must transfer the property to the DST, retaining no interests in the asset or its proceeds from the sale.

Finally, asset owners must remember that distributions from the DST can trigger capital gains tax liabilities. As a result, having experienced legal guidance when incorporating a DST into an asset protection strategy can help you avoid pitfalls that can create legal problems for you.

Why You Need Our Deferred Sales Trust Attorneys

Because deferred sales trusts involve complex tax laws and have specific rules, you need experienced legal counsel to help you establish a deferred sales trust that enables you to take advantage of the tax benefits of DSTs and preserve more of your wealth. Consider letting the attorneys from 453 Trust Powered by Pennington Law help you incorporate a DST into your asset protection strategy because:

• Our firm has earned recognition as the Best Deferred Sales Trust Law Firm in the U.S. in 2024. Firm founder Andre Pennington has also appeared in various national publications, including The New York Times, Forbes, Inc., The Wall Street Journal, and USA Today. He has also received listings in Super Lawyers, Lawyers of Distinction, and Best Attorneys in America.
• We have built an IRS-compliance program under one roof to offer you comprehensive service. Unlike other firms that rely on outside professionals to handle various aspects of asset management for clients, we ensure we don’t put your wealth at risk due to mismanagement by other professionals.
• We take the time to listen to your story and understand your needs, concerns, and goals, providing tailored legal solutions to help you. When you’ve spent your career building wealth, our firm can help you determine how a deferred sales trust can help you collect the full value of your assets and investments at the last step, while managing the tax burdens from selling assets and reinvesting your wealth for the next stage of your life.

Experience Counts – Talk to Our Deferred Sales Trust Lawyers Today

An experienced attorney can help you understand how to protect the assets and wealth you’ve amassed during your career. Our lawyers focus on providing legal asset protection solutions for high-net-worth individuals. We can also discuss how to shield assets from creditors.

Contact 453 Trust Powered by Pennington Law today for a confidential consultation with a deferred sales trust lawyer to discuss the benefits of using DSTs and deferred compensation for asset sales to preserve the wealth you’ve worked hard to build.