How Deferred Sales Trusts Help Protect Wealth During Major Life Transitions

A significant life event may prompt you to make major financial decisions, such as selling high-value assets, including real estate or business ownership interests. After spending your life building wealth, identifying strategies to preserve your assets and minimize your tax burden can help you move forward during the transition. A deferred sales trust (DST) may be the tool for you. 

How Life Transitions Impact Your Financial Stability

Various life transitions — such as marriage, divorce, illness, disability, or retirement — can significantly impact your financial stability. These events may either increase or decrease your income and available resources. For example, marriage can combine incomes but also lead to increased expenses, such as those associated with having and raising children. Divorce usually means establishing a separate household on a single income. Disability or retirement may result in the loss of regular wages, which can impact your cash flow. Each of these changes can influence your overall financial picture, including your tax liability.

Using a Deferred Sales Trust to Minimize Taxes During a Major Life Change

When you experience a significant life change, you may decide to sell assets such as real estate, stocks, business ownership interests, or cryptocurrency to generate the funds needed to offset expenses during the transition. However, selling assets may trigger capital gains taxes. 

Setting up a deferred sales trust during a life transition can help you manage the tax implications of an asset sale by allowing you to spread capital gains tax liability over multiple years. Furthermore, a DST  can provide an income stream that helps support your finances after life events, such as disability or retirement. 

Top Mistakes to Avoid When Using a Deferred Sales Trust in Life Transitions

Common mistakes that people make when using deferred sales trusts to manage wealth during life transitions include:

• Not setting up the DST before selling capital assets – You must establish a deferred sales trust and transfer your asset to the trust before agreeing to sell it to the ultimate buyer. Improperly structuring a deferred sales trust could result in the loss of its tax benefits.
• Failing to choose an independent trustee – Appointing someone who is not independent of you, such as a family member, as the trustee of your deferred sales trust may prompt the IRS to classify it as a “sham” trust.
• Not seeking legal counsel – An experienced lawyer can sit down with you to review your financial situation, personal circumstances, needs, and goals to help you make an informed decision about whether a deferred sales trust is a viable tool for protecting your wealth and supporting your financial and estate planning objectives. 

Safeguard Your Wealth During Life’s Biggest Changes – Talk to a Deferred Sales Trust Lawyer Today

When you reach a significant life milestone, identifying appropriate legal tools to accomplish your financial and tax goals should be a priority. Contact 453 Trust Powered by Pennington Law today for a free consultation about the suitability of a deferred sales trust for your circumstances.