What Assets Can You Transfer into a Deferred Sales Trust?

A deferred sales trust (DST) is a powerful legal tool for individuals wishing to sell highly appreciated assets. One of its key benefits is helping to manage taxes generated from the sale of capital assets. However, not every asset is appropriate for a DST. To take advantage of the benefits, it’s crucial to understand which assets qualify and how to avoid triggering penalties or IRS audits.

If you’re searching for solutions to preserve your hard-earned wealth when selling eligible assets, property, real estate, or a business, a deferred sales trust is The Tax Tool You Didn’t Know You Had. At 453 Deferred Sales Trust Powered by Pennington Law, our nationally recognized attorneys and financial professionals can explain how to transfer assets to a deferred sales trust and minimize your tax burden. Call or contact us today for a free consultation.

What Is a Deferred Sales Trust?

A deferred sales trust is a legal strategy that utilizes the taxation method for installment sales under Internal Revenue Code §453. A property owner or investor places assets in a trust managed by a third-party trustee. The trust sells the assets and holds the proceeds to generate income. It pays the income and principal from the sale proceeds to the property owner over a period outlined in the deferred sales trust agreement. This method allows the owner to delay capital gains tax liability on the sale or spread it out over the installment period.

What Assets Are Eligible for a Deferred Sales Trust (DST)?

Deferred sales trusts work best for capital assets that can appreciate. Examples of assets that can be transferred to a deferred sales trust include:

● Real estate, including multi-family or commercial real estate

● Business ownership interests

● Artwork or other high-value collectibles

● Investments

● Certain notes or promissory instruments

A deferred sales trust can be a valuable tool during estate planning to provide an efficient transfer of assets to heirs and beneficiaries, potentially reducing estate taxes.

Key Considerations When Transferring Assets to a Deferred Sales Trust

Property owners considering selling their assets through a deferred sales trust should keep several essential considerations in mind:

● Complexity – DSTs involve complex legal and financial issues, requiring highly experienced legal counsel to ensure asset owners do not inadvertently jeopardize the potential tax benefits of a deferred sales trust.

● Ongoing management fees – Deferred sales trusts require bona fide third-party trustees independent of the asset owner’s control or influence. As a result, a DST may require a professional trustee’s services, imposing ongoing management fees as the trustee manages the deferred sales trust.

● Loss of asset control – The rules for deferred sales trusts require property owners to transfer ownership and control of their assets to the trust, which then sells the assets to the ultimate buyer.

● Restrictions on liquidity – The tax benefits of a deferred sales trust require the sale proceeds from selling an asset to remain in the trust initially. An asset owner can defer capital gains taxes by keeping the sale proceeds in the trust. However, keeping the proceeds in the trust means the owner does not have immediate access to liquidity from selling their asset.

Do You Pay Taxes When Transferring Assets to a DST?

An asset owner does not pay taxes when transferring assets to a DST. Instead, when they transfer assets to the trust, they receive a contract that states how the trust will pay the owner the sale proceeds.

With a correctly established DST, a person pays capital gains taxes only on the principal from the sale proceeds distributed by the trust in a tax year. In theory, a DST can defer capital gains taxes indefinitely if the trust retains the principal from the sale proceeds. However, a DST cannot avoid capital gains taxes permanently, as capital gains taxes will become due once the DST distributes the sale proceeds.

Who Can Transfer Assets into a Deferred Sales Trust?

Any individual or entity that owns a capital asset eligible for a deferred sales trust can transfer ownership and title to the asset to the trust. Once an asset owner has transferred their property to a DST, the independent third-party trustee assumes ownership and control of the asset before selling it to the eventual bona fide purchaser.

Why Choose 453 Trust Powered by Pennington Law?

The technical rules of deferred sales trusts should encourage asset owners to seek experienced legal counsel to help them structure a compliant DST. Errors during the trust formation process or the transfer or sale of an asset could jeopardize the tax benefits of a DST, exposing an asset owner to unexpected capital gains taxes and potentially penalties, fees, and interest for unpaid taxes. As such, your choice of legal representation during this process can prove critical to protecting your financial interests.

You should turn to the attorneys at 453 Trust Powered by Pennington Law for legal advice and the support you need because:

● Our firm provides an all-in-one service to handle your financial and legal matters, including trust formation, tax issues, and financial reinvestment. Whereas other firms might turn to outside professionals to handle certain matters, we’ve developed an IRS-compliant program under one roof that enables us to provide comprehensive advice and service.

● Our attorneys have the experience and knowledge to help you protect the wealth you’ve worked hard to create. Whether you are a high-net-worth individual (HNWI), small business owner, or property investor, our team can strategize on the most effective ways to accomplish your goals.

● Firm principal Andre Pennington has earned national recognition for his experience in tax, trust, and estate law. He has appeared in publications like The New York Times, The Wall Street Journal, and Forbes, and has achieved listings in Super Lawyers, Best Attorneys in America, and Lawyers of Distinction.

Get Help from Our Experienced Deferred Sales Trust Attorneys

Are you interested in selling capital assets and protecting your profits from tax liability? If so, a deferred sales trust could be the solution you’re looking for. Talk to an experienced deferred sales trust attorney from 453 Trust Powered by Pennington Law. We can help you determine whether your assets qualify for an installment sale under IRC §453 and set you up with a tax-efficient way to manage your wealth. Contact our firm today for a free consultation.