1031 Exchange Articles

The DST, a Way Out of Capital Gains Taxes of Highly Appreciated Assets
By Estate Planning Team

IRVINE, Calif., Feb. 13 /PRNewswire/ -- Those of us who own highly appreciated assets, such as homes, commercial real estate and businesses, are often reluctant to sell these assets because of the capital gain tax associated with the sale.
There is a smart, functional, and legal way to address this issue. The answer may lie with a powerful tax and estate planning tool called the Deferred Sales Trust(TM).

If you own a business or real estate with a large amount of gain and are not selling your property because of capital gain taxes, or can't find suitable, qualified property exchanges, then you may want to consider a Deferred Sales Trust(TM) ("DST(TM)").

The DST(TM) is a legal method, combining several sections in the tax code, which allows the seller of the property to defer capital gain taxes due at the time of sale over a period of time, even beyond your lifetime.

Deferring taxes, legally, is not new. Some commonly used tax deferral examples are 1031 exchanges and installment sales.

There is no maximum to the size of value of the transaction. The DST(TM) can also be used with any kind of entity, e.g., LLC, S or C election corporations, as well as individuals who own real estate, rental properties, vacation homes, commercial properties, hotels, land, industrial complexes, retail developments, and raw land, to name a few.

There is no interest or penalty on these deferred payments of the tax.

There is substantial flexibility in investing the trust's funds. The money may be invested in securities, real estate, or even in a new or existing business.

The primary requirement of the trust's investment objective is simply to produce the cash flow necessary for the annual payments to the grantor.

There are significant benefits for the property which the grantor transfers to the trust:

1. Whatever is left in the Trust at the time of the grantor's death will pass to the beneficiaries completely free of estate and gift taxes.

2. This arrangement does not trigger any gift tax consequences no matter how much trust assets are worth.

3. Trust assets will not need to go through probate when the grantor dies.

The deferral of capital gain tax can produce a dramatic increase in growth of trust assets. That is not the only benefit:

1. Everything from the sale proceeds and all trust earnings either go to the grantor or to the heirs. There are several options you have for this.

2. The DST(TM) payment amount and term is designed for what you want per your needs and objectives.

The DST(TM) may generate substantially more wealth over the long run than a taxed sale. Depending on your circumstances, it may be superior to a Charitable Remainder Trust, installment sale, private annuity, or like-kind property exchange in many respects.