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What is a Deferred Sales Trust?
A Deferred Sales Trust, governed by IRC Section 453, is a legal strategy that allows an investor to sell property to a trust in return for installment payments over a specified period. This setup enables the investor to defer capital gains taxes, offering flexibility in how and when they receive income. By deferring taxes, the investor can reinvest the full sale proceeds, potentially growing their wealth while managing the overall tax burden more effectively over time. This approach is particularly beneficial for those looking to optimize long-term financial and tax planning.
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Eligible Asset Types
Business Sale
Shelter proceeds from selling a business while maintaining future investment flexibility.
Real Estate
Defer capital gains taxes from selling investment properties or primary residences.
Securities
Liquidate large stock portfolios without immediate tax consequences.
Crypto Currency
Protect gains from selling digital assets like Bitcoin or Ethereum.
DSTs can be used to defer capital gains taxes on various appreciated assets such as real estate (residential, commercial, or investment properties), businesses or business interests, stocks and securities, artwork, collectibles, and intellectual property. These trusts offer a flexible strategy for individuals looking to sell high-value assets while minimizing tax liabilities.
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Why should you defer capital gains taxes?
Preserve more of your wealth now and maintain flexibility for future financial planning.
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Tax Savings
By deferring capital gains taxes, you can avoid an immediate large tax bill, allowing you to keep more of your proceeds upfront.
Flexibility
Deferring taxes provides more flexibility in how and when you receive payments or reinvest, giving you greater control over your financial planning.
Wealth Growth
Instead of paying taxes right away, you can reinvest the full sale amount, which may lead to higher returns and the potential to grow your wealth faster.
Estate Planning
Deferring capital gains can also help with estate planning by preserving more wealth for your heirs and providing options to pass assets on in a tax-efficient manner.
How does it work?
The DST allows you to sell highly appreciated assets—like real estate or businesses—without paying capital gains taxes upfront. Instead, your proceeds go into a trust that reinvests them, providing you with a steady income stream. This approach defers taxes, giving you more control over your wealth and greater flexibility in how and when you invest. It’s a smart way to manage large capital gains while keeping more money working for you.
Your capital gain from an investment is the difference between the amount you sell it for and your “basis” in that investment. Generally, your basis is the original purchase price or the fair market value at the time you acquired the asset.
To minimize a large tax bill, you might be able to structure the sale or transfer of your investment property in a way that allows you to defer paying capital gains taxes. A 453 Trust, also known as an “installment sale,” is a tax-deferral strategy designed for investors dealing with capital gains taxes.
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What's the process?
- Transfer of Property or Business to the Trust: The investor, who owns a highly appreciated asset such as real estate or a business, transfers the property or business to a trust. This step initiates the 453 Trust process.
- Trust Sells the Asset: The trust, now holding the asset, sells it to a buyer. Instead of the investor receiving the proceeds directly, the trust receives the payment from the sale.
- Sale Proceeds Held in Trust: The trust receives the full payment from the buyer. The proceeds from the sale are now held in the trust, deferring any capital gains taxes that would have been owed if the investor received the proceeds directly.
- Proceeds Invested: The funds from the sale are then invested according to the terms of the trust. This allows the investor to grow the proceeds through various investment strategies, while still deferring taxes.
- Installment Payments to Investor: Over time, the income generated from these investments is used to make installment payments to the investor. These payments satisfy the terms of the installment contract, spreading the capital gains tax liability over a period of time, rather than paying it all at once.
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Shane Styne
CEO | Financial Professional
Shane Styne is the visionary CEO of Top Notch CPAs, leading with faith, family values, and fearless ambition. From humble beginnings to the executive ranks of an S&P 500 company, Shane’s journey is a testament to hard work, calculated risk-taking, and decisive leadership.
Shane Styne
CEO| Financial Professional
Shane Styne is the visionary CEO of Top Notch CPAs, leading with faith, family values, and fearless ambition. From humble beginnings to the executive ranks of an S&P 500 company, Shane’s journey is a testament to hard work, calculated risk-taking, and decisive leadership.
A dedicated family man, Shane met his wife at just five years old, and together, they’ve built a life centered on faith and raising their six children. His passion for leadership led him to study under experts like Anthony Bell, sharpening the skills that fueled Top Notch CPAs’ meteoric rise to nearly $4 million in its first year.
Shane credits the firm’s success to his “team of champions”—a handpicked group of professionals who share his vision of excellence. His leadership philosophy is simple: lead by example, make bold moves, and surround yourself with the best.
Top Experts who Specialize in Deferred Sales Trusts
Andre Pennington
Inc. 5000 CEO | Wealth Attorney | Registered Financial Planner®
Andre Pennington is a highly respected financial strategist with over two decades of expertise in wealth preservation, tax optimization, and estate planning. As the founder of Pennington Law, Andre has positioned the firm as a trusted authority in 453 trusts, catering to the unique needs of high-net-worth individuals, business owners, and investors looking to maximize tax efficiency while securing generational wealth.
Andre Pennington
Inc. 5000 CEO | Wealth Attorney | Registered Financial Planner®
Andre Pennington is a highly respected financial strategist with over two decades of expertise in wealth preservation, tax optimization, and estate planning. As the founder of Pennington Law, Andre has positioned the firm as a trusted authority in 453 trusts, catering to the unique needs of high-net-worth individuals, business owners, and investors looking to maximize tax efficiency while securing generational wealth.
Andre’s expertise is recognized at the highest levels in the industry. A member of the Forbes Finance Council, he has earned accolades from respected institutions, including Super Lawyers, Lawyers of Distinction, Elite Lawyers, and Best Attorneys of America. These distinctions underscore his exceptional proficiency in complex tax strategies and commitment to client success. His approach to wealth preservation is both meticulous and deeply personal, ensuring clients benefit from tailored, legally sound strategies that minimize tax liability and protect assets.
Andre’s commitment to financial literacy and transparency has solidified his reputation as a thought leader, inspiring confidence in clients and colleagues alike. His work at Pennington Law emphasizes rigorous compliance, strategic partnerships, and innovative tax-deferral solutions, making him a sought-after advisor in the realms of tax planning, wealth transfer, and estate preservation.
What our clients say
FAQ
A DST Trust is a legal arrangement that allows you to sell highly appreciated assets, such as real estate or a business, while deferring capital gains taxes. Instead of paying taxes upfront, you can spread out the payments and the tax burden over time through installment payments.
DSTs can be used with various appreciated assets, including:
- Real estate (residential, commercial, or investment properties)
- Businesses or business interests
- Stocks and securities
- Artwork and collectibles
- Intellectual property
A DST may be suitable if you:
- Own a highly appreciated asset you plan to sell
- Want to defer capital gains taxes
- Need flexibility in how and when you receive the sale proceeds
- Are looking for a tax-efficient way to manage your wealth, especially in retirement
While a 1031 Exchange is limited to real estate and requires reinvestment in similar properties, a DSTs applies to a broader range of assets and offers more flexibility in reinvestment.
While traditional trusts are primarily used for estate planning and asset protection, a DST is specifically designed to defer capital gains taxes on asset sales. DSTs also offer more flexibility in investment options and distribution schedules than traditional trusts.
You transfer the appreciated asset to a DST before the sale. The trust then sells the asset to a buyer. Instead of receiving the proceeds directly, you receive installment payments based on a schedule you choose. The sales proceeds remain in the trust, and taxes are deferred until you start receiving payments.
A DST Trust allows you to customize the installment payment schedule to align with your financial needs. This can be especially beneficial in retirement, giving you control over your income stream while managing taxes efficiently.
Yes, a DST can provide several estate planning benefits, including asset protection, wealth preservation, flexible income planning, and potentially reducing the size of your taxable estate.
The primary benefit is the deferral of capital gains taxes. By spreading out your tax liability through installment payments, you can reduce the immediate tax burden and reinvest the proceeds, potentially growing your wealth.
A DST offers significant tax advantages, but it’s a complex structure that may not suit everyone. It’s ideal for individuals with highly appreciated assets looking to defer taxes and manage wealth effectively. However, working with experienced professionals is crucial to ensuring proper setup and management.
Yes, DSTs comply with IRS regulations and offer a strategic way to manage capital gains taxes. Always work with experienced professionals to ensure compliance.
Fees depend on the complexity of your trust setup, typically including legal and trustee fees. Contact us for a detailed quote specific to your situation.
As with any financial tool, there are risks associated with how the funds are reinvested in the trust. Our team will work with you to minimize risks and maximize returns.
The information and services offered on this website are not a substitute for professional legal counsel. We strongly recommend consulting with a qualified attorney for all legal matters.