If you’ve held a large stock position and are now thinking about exiting, you now face a common challenge: how to sell without losing a big chunk of your gains to capital gains taxes.
That’s where a Deferred Sales Trust (DST) strategy comes in. While traditionally associated with real estate, DSTs can also help investors exit large stock positions while preserving wealth and creating new investment opportunities.
The Tax Headache of Selling Stocks
Selling your long-held stocks can trigger a capital gains tax event. For stocks passed down through inheritance or acquired early in a company’s growth cycle, the gains may be substantial. Federal long-term capital gains taxes can reach 20%1, and when you include state taxes and the Net Investment Income Tax (which adds an extra 3.8%2 tax), your total financial hit could climb even higher.
Taxes can be a big deterrent if you want to move money out of the market and into other asset classes or more diversified holdings. You might feel handcuffed—wanting to reduce your risk or change strategy but fearing the tax blowback. With some careful financial planning, you don’t have to pay all the taxes when you sell. A DST allows you to take control of your asset, defer capital gains tax on your stocks, and continue to build wealth.
What Is a DST and How Does It Work with Stocks?
A DST is a legal structure that allows you to sell appreciated assets, like stocks, without immediately realizing the capital gains. Instead of selling your stock directly, you first transfer the stock to a trust, which then sells it on your behalf. Since the trust executes the sale and not you personally, you don’t owe capital gains tax on the sale.
In exchange, you receive a promissory note from the trust, which outlines how and when you’ll receive payments. When you receive money, you will only owe capital gains taxes on the principal. This defers your tax liability and spreads it across multiple years as you receive installments, potentially reducing your overall tax burden and improving your cash flow planning.
Importantly, the money in the DST is still eligible for investing in a diversified portfolio. It can continue to grow. This means you can access more flexible and balanced investment options.
Advantages of Using a DST to Exit Stocks
One of the most significant advantages of a DST is control. With a DST, you’re not forced to make rushed reinvestment decisions to avoid taxes. Instead, you can meet with your capital gains tax advisor and design a strategy that aligns with your long-term financial plan.
It also opens the door to portfolio diversification. For example, if you’ve had all your wealth tied up in a single tech stock or closely held company shares, the DST lets you liquidate that position without jumping from one risky bet to another. You can now spread your investment into real estate, bonds, equities, or even private placements.
Another benefit is estate planning. DSTs can be used as part of a broader wealth transfer strategy, giving you the ability to manage distributions in a way that supports your heirs, reduces estate tax exposure, or supports charitable causes.
When Does a DST Make Sense for Stock Sales?
If you’re selling a significant amount of stock and expect to face high capital gains taxes, a DST could be an especially smart move. Consider a DST if:
- You’re liquidating a concentrated position.
- You inherited low-basis stock and want to rebalance your portfolio.
- You want to exit without committing immediately to another risky investment.
These scenarios all carry tax and timing risks that a DST can help smooth out, giving you more financial breathing room.
Questions to Ask Before Exiting a Stock
Before you use a DST to exit a stock investment, you need to ask yourself:
- Is my transaction large enough to justify the setup costs? DSTs are usually best suited for assets with significant capital gains. If you expect capital gains of $1 million or more, consider a DST.
- What’s my ideal investment outcome? DSTs offer investment flexibility, so before you sell, think about how you want your assets managed post-sale.
- Who’s on my advisory team? Your CPA, estate attorney, and capital gains tax consultant should collaborate closely to ensure smooth operation.
Once those pieces are in place, you can move forward with confidence, knowing that your exit is tax-smart, compliant, and aligned with your financial vision.
Turning a Stock Exit into a Strategic Win
You’ve spent years building value in your stock portfolio, and your gains are hard-earned. Don’t let capital gains taxes derail your next move. A DST allows you to exit intelligently, preserve your gains, customize your income stream, and set yourself up for long-term growth.
With the right advisors and planning, a DST can be a bridge from concentrated risk to diversified stability. If you’re selling a major stock position, a DST is just what you need to complete your financial picture. It could be the tool that transforms your stock exit from a tax liability into an opportunity for smarter wealth building.
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Infographic
Selling long-held stocks can lead to a significant tax bill, but a Deferred Sales Trust (DST) provides a strategy to defer capital gains taxes while allowing you to maintain flexibility and control. Explore six ways DSTs facilitate stock investment exits in this infographic.
1https://www.irs.gov/taxtopics/tc409
2https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax