How do we know it's legal?
The Deferred Sales Trust has been vetted and lauded by various law firms, accounting firms and financial professionals throughout the United States over 23+ years. These include an array of major national firms with prominent state and federal tax practices. Collectively, The Campbell Law Firm and the Estate Planning Team have been doing the Deferred Sales Trust for 23+ years with zero cases rescinded by the IRS. The foundation of the structure is IRC Section 453 in the tax code which has been in place for over 90 years.
It has been reviewed by IRS (13 of the DST clients have had random audits not triggered by the DST and they were reviewed by the IRS and closed out as no change audits). The IRS has conducted two Formal Audits of the Structure, Law Firm and Estate Planning Team with no particular case in 2008 & 2019 and these were also “no change audits”
It has been reviewed by FINRA and multiple National Tax Law Firms
Campbell Law offers Audit Defense for each Deferred Sales Trust
Over 2,000 deferred sales trust deals closed valued at over $1,300,000,000
Over 150 Financial Advising Firms with 1000+ Financial Advisors offer deferred sales trust.
What are the fees?
3 Sets of Fees
1) Tax Attorney – One-time fee
-1.5% up to $1 Million
-1.25% on anything over $1 Million
-Includes Legal and tax structure and Audit defense
2) Trustee Management – Annual Recurring Fee
-50 bps(1/2 of 1%)
- Tax Return $750-$1,000 range
- Out of network investments (such as real estate or funding a real estate development project or business) – double the above 50 basis points annually for a total of (100 basis points) for funds removed from the trust into an LLC, however, subtract the Financial Advisor Fees for amount directed.
- Optional 10 year Carve Out One Time Upside FEE: you may purchase outside of the trust a one-time optional option carve for 1.5% for funds directed to an LLC to invest into out of network investment. This is a 10-year option to direct funds to an LLC that can buy and sell real estate in and out of the Trust all tax-deferred or .75% for 5-year term.
3) Financial Advisor Annual Recurring Investment Fees
-Ranges from .50bps – 130bps depending on Financial Advisor used to manage the funds, account size, and where the funds are invested.
+ DACA Account Fee of $1500 once per year
Has there been an IRS ruling?
Yes. There is a private letter ruling and the outcome was favorable for the framework of the deferred sales trust structure. There have also been 12 income tax deferral audits. Another audit was for Estate Tax Audit. Estate Tax Exemption. IRS periodically reviews advisors. 2006, 2008, 2019 the entire structure was reviewed. All of these audits have been no change audits. Not one single issue from the IRS.
How many Deferred Sales Trust have been done?
Over 2,000 Deferred Sales Trust have been closed collectivley by The Estate Planning Team and Campbell Law. Total value of these trust are over $1,000,000,000. 13 clients who have a deffered sales trust were audited unrealted to their deffered sales trust, however, each of these 13 DST cases was closed out with no change audits.
What Types of Assets Can be Sold Using the DST?
Just about any asset that is subject to capital gains taxation can be deferred with the Deferred Sales Trust. These assets include businesses, rental properties, primary homes, commercial properties, private stocks, public stock, bonds, and insurance policies that need to be sold for cash. Most common types of asset sales using the Deferred Sales Trust are the sale of real estate and the sale of a business. The Deferred Sales Trust can be sometimes be used for other types of asset sales and transactions such as:
- A 1031 Exchange that would otherwise fail to be properly completed can be “rescued” using the Deferred Sales Trust;
- The refinancing of a note receivable from a third party;
- Sales of marketable securities where there are restrictions on the stock or limited trading volume of such stock.
When is the Tax on the Sale Paid?
The Seller sets up the timeline of when the payments will be made (interest and principal) and the amount of each payment. The payments can be structured in any timeline and amount that the Seller wishes. They can be ‘interest only’ with the principal amount paid in one balloon payment at the end, or where there are even payments paid over the term of the structure. Regardless, the taxes on the gain are triggered when the principal payments are received. Capital gains rates in the year the payment is received is the rate applied to the principal payments as received. The interest earned on the principal is taxed at ordinary tax rates in the year received. Most of our clients structure the note as a 10-year term and have the option to renew for another 10 years at 9 years and 6 months. This can occur as many times as the note holder would like it to. The noteholders heirs can inherit the position and do the same.
Can I use my Deferred Sales Trust to get back in and then back out of real estate and keep the capital gains tax deferred?
Yes, for investment real estate. Please contact Capital Gains Tax Solutions, the Estate Planning Team or a duly qualified DST tax professional to discuss this option. We recommend that you work with Estate Planning Team’s Professional Advisors who are experienced in trust law, trust asset management and tax law.
Is the Deferred Sales Trust a delayed 1031 exchange?
No the deferred sales trust is not a time machine to freeze the date of the sale of an investment property and then allowed to thaw that date or reset it once the funds are in the deferred sales trust to execute a 1031 exchange. 1031 has strict timing guideline and based on a separate tax code from the deferred sales trust.
Sound too good to be true?
We understand you may have reservations. We want to educate you and your trusted advisors before moving forward. Please note:
– 2000+ cases closed in 22 years
– Please feel free to talk to our clients
– Audit Defense offered by Campbell Law for each DST.
– Please have your legal counsel and CPA sign the NDA, review the DST structure and give their blessing before moving forward.
To note: all of the above is no cost, no obligation. Fees are only charged if you decide to close the Deferred Sales Trust.
How can I have my tax advisor or attorney analyze the Deferred Sales Trust strategy?
For detailed technical information, please have your CPA contact the Estate Planning Team for a full legal and tax cite package. The names Deferred Sale Trust™ and DST are common law trademarked names and are not found in the code. All of the legal and tax authority used in the DST are in the tax code, treasury regulations, cases, or rulings based upon the foundations found within the tax law.
Can I use my Deferred Sales Trust to get back into a primary home capital gains tax deferred?
No, however, the DST interest earned on the note is considered income and can help you qualify for a home loan. Also, a larger principal part of the DST balance can be distributed out of the trust for a down payment, however, you would pay capital gains on this amount. Also, installment note is considered a steady stream of income and does not need to be seasoned for 2 years as some sources of income need to( as long as the note has at least 2 years of income set to pay to you).
Can the Deferred Sales Trust defer capital gains tax on my primary residence?
Yes. Even after the $250,000 or $500,000 exclusion, the Deferred Sales Trust can defer the capital gains tax. As a recent example, a couple who sold their primary residence for $26M in Southern CA deferred $6M in capital gains tax. After their $500K exemption and since primary residences are not eligible for a 1031 exchange, they still owed $6M in capital gains tax. Instead of paying this $6M to the IRS, they now are earning interest on this extra $6M and living off of the interest for as long as they want to while the funds are invested in stock, bonds, multiple funds or back into real estate at their own timing (all capital gains tax deferred). This also works for stocks, syndication deals, carried interest and just about anything else which has capital gains tax.
Can the Deferred Sales Trust save a failed 1031 exchange?
Yes, please contact Capital Gains Tax Solutions, the Estate Planning Team or a duly qualified DST tax professional to discuss this option. We recommend that you work with Estate Planning Team’s Professional Advisors who are experienced in trust law, trust asset management and tax law. *Some 1031 intermediary companies are experienced with this and will allow the Deferred Sales Trust language into your 1031 exchange agreement and some will not. We recommend you choose a 1031 intermediary who will allow the language to ensure the DST can save a failed 1031 exchange.
Why Use the Deferred Sales Trust instead of a 1031 exchange?
The Deferred Sales Trust (DST) gives you the ability to sell high and buy low and relive the 1031 pressure of 45 day and 180-day deadlines. The DST can reinvest into Real Estate (all capital gains tax deferred) and back out of real estate at any time while the 1031 cannot. If it were 2007 all over again and you knew you could sell at a record high, and invest your capital into conservative bonds and wait until the market corrected, would you? The DST gives you this option, while 1031 does not.
2) Direct up to 80% of the funds to an LLC and partner with the trust for a business purpose such as purchasing investment real estate, loan business, buy into a business or develop investment RE at your own timing (all capital gains tax deferred, without having to follow any timing guidelines.)
3) The DST can save a failed 1031 exchange. In other words, at day 46 or day 181 the funds from the intermediary can be sent to DST and therefore the capital gains tax is tax-deferred. This provides extra peace of mind in case your upleg does not work out or the seller or lender will not deal.
4) Truly retire for real estate ownership. Be rid of the toilets, trash, liability and management headaches.
5) Liquidity and Diversification: Diversify your capital into multiple real estate markets, REITS, stocks, bonds, multiple funds. The 1031 is only into like-kind investment real estate and typically is only 1-3 properties and therefore only 1- 3 markets. Unless an investor uses a non-recourse loan the liability remains with the owner personally vs in the DST and invested into other large stock exchange companies which have the liability.
6) Convert an illiquid asset, like a business, primary home, art, collectibles or commercial real estate, into a diversified portfolio of liquid investments. This can help reduce risk and volatility by preventing overexposure to a single asset class. 1031 is only for investment property.
7) Deprecation Schedule resets when the property is purchased in partnership with a DST. A 1031 exchange the depreciation schedule travels,.
8) Partnership Interest: When a partnership or other ownership group sells an appreciated asset, they do not need to remain together to achieve tax deferral, as is typically the case with a 1031 Exchange. Each individual owner can have their own Deferred Sales Trust™, the assets of which can be managed to each taxpayer’s own individual risk tolerance and preferences.
9) Net rental income. If you buy a property through the DST you don’t have to take the rental income. Instead, the income can be put back into the DST and invested in Stock, Bonds, Mutual Funds. This can lower your tax bracket potentially and you earn interest on the income you would have normally paid Uncle Sam.
10) At the close of escrow, move funds outside of the taxable estate to avoid the 40% estate tax on amounts over $11M single or $22M married couple.
Why Use a 1031 Exchange instead of the Deferred Sales Trust?
1) Retain the stepped-up basis. The 1031 exchange maintains the stepped-up basis while the Deferred Sales Trust (DST) does not, however, your heirs can step into your shoes and maintain the DST trust which would maintain the capital gains tax deferral.
2) Lower one time fees with 1031 exchange vs ongoing annual fees with DST.
Where are the funds of the deferred sales trust held and is the Deferred Sales Trust note secured or unsecured?
The funds are held in some of the largest banks in the world such as Bank of Newyork Melon, Sunwest Bank and TD Ameritrade. The note is secured against the assets the funds are invested in. Funds are held in a DACA account. Escrow has all the funds, all the time. 24/7 Access to view funds and funds only move with your signature. DACAs are tri-party agreements between a lender (also often referred to as the secured party), a borrower and a depository institution. The purpose of a DACA is for a lender to gain control over its borrower’s deposit accounts that are held at a depository institution other than the lender so that the lender can perfect its security interest in the deposit accounts. Some DACAs are structured so that the lender has exclusive control of the deposit accounts immediately upon execution of the DACA. Other DACAs allow the borrower to access, withdraw and transfer funds in the deposit accounts until such time that the lender provides a notice to the depository institution that the lender is taking exclusive control and that borrower is no longer permitted to access, withdraw or transfer funds from the deposit accounts.
How is the deferred sales trust taxed?
The deferred sales trust is a Missouri business trust and is taxed as a C-Corp and is not being taxed at the trust level. The interest earned on the trust and not being paid out to the noteholder is expensed in the given year. The noteholder is receiving a 1099 and CPA is using form 1120.
Who is the Estate Planning Team and who would be the financial adviser?
Estate Planning Team, Inc. is the exclusive licensor of the Deferred Sales Trust (DST). Bring your own FA or hire Robert Binkele who is a financial advisor and CEO and president of the Estate Planning Team. He is a member of the prestigious Forbes Finance Council. Forbes Finance Council is an invitation-only organization for executives in accounting, financial planning, wealth and asset management, and investment firms. Mr. Binkele is considered one of the nation’s most successful financial advisors, managing funds for high-net-worth and ultra-high-net-worth individuals and families as well as family foundations, charitable organizations and other enterprises. In addition, Mr. Binkele is also considered one of the preeminent experts in the area of tax deferral upon the disposition of highly appreciated property and businesses.
I'm just a business owner or other asset owner and was not planning on doing a 1031 exchange....What are my options?
1) Seller carries back: carry a note for the buyer of your business or asset. The downside is a risk with the buyer of your business or asset not performing or running your business unsuccessfully. This may cause you to have to take the business or property back via foreclosure. Also, most of these seller financing notes are paid back within 5-10 years, which means the tax is due while the DST can go on for as long as you would like. It also passes on to your heirs.
2) Sell and pay the tax: help Uncle Sam pay down the $21+ Trillion. Most of our clients do not like this.
3) Use the DST: our clients like this, since their capital is not tied to their previous business or the new owner if they choose option 1. Most of our clients like paying their capital gains tax the 2nd day to never. We encourage each of our clients who are considering the DST to run the numbers on the rule of 72 which states if you can earn 7% on the funds you would have paid to Uncle Sam over 10 years and let the funds compound then the amount doubles. $1M earning 7% over 10 years = $2M.
When the trust sells the property may I keep some of the cash from the sale?
Yes, in that case you would pay taxes only on the capital gain portion of the money which you kept for yourself outside the trust.
How can I know the amount of my payments from the trustee?
The payments are based on what you, the Seller/Taxpayer, arrange and pre-negotiate with the DST Trained and Approved Trustee. Depending on your income goals and other objectives, the amount and length of the term of the installment sales note are your choice and subject to your 100% agreement
Are there any flexibilities or variability in the payment stream, such as increasing the payments over time?
The options on when and how payments can be made are flexible. You may have other income and don’t need the payments right away. The tax code doesn’t require payment of the capital gains until you start receiving installment payments. The capital gains tax is paid to the IRS with an “installment plan” since only that portion of capital gains is due in proportion to the number of years established in the term of the installment agreement. As far as flexibility, the awnser is yes. The note can be refinanced in order to extend or shorten the note term or to provide you with payments (or greater payments) of principal (and should you decide to take an “interest only” note initially).
How long does the deferred sales trust last or when do I have to pay the tax?
The note is set for 10 years and then can be renewed for another 10 years every 10 years. The trust can pass to your heirs and they can renew for as long as they like. So, the trust can go on for as long as you would like. The capital gains tax is owed once you or your heirs take a constructive receipt or in other words cash out.
Is the DST included in my taxable estate?
Seller/Taxpayer should know that the DST Note would be included in their taxable estate just like any other asset. EPT will work with you to educate the DST client about their potential estate taxes. If there are estate tax problems, EPT and the tax lawyers can help to work to reduce their estate tax liability.
What happens if I die?
With proper estate planning (i.e., by creating a Living Trust) scheduled installment note payments otherwise due to you can continue to pay to your legal heirs pursuant to the note term that you have chosen.
Can the DST be canceled before my note matures and the funds sent to me?
Once the funds are in the Deferred Sales Trust, do banks consider these funds a liquid asset?
What are the average historical returns for funds that stay in the trust?
It depends on how and where the funds are invested, based upon the risk tolerance of the client(noteholder). Most are somewhere between 6-8% return over 10 year period of time.
I have mortgage over basis, can you help?
Yes. We can do a partial 1031 exchange and partial deferred sales trust. Please contact us to set up a time to walk you through this
Does the trust need to be set up before close of escrow?
Depends. If you plan to do a 1031 exchange and the funds are going to a 1031 intermediary then no, however, if you do not plan to do a 1031 or your transaction does not qualify for 1031 then yes the deferred sales trust needs to be set up before closing of escrow.
Does the Deferred Sales Trust defer capital gains taxes on carried interest?
Yes. Carried interest, or carry, in finance, is a share of the profits of an investment paid to the investment manager in excess of the amount that the manager contributes to the partnership, specifically in alternative investments. It is a performance fee, rewarding the manager for enhancing performance.
The current tax code took away 1031 rights to personal property such as private aircraft, art, and other capital gains tax related personal property; would this strategy work on something like a private aircraft as well as other personal property?
Yes. The deferred sales trust is not a 1031 exchange. It is under IRC 453 which is a separate tax code. Please contact us to discuss.
What companies, business or brands have closed or helped their clients close a Deferred Sales Trust?
Here are a few: Orange Coast Title, Fidelity National Title, Legal 1031 Exchange Services, Inc., Cushman & Wakefield, Marcus & Millichap, Keller Williams, Toyota, Remax, Xchange Solutions, Inc., Veterinarians, and Dentist.
What is the toal amount of assets that can be sold in a DST per person per year?
The Seller/taxpayer can create an installment note of up to $5 Million per person per year. Thus, if your taxpayer is married, then up to $10 Million per the calendar year can be sold using the DST. If the sale is near the end of the year or beginning of the year, the action may be taken to spread the transaction across two calendars years to double this amount.
What is minimum deal size or capital gains tax deferred to make sense of the fees for the Deferred Sales Trust?
Given the set up fees and ongoing fees, we have found if the Seller/taxpayer is subject to $100,000 in tax liability and has $500,000 in net proceeds going into the trust, then the Deferred Sales Trust makes sense. We use the rule of 72 to prove this. The Rule of 72 is a simplified way to estimate the doubling of an investment’s value, based on a logarithmic formula. Years to Double= 72 / Interest Rate. So if an investment allocation proposes an 7% annual compounded rate of return, it will take approximately (72 / 7) = 10 years to double the invested money. In this case, if the tax liability is $100,000 and the net proceeds is $500,000, then after 10 years if all of the interest earned were compounded then the total account value at the end of 10 years would be $1,000,000. Most of the allocations for our clients earn somewhere around 8% after fees over any 10 year period of time. Or the Seller/taxpayer could have lived off of the interest and still have the principal in place to renew for another 10 years or just pay the tax at that point.
Are there current clients I can speak with to hear how the deferred sales trust has worked out for them?
What are the steps to Investing in the Deferred Sales Trust Proceeds?
• Risk Tolerance Questionnaire – filled out by the seller.
• The Deferred Sales Trust Note Terms – negotiated & agreed to by Deferred Sale Trust Noteholder and Trustee (Capital Gains Tax Solutions).
• Asset Allocation – presented by Financial Advisor and approved by Deferred Sales Trust Trustee & DST Noteholder.
• Disclosures are signed.
• Deferred Sales Trust Closed – Investments are made.
What is the process for the DST again?
The process starts when a property owner sells their property to a trust owned by a third-party company(Capital Gains Tax Solutions). The trust sells the property or stock. Next, the trust “pays” you. The payment isn’t in cash, but with payment, the contract called an “installment contract.” The contract promises to make payments to you over an agreed period of time. There are zero taxes to the trust on the sale since the trust “purchased” the property from you for what it sold it for. The payment is made with an installment contract which makes payments to you over an agreed period of time.
I’m interested in finding out if this works for me. What should I do next?
It’s very easy. Your next step is to complete an “illustration request” on-line at: www.mydstplan.com/taxsolutions
Or, you can call 916.886.2986 and request a “free Deferred Sales Trust illustration” which will illustrate your particular facts and circumstances surrounding your potential sale as it relates to utilizing the Deferred Sales Trust. Once you have received the illustration summary, you can then review this information with a trust case manager and share this information with your CPA or tax attorney for further review.
To note: all of the above is no cost, no obligation. Fees are only charged if you decide to close the Deferred Sales Trust.
Tips: Add this language to your purchase and sale agreement or counter with this language in an addendum before the buyer removes all contingencies:
1) The seller has right to a 1031 exchange or a deferred sales trust with no objection from the buyer or cost to the buyer.
2) If you are considering a 1031 exchange, discuss with your accommodator and send the Deferred Sales Trust language. If you need a 1031 company, please email us and we will send you a list of those who have worked with us in the past and helped facilitate the Deferred Sales Trust cases.
Can I take possession of the original principal/down payment on the houses and only place the taxable appreciated capital gains
Unfortunately no. To have 100% tax deferral, you need to put 100% of the proceeds into the trust.in the DST?