How do we know it's legal?
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.
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?
What Types of Assets Can be Sold Using the DST?
- 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?
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?
Is the Deferred Sales Trust a delayed 1031 exchange?
Sound too good to be true?
– 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?
Can I use my Deferred Sales Trust to get back into a primary home capital gains tax deferred?
Can the Deferred Sales Trust defer capital gains tax on my primary residence?
Can the Deferred Sales Trust save a failed 1031 exchange?
Why Use the Deferred Sales Trust instead of a 1031 exchange?
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?
2) Lower one time fees with 1031 exchange vs ongoing annual fees with DST.
Where are the funds of the deferred sales trust held? Are the funds safe?
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 Direct Access Control Agreement (DACA) account. Escrow has all the funds, all the time. You have 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.
- The funds from escrow go int a bank with a deposit account control agreement (DACA), which lists you (your living trust) as the creditor of the DST.
- As a creditor on the DACA account, no money can move from the account with out your signed approval.
How is the deferred sales trust taxed?
Who is the Estate Planning Team and who would be the financial adviser?
I'm just a business owner or other asset owner and was not planning on doing a 1031 exchange....What are my options?
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?
How can I know the amount of my payments from the trustee?
Are there any flexibilities or variability in the payment stream, such as increasing the payments over time?
How long does the deferred sales trust last or when do I have to pay the tax?
Is the DST included in my taxable estate?
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. The promissory note is for the full amount of cash proceeds that are paid to the trust at closing. The promissory note can be in the name of your living trust. When you pass away, the promissory note will be inherited per the terms of your living trust.
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?
I have mortgage over basis, can you help?
Does the trust need to be set up before close of escrow?
Does the Deferred Sales Trust defer capital gains taxes on carried interest?
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?
What companies, business or brands have closed or helped their clients close a Deferred Sales Trust?
What is the toal amount of assets that can be sold in a DST per person per year?
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.
What is the process for the DST again?
I’m interested in finding out if this works for me. What should I do next?
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 Deferred Sales Trust? Please note you do not lose the 121 exclusion here, it is just delayed until and if you receive the principal amount of the trust. At that time, the 121 exclusion is applied in proportion to what you received in principal in that given year.
Our realtor already has an escrow/title company working on our sale. Is this going to be an issue?
We have worked with most large title and escrow companies, so it is typically not a problem to work with the company that your Real Estate Agent suggests, but it would be best to put us in contact with them before you go under contract so that we can make sure there are no last-minute complications. In short, it usually simplifies the process to work with a title and escrow company that has experience in Deferred Sales Trust transactions, but we can try and work with someone new.