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Deferring Taxes and Ending Up Financially Ahead

Jessica Lanning

Bemoaning not having sold a piece of real estate four years ago when values were higher?  What if you could sell now, not do a 1031 exchange, and come out financial ahead, even with values lower?  If this is you, read on.

As a member of the Estate Planning Team, I can work with clients to implement a tax strategy called the Deferred Sales Trust™, which just got its private letter ruling from the IRS this summer.  This strategy allows owners of highly appreciated assets—real property, businesses, private stock—to sell those assets and defer the capital gains taxed owed. Those clients can then earn money on the money they owe the government and can come out ahead financially with proper planning.  Even in a down economy.

How the DST works

The process starts with a property owner transferring ownership of the property to a dedicated trust, which promises to pay the client with an “installment sales contract.”  The trust then sells the property, stock or other capital asset to the buyer. The contract promises payments to the owner or their trust and those payments can be structured to continue to future generations with additional estate planning.  The tax code does not require payment of the capital gains tax until the seller starts receiving installment payments.  The DST is not unlike a no-risk “seller carry-back” financing structure.

The Deferred Sales Trust™ has the ability to generate substantially more money over the long run than a direct and taxed sale. It is also superior to a direct installment sale as the concerns of a defaulting buyer are eliminated.  Check it out: