What is a Deferred Sales Trust TM?

What is a Deferred Sales TrustTM?

"Frequently Asked Questions

Q. What is a Deferred Sales Trust TM????
A. A contractual arrangement between an individual and a trust in which the individual sells property to the trust in exchange for the trust???s agreement to pay the individual a certain amount over an agreed period of time. A Deferred Sales Trust??? is not a ???Delaware Statutory Trust???.

Q. Will I be taxed when I sell the asset to the trust?
A. No. When properly structured, there is no taxable gain at the time of the sale.

Q. If I don???t report any taxes upon the sale of the property to the trust or subsequent sale of the property, when do I incur taxes in a deferred sales trust transaction?
A. The individual receiving the payments will report the income as it is received from the trust.

Q. How am I taxed on the payments?
A. Part of each payment is returned to you tax-free as a return of your basis. The remainder of each payment is taxed partially as capital gains and partially as ordinary income. Some depreciation recapture may have to be accounted for as well, depending on the type of asset sold.

Q. Is this a loophole that will be closed by the IRS?
A. This is not a loophole. Tax code IRC 453 allows for installment sales. The tax code has had a provision for installment sales for many years.

Q. What if the law changes?
A. The tax code is changed by congress not the IRS. When U.S. tax laws change, they are very rarely made retroactive. So, if there is a law change, most likely it will not affect pre-existing DST???s.

Q. Will I be more likely to be audited if I enter into a DST transaction?
A. There is nothing in the transaction that should cause an audit flag, but if there is an audit, it should be remembered that a properly structured Deferred Sales transaction conforms to current tax regulations and law. The law firm that implements the DST should be consulted for further guidance and/or counsel should an audit occur.

Q. What happens if I die?
A. The DST has no affect on your estate taxes. However, it can be used in conjunction with other estate planning tools to reduce or eliminate estate taxes.

Q. Once a DST is entered into, can it be canceled?
A. Under certain circumstances, including default on the payments by the trust, the trust can be dissolved and any capital gains will be owed for the remaining portion at that time.

Q. Is it possible to defer collecting payments until my retirement?
A. The installment note may be drafted to provide for almost any type of payment structure and term, as long as it is commercially reasonable.

Q. Once a DST is established, can additional property be sold?
A. Yes, additional property can be sold to the trust after it has been established.

Q. Can the transfer of assets be challenged under fraudulent conveyance laws?
A. As long as the property is sold for fair market value, the transfer should not be overturned under the fraudulent conveyance laws.

Q. Are the payments received from the trust safe from creditors?
A. The laws of many states provide an exemption for some portion of the payments. The assets of the trust are protected from your creditors. However, creditors may be able to attach to your right to receive payment from the trust."


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