I have received a number of follow-up emails to my previous post regarding Deferred Sales Trusts asking me to elaborate on the benefits and advantages of using the Deferred Sales Trust tax-deferred strategy, especially since I spent more time going over the disadvantages, so here you go.

First, the Deferred Sales Trust was revamped about two (2) years ago, so for those of you who reviewed the Deferred Sales Trust structure back then and dumped the strategy like I did, you should revisit the Deferred Sales Trust under today's structure.  It is very different from a structure sale or self-directed installment sale strategy.  The Estate Planning Team can sit down with you and compare the various structures to help you understand the differences. 

Second, the 1031 exchange is generally the better way to go since both the depreciation recapture taxes and capital gain taxes are tax deferred indefinitely.  It is the ole "Swap Until You Drop" 1031 tax deferred exchange strategy.  However, for those investors who do not want to acquire like-kind replacement property as required in a 1031 tax deferred exchange, the Deferred Sales Trust is a great option if you do not want to get hit with all of your capital gain taxes in the year that you sold your property.

Third, here are the benefits and advantages of using the Deferred Sales Trust^TM as I see them:

• Tax Deferral. The client can defer the payment of your capital gain taxes into the future.  Capital gain taxes are recognized and paid over the term of the installment note.  The client can determine the terms and length of the installment note.
• Better Than Seller Carry Back Note. The Deferred Sales Trust is better than the standard seller carry back note because the Deferred Sales Trust receives 100% of the net proceeds at the closing and the buyer is out of the picture.  There is no risk of default from the buyer because your proceeds are held in the Deferred Sales Trust.
• Can Generate Substantially More Income.  All of the client funds, including those that would normally be paid to the government in the form of capital gain taxes, continue to work and earn income for the client inside the Deferred Sales Trust.  The ability to keep 100% of the net proceeds keeps the client's money working for them instead of Uncle Sam.
• Estate Tax Benefits: The value of the asset sold to the Deferred Sales Trust is frozen at the fair market value that it was sold to the Deferred Sales Trust at.  This means that the value has been frozen for estate tax planning purposes.
• Maintains Family Wealth: The Deferred Sales Trust helps to maintain wealth within the family by deferring the payment of the taxes and allowing the funds to build wealth. 
• Estate Liquidity: This strategy is often used to create liquidity in an estate.  The sale of an illiquid asset to the Deferred Sales Trust generates monthly cash flow where there was no or little cash flow before the Deferred Sales Trust.
• Retirement Income: The Deferred Sales Trust can be used to provide cash flow for retirement needs.
• Probate Avoidance: The Deferred Sales Trust can avoid probate with the proper estate planning.
• ­Eliminates Risks Associated with Ownership: The Deferred Sales Trust can also get you out of an asset that has more risk associated with it such as real estate and convert it into a monthly cash flow with no operational risks.

There are many tax-deferred strategies and vehicles available to clients today, so it is important that the clients do their own due diligence, including meeting with their legal and tax advisors to make sure they choose the most appropriate tax-deferred solution for to meet their needs.

You can visit our Deferred Sales Trust website for a complimentary Illustration that compares a direct sale ("cash out") with a Deferred Sales Trust.