What is a Deferred Sales Trust of DST?

The Deferred Sales Trust™ or DST™ might be an alternative income tax planning solution for those taxpayers who wish to sell highly appreciated assets and not acquire replacement property by structuring a 1031 tax-deferred exchange transaction. The Deferred Sales Trust might be able to assist a taxpayer with the sale of a highly appreciated asset by deferring their capital gain taxes on the disposition of the asset. 

Deferred Sales Trusts may be especially useful with the sale of businesses or assets that do not qualify for 1031 tax-deferred exchange treatment. Depreciation recapture may or may not be deferred depending upon the circumstances. And, there are those who question whether the Internal Revenue Service will permit the income tax benefits of a Deferred Sales Trust. 

The Deferred Sales Trust is a legal relationship created with the execution of a Trust Agreement. The taxpayer is the Trustor in the Deferred Sales Trust. An entity that is in the business of providing trust services is appointed as Trustee of the Deferred Sales Trust. The Trustor of the Deferred Sales Trust conveys title of the asset to be sold to the Trustee and the Trustee sells the asset and manages the cash proceeds for the benefit of the beneficiary(ies) of the Deferred Sales Trust.

Taxpayers that do wish to acquire replacement property will generally default to completing a 1031 tax-deferred exchange transaction. The Deferred Sales Trust is generally considered for those taxpayers that do not wish to replace the asset being sold. Taxpayers should always consult with their legal and tax counsel prior to proceeding with any a 1031 tax-deferred exchange or a Deferred Sales Trust.