A Deferred Sales Trust (DST) is a legal and tax strategy that allows a seller to defer capital gains taxes on the sale of an asset, such as real estate or a business, by using a trust to hold the sale proceeds.
In a typical DST transaction, the seller transfers the ownership of the asset to a third-party trust company in exchange for a promissory note. The trust company then sells the asset to a buyer and holds the sale proceeds in the trust. The seller receives payments from the trust over time, while the trust invests the sale proceeds to generate income.
By using a DST, the seller can defer the payment of capital gains taxes on the sale of the asset until they receive payments from the trust. This can provide several benefits, including increased cash flow, the ability to diversify investments, and potentially lower overall taxes.
It's important to note that DSTs are complex legal and tax structures that must be carefully planned and executed. They may not be suitable for all sellers, and it's recommended to work with experienced professionals, such as attorneys and tax advisors, to evaluate the potential benefits and risks of a DST transaction.
A Delaware Deferred Sales Trust (DDST) is a type of Deferred Sales Trust (DST) that is established under Delaware state law. While both types of trusts allow a seller to defer capital gains taxes on the sale of an asset, there are some differences between the two.
One of the key differences between a DDST and a regular DST is the state law that governs the trust. A DDST is established under Delaware state law, while a regular DST may be established under the laws of any state. Delaware is often chosen for DSTs because of its favorable trust laws and the availability of experienced trustees who specialize in DSTs.
Another difference is the level of complexity involved in setting up and managing the trusts. DDSTs may require more complex legal and tax planning than regular DSTs, as they must comply with both Delaware and federal tax laws. This may make them more expensive to establish and maintain than regular DSTs.
Overall, the decision to use a DDST or a regular DST will depend on a variety of factors, including the seller's individual circumstances, the type of asset being sold, and the tax and legal implications of each option. It's important to work with experienced professionals to evaluate the potential benefits and risks of each option before making a decision.
One of my favorite things about the AI revolution is being able to ask questions when somebody asks about a DST vs. DDST and you can provide context and information. What I do notice that is omitted is a 1% fee typically paid to the trustee for handling the DST.