Deferred Sales Trust

12 Replies

I'm doing a 1031 Exchange.  I'm right in the middle of the 45-day window to identify. I haven't yet found anything that gets me too excited yet and I'm feeling a little stressed about it. The whole thing could blow up in my face.

Yesterday I'm at the gym trying to manage my stress. l put on a podcast and the gest starts talking about Deferred Sales Trusts - What! Is this really a thing?

If this is a thing, why haven't I heard of it? Why are people doing 1031s if the Deferred Sales Trusts is an option? If this 1031 I'm in now starts to go sideways on me, can I move it to a DST as a plan B?

If this is legit where would I go to get this done?

A DST is a real thing. It is a way to defer capital gain. It's best when you want to exit your present investment and put your funds into a trust with a basket of investments managed by a professional investment advisor. The trust must be overseen by a third party trustee, for which you will pay a significant amount each year. You have freedom to invest as you wish, but most likely you will not have complete access to the funds as DST investments tend to be relatively non-liquid.

Another approach you may consider is even less well-known than the DST. It's called a Monetized Installment Sale. With this, you can sell your property and obtain 93.5% of the net sales proceeds in cash at closing, and the capital gains tax is deferred for 30 years. It is often used as a backup plan for 1031 exchanges that end up failing due to not being able to meet one of the two deadlines. If you have an MIS backup plan in place, you can quickly convert your exchange to a Monetized Installment Sale before your exchange dies. Then you can take your cash and shop for replacement property without worrying about those 1031 deadlines. That may help you to be in a better negotiating position when you make offers, and you probably will feel less stress.

With the MIS, you can also basically create your own DST, without the trust, the trustee, and the fees, so you can invest with complete freedom.

Hi Jeff, Thanks for this information.  I was just reading more about the MIS on the internet and it's interesting.  

Here is a question you may know the answer to - after deferring the capital gains tax for 30 years, what happens after the 30 years of different? 

Originally posted by @Dennis Walker :

Hi Jeff, Thanks for this information.  I was just reading more about the MIS on the internet and it's interesting.  

Here is a question you may know the answer to - after deferring the capital gains tax for 30 years, what happens after the 30 years of different? 

 In 30 years the original installment sale is completed. The seller receives the last and final balloon payment. This is when the taxes are due and the seller will recognize the gain. The sales proceeds close out the monetization loan and the deal is complete.

Monetized Installment Sales were covered on BP here...

Interesting topic. Does anybody have recommendations for the best lawyers, CPA's and advisors to set these up? Thanks!

@Dennis Walker yes the deferred sales trust is real. 2000+ closes, 14 no charge IRS audits and hundreds of millions in capital gains tax deferred. It has also save many failed 1031 exchanges. Search YouTube: deferred sales trust vs 1031 for a 7 part video series to breakdown the differences.

Dear Brett P Swarts, 

Respectfully, if you intended to respond to the previous question from Marlina Eckel, you addressed it to Dennis Walker, but may have missed Marlina's point regarding the IRS and MISs, and commented on DSTs instead. 

Do you have any insight on Marlina's question about the IRS vs MISs?

So I did a little research on DSTs. There is really no IRS private letter ruling specific to DST (or at least it is never mentioned as such) as far as I can tell, despite some advertising to the contrary. A tax attorney explained it to me that rather, what it is, is that the IRS has lost big in some recent cases. He says though there is no private letter ruling, he says there are few-to-no tax court cases that would indicate the IRS is fighting against these. He thinks the IRS would not fight this in court because they might lose a la the "substance over form" doctrine similar to how they got "crushed" recently in the Sumo-Holdings case. Creating such a trust would raise the chances of audit, and it is true that the IRS might scrutiny a tax payer much more closely in other areas, even tho they may leave your "DST" alone. He would defer to local attorneys however since trust laws are so specific state to state - and seek to setup what he called a generic children's (uncapitalized/lower-case) deferred sales trust, using your children, for example as beneficiaries. DST would be an aggressive strategy but more conservative than a monetized installment sale. Happy to trade notes with anyone on these topics.

@Curt Todd thanks for the message. I was attempting to address Dennis question on the top post about the deferred sales trust which is not the MIS, however, to answer your question regarding the Monetized Installment Sale (S. Crow Collateral Corp. Method aka ( Monetized Installment Sale).....Below are links for what appears to be pending court cases which you may find timely and informative: are some recommended questions of the deferred sales trust (what we do here at Capital Gains Tax Solutions), (or S. Crow) or to anyone who is giving capital gains tax deferral advice:

Let's apply it to S. Crow....

I would suggest: (1) asking some of the questions (from below), before showing them (anyone) what you know from below, and (2) ask your questions (and get replies) in written form (e-mails)

1) What is the current status of the S. Crow Collateral Corp. aka ( Monetized Installment Sale) v. the United States of America? How many current IRS audits or court cases are pending with S. Crow Collateral Corp? How might the outcome of this affect a client's tax liability?

2) How many of their client's cases for the Crow Structure have had an IRS audit or State taxing authorities? How many of your actual clients were involved in these audits? Did you defend them? Outcome? 

3) What was the outcome of these audits? 

4) Will Mr. Crow indemnify your case? Will Mr. Crow put this in writing and send you the cases? 

5) Is there an audit defense built into the deal? If so, who pays?

In comparison the deferred sales trust has no pending legal cases, has a successful Private Letter Ruling in form and substance, has had 15 IRS audits (3 formal), 2000+ closed cases, DST law firm provides audit defense at no additional cost for life of the trust, and all IRS audits were closed as no change audits. If you have live deal with a client/prospect and would like to speak directly with me about this, please let me know and we can set up a conference call.

@Brett P Swarts

You understand that those two cases are Stan Crow vs the Government, not the other way around, right? I interpret this to mean that he is very confident in his deal structure and wants a definitive ruling. Imagine what that would do for his business.


Thanks @Thomas Rutkowski . I did hear it was an appeal to a decision that would open up client files. I could be mistaken here and not sure what the outcome will be. I also had a prospect look at Deferred Sales Trust vs MIS and speak with an attorney who was close to this case and would welcome a call from you to discuss what they found.