Breaking Down Deferred Sales Trust Fees in Plain Language

No matter how long you’ve owned stock, a business, or real estate, one thing never changes: buying and selling high-value assets comes with costs. So before you make plans to sell your cryptocurrency or liquidate your company stock holdings, you need to know what it’s going to cost and the steps you need to take to maximize the value of your assets both before and after a sale.

If your goal is to defer capital gains taxes on your sale, the landscape changes slightly. Most financial tools involve fees and administrative costs, often based on the size of the transaction, but these fees are usually balanced by the benefits they provide. A Deferred Sales Trust’s (DST) fees work differently. They are structured to align with the trust’s tax-deferral and investment management features, providing flexibility while helping you preserve as much of your capital as possible.

Here’s how DST fees are structured and what you can expect when using this strategy to sell high-value assets.

Why Are There Fees in the First Place?

A Deferred Sales Trust is a trustee managed, attorney required legal tax strategy that often includes a financial advisor for financial strategy that unlocks preservation and growth for your capital when you exit. Thus, the fees associated with a DST reflect the expertise and services required to make this happen.

Legal Structuring and Tax Compliance

DSTs must be carefully set up to meet IRS requirements under Internal Revenue Code §453. That means drafting trust documents, structuring installment notes, and ensuring every step aligns with tax law. Experienced tax attorneys and advisors handle this work, giving you confidence that your strategy is legally sound.

Third Party Management

Large Financial Institutions like Charles Schwab and others typically hold the trust’s assets. A third party trustee holds the keys for the movement of assets along with any financial advisor that has been hired to serve the trust. The seller of the asset becomes the note holder and ensures you do not retain 100% direct control. This is an essential requirement to maintain IRS compliance. Their independence safeguards the trust and keeps the transaction legitimate.

Ongoing Financial Oversight and Investment Management

After the sale, the trust reinvests the proceeds to align with your financial goals, risk tolerance, note payback details so whether that’s growth, income, or a combination, the trust is flexible to meet you where you are. Professional oversight ensures responsible handling of your funds, helping your capital continue to work for you rather than sit idle.

Investment Tools

Access to a real estate tax capital gains tax calculator and other tools allows you to project how much tax you’ll defer and how installment payments may impact your long-term financial planning. These calculations are complex and require expert understanding of both your assets and applicable tax rules.

Each of these services involves skilled professionals dedicated to keeping your DST airtight and helping you grow your wealth after the sale. While fees are part of the process, they are an investment in security, compliance, and long-term financial control.

What Fees Should I Expect?

Closing Costs

The first fee you may encounter is the closing costs. This is a one-time fee you pay to create the legal infrastructure of your DST. It can include:

• Drafting legal documents
• Coordinating with your CPA to report your tax return
• Ensuring full compliance with IRS guidelines

The fee percentage can vary depending on the transaction’s complexity and the size of the sale, as well as the provider you choose; however, they are typically around 1.5% on the first one million of any transaction and 1.25% on any amount above one million. So a $3,000,000 transaction would be $15,000 for the first $1,000,000 and $25,000 for the remaining $2,000,000 for a total of $40,000. This is typically a one-time fee only paid at the close of the transaction and paid out of the closing funds.

Trustee Fees

Every DST requires a third-party trustee to hold the assets and administer the installment sale payments. This aspect is crucial for maintaining IRS compliance. You can’t manage the trust yourself or appoint a close relative to do so.

Trustee fees are ongoing and typically billed annually at around 1.5 to 2% no matter how and where the funds are invested, however, this amount can be lower if no financial advisor is involved and less complex investments are made. The specific cost of these recurring fees depends on:

• The total size of the trust
• Whether a financial advisor is managing the funds (if applicable, this may incur additional fees)
• The complexity of the investment portfolio
• Keep in mind each trust has professional bookkeeping and requires a tax return each year which adds around $1600+/- per year paid by the trust. This is a tax deduction at the trust level.

Say your trust holds $2 million and your annual trustee fee is 2%. This means the trust will pay an additional $40,000 per year. While that may sound like a lot, keep in mind that the investment returns and tax savings often far outweigh this expense, especially over the trust’s lifetime and if the asset sold had at least a $1,000,000+ gain and net proceeds. These expenses are helpful to keep the paper loss down to reduce potential tax. This is key to the trust’s ability to stay as close to tax neutral as possible, which is a good thing to keep the trust lean on the tax side.

Are There Any Hidden Fees?

One of the advantages of working with a reputable DST provider is fee transparency. Before you agree to a DST, ask:

• If any fees are success- or performance-based
• If there are early termination fees if you want to accelerate your installment payments
• How your investment gains are taxed if you reinvest within the trust

Most of the time, there are no hidden charges, but every DST provider is different. Ensure you meet with your capital gains tax adviser and have them walk you through the entire structure in advance.

Total Cost Overview Example

Say you want to sell a commercial property for $5 million. You initially invested $2 million in the asset, and your expected capital gains are about $3 million. You live in California, so the combined state and federal rate is around 37%.

If you set up a DST to defer the tax liability, here’s how the DST fees could break down:

• One-time legal setup fee (1.5% on the first $1,000,000 and 1.25% on $4,000,000): $65,000
• Trustee fee (1.85%): $92,500 annually
• Total first-year cost: $157,500
• Ongoing annual cost: $92,500

Compare that to what you might owe in capital gains taxes if you realized the full $3 million at the time of sale. It could be 37% or $1,110,000 if the gains are long-term. If they are short-term gains, it could be even higher. Even over several years, the DST continues to provide a net financial benefit, offering investment flexibility, income, and tax control since it can also defer income tax for around two years completely and then make partial payments moving forward for additional compounding return

Total Cost Overview Example

Value Over Cost

Yes, DSTs come with professional fees. As with any high-performance financial tool, those fees are an investment. Every dollar goes toward ensuring the trust is legally sound, professionally managed, and optimized to meet your long-term financial objectives. Pro Tip: work with trustees who cash flow their fees to further make the DST an investment and not an expense.

When structured correctly, a DST is a strategic bridge that allows you to protect your capital, maintain control over timing and cash flow, and reinvest your proceeds in a way that aligns with your goals. The ability to defer capital gains taxes while directing your funds toward new opportunities can often outweigh the initial expense many times over.