Choosing a Trustee You Can Trust

If you are considering using a Deferred Sales Trust (DST) as a form of capital gains tax deferral, one of the most important decisions you can make is choosing a trustee. A Deferred Sales Trust trustee will explain the process, work with CPAs and financial advisors to set up the trust, invest your funds in a diversified portfolio or in real estate or business ventures, and then manage and disperse your proceeds.

What is a Trustee?

A trustee is a fiduciary–someone who manages money or property for someone else. In the case of a DST, a trustee manages the assets in a third-party trust on behalf of the investor. A fiduciary is legally and ethically bound to act with good faith and loyalty on behalf of the investor.

Why is a Trustee Necessary?

A Deferred Sales Trust legally requires that the asset be sold to a bona fide, independent, third-party trust managed by a legitimate third-party trustee not connected with the asset’s owner. The property owner and the trustee negotiate the trust’s structure and the terms of the installment agreement prior to the sale of the asset.

What are the Responsibilities of a Trustee?

Loyalty

A trustee must administer the trust in the sole interest of the beneficiaries. This means that a trustee must avoid conflicts of interest, acting in a way that would benefit them personally or acting for the benefit of another party.

Managing Assets

A trustee must manage assets responsibly and with an understanding of the risk tolerance and financial needs and goals of the beneficiaries. Before moving your asset to the Deferred Sales Trust, you will work with your financial advisors and the trust’s professional team to decide how you want the funds to be invested. The trustee is then responsible for executing those investments for you and distributing the proceeds as outlined in the terms of the agreement.

Informing the Beneficiary

Prior to establishing the trust and taking possession of your asset in the trust, a good trustee should make sure that you have a clear understanding of the DST and your options. They should take the time to work with you and your trusted financial advisors to ensure that all your questions have been answered and you have a firm grasp of the process.

Once you have sold your asset to the trust, a trustee is obligated to keep the beneficiaries informed about trust assets, investments, and expenses. The trustee should be able to promptly respond to any request for information from the beneficiary.

Qualities to Look for in a Trustee

So now you know what a trustee does, but how do you find a good one? You don’t want to entrust your retirement, your Bitcoin windfall, or the sale of your business to just anyone. Here are some qualities to look for when vetting any potential trustee.

Knowledgeable

When looking for a trustee for your Deferred Sales Trust, first and foremost, you want a trustee who understands the ins and outs of a DST, and also has experience with other capital gains deferral strategies so that you feel confident you are using the strategy that works best for you.

Deferred Sales Trusts can be complicated to set up and execute so that they comply with IRS regulations. A quality Deferred Sales Trust trustee will be able to clearly explain the trust’s workings to you, giving you confidence that they have the necessary knowledge and experience to manage your funds.

Experienced

You want assurance that your trustee has experience building and managing Deferred Sales Trusts, navigating IRS audits, and successfully investing. Suppose you are looking to use a DST to diversify your holdings. In that case, you want a trustee with experience in various investment vehicles–such as stocks, real estate, and cryptocurrency–so they can partner with you in choosing ideal investments for the funds held in the trust.

Financially Stable

Not only do you want a financially savvy trustee but a trustee who is free from potential conflicts of interest. Make sure your trustee does not have a tangled financial history and that they don’t have issues with creditors that would jeopardize their ability to administer your trust.

Detail Oriented

A deferred sales trust has many different pieces, so you want to ensure that the trustee you choose is detail-oriented and organized. They need to keep careful records and communicate effectively with you each step of the way.

Reliable

Does your potential trustee return your calls? Show up to meetings on time? Can you count on them to follow through with what they’ve promised? These are all early indications of whether your trustee is reliable. A trustee has significant responsibilities, and you want to be sure they can carry out the duties of managing your trust professionally and responsibly.

Collaborates with Other Professionals

Your trustee will not be working alone. You want a trustee who works well with your trusted financial advisors and has the resources and skill set to collaborate with CPAs, tax attorneys, and financial advisors.

Choose Wisely

Choosing a trustee for your Deferred Sales Trust is not a decision to be taken lightly. You will be best served if you can find a trustee who is experienced and skilled, whom you enjoy working with, and whose opinions and expertise you value.

Brett Swarts at Capital Gains Tax Solution is an investment expert who has successfully created and managed Deferred Sales Trusts for years. Reach out today to see if Capital Gains Tax Solutions is a good fit for you.

Infographic

When considering a Deferred Sales Trust (DST) for capital gains tax deferral, choosing the right trustee is crucial. Check out this infographic to learn about the key qualities to consider when evaluating any potential trustee.

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