Five Compelling Reasons to Consider a Deferred Sales Trust

What is a deferred sales trust (DST)? It is a powerful financial tool designed to help you manage capital gains taxes when you sell highly appreciated assets like real estate, businesses, or stocks. Instead of receiving the sale proceeds directly and paying a hefty tax bill when you sell these assets, you place the proceeds into the DST. Then, the trust reinvests the funds into various investments, like stocks or real estate.

With deferred sales trusts, you spread out the recognition of your capital gains over time, which can lower your overall tax rate. Additionally, the DST can provide a steady income stream through periodic payments, allowing you to maintain a stable financial situation while potentially growing your investments further. This strategy is excellent for tax deferral, efficient wealth management, and long-term financial planning.

The experienced team at Pennington Law, PLLC, can guide you through setting up a DST that complies with all legal requirements and maximizes your financial benefits. Our attorneys will draft the necessary documents, handle the transfer of assets, and provide ongoing support to manage your trust effectively. Contact us today for a free initial consultation to discover how to confidently achieve your financial goals.

Here are five key reasons why you should consider a DST.F

Avoiding Immediate Taxation

One of the main advantages of a DST is the ability to avoid immediate taxation on the sale of appreciated assets. When you sell an asset, you usually have to pay capital gains tax on the profit. This can result in a large tax bill that reduces the money you have available to reinvest. Using a DST, you defer these taxes, allowing you to reinvest the full sale proceeds.

For example, if you sell a property for a significant profit, placing the proceeds into a DST lets you avoid paying a large lump sum in taxes immediately. Instead, the trust reinvests the funds into various investments. You then receive payments over time, spreading out your tax liability. This deferral can help you keep more money working for you and potentially increase your overall returns. 

Asset Diversification

Another key benefit of a DST is asset diversification. When you place your sale proceeds into a DST, you can reinvest them in assets like stocks, bonds, real estate, or other investments. This diversification can reduce risk and improve the stability of your investment portfolio.

Diversifying your investments means you are not reliant on the performance of a single asset. By spreading your investments across multiple asset classes, you can better protect your wealth and achieve more consistent returns.

A DST allows you to work with financial professionals who can help you choose the right investment mix based on your goals and risk tolerance. This professional guidance can keep your portfolio balanced and aligned with your long-term financial objectives.

Estate Planning Advantages

A DST offers significant benefits for estate planning. When you transfer assets into a DST, you can more effectively manage the distribution of your wealth to your heirs. This process can reduce the overall estate tax burden and redirect more of your hard-earned assets to your loved ones.

DSTs allow you to distribute your wealth over time rather than transfer a large lump sum all at once. This approach can prevent your heirs from facing a substantial tax bill, which might otherwise force them to sell assets quickly to cover the costs. By spreading out the distributions, you can also provide your heirs with a steady income stream, making it easier for them to manage their finances and plan for the future.

Additionally, using a DST can protect your assets from creditors. Since your assets are held in the trust, you and your heirs do not own them directly, so you enjoy a layer of protection against potential claims. This protection keeps your assets secure and available for your desired purposes.

Increased Cash Flow

Another significant benefit of a DST is the potential for increased cash flow. When you sell an appreciated asset, such as real estate or a business, and place the proceeds into a DST, you defer the capital gains taxes. This deferral allows you to reinvest the total amount of your sale proceeds into various income-generating investments.

These investments can provide steady income over time, significantly enhancing your cash flow. For example, if you sell a property and place the proceeds into a DST, the trust can reinvest in a diversified portfolio of stocks, bonds, or other assets. The returns from these investments can generate regular payments, allowing you to maintain or even improve your standard of living.

This steady income can be particularly beneficial during retirement, when you might need a reliable source of funds to cover living expenses. By increasing your cash flow, a DST can help you achieve greater financial stability and peace of mind.

Flexibility and Control

A DST offers a high degree of flexibility and control over your investments and financial planning. When establishing a DST, you work with financial professionals to create a tailored investment strategy that aligns with your goals and risk tolerance. This personalized approach enables you to manage your investments according to your preferences and financial objectives.

You also have the flexibility to adjust your investment strategy over time. If your financial situation or goals change, you can work with your advisors to modify the trust’s investments to better suit your needs. This adaptability ensures that your DST remains relevant and effective.

Furthermore, with a DST, you maintain control over the distribution of your assets. You can decide how and when to receive payments from the trust, allowing you to manage your cash flow according to your needs. This control extends to estate planning, where you can dictate how your heirs will receive their inheritance and provide for their financial security in a structured manner.

Contact a Deferred Sales Trust Lawyer Now

Take control of your financial future today by contacting Pennington Law, PLLC, for a free initial consultation. Let an Arizona deferred sales trust lawyer help you explore your options and create a tailored solution for your financial needs.