Discussion:Deferred Sales Trust

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Basic Tax Questions --> Deferred Sales Trust
Discussion Forum Index --> Tax Questions --> Deferred Sales Trust

CATAXES (talk|edits) said:

21 January 2008
Client has asked about Deferred Sales Trust. I can see how they work, but have one question about their claims. "Avoid paying current capital gains and depreciation recapture, create lifetime income, protect assets from creditors and lawsuits, and the assets pass to your beneficiaries, estate and gift tax free". How do they avoid estate/gift tax?

Riley2 (talk|edits) said:

22 January 2008
This is commonly known as a private annuity. Private annuities work best when the owner of the annuity is related to the seller of the property. The reason that estate taxes are reduced is that the annuity is not included in the gross estate since the annuity payments cease at the death of the owner of the annuity.

Dennis (talk|edits) said:

22 January 2008
Private annuities are no more. (REG. 141901-05?) Annuity payments replaced by self-canceling debt. The way passing of assets is arranged is through an agreement by which heirs(?) acquire the beneficial interest at a set price.

Riley2 (talk|edits) said:

23 January 2008
Unfortunately, the new private annuity rules, if adopted by the Treasury, appear to be retroactive to 2006.

Jkornfeld (talk|edits) said:

28 January 2008
The Deferred Sales Trust has nothing to do with tax avoidance as mentioned above. It is a strategy that allows someone to sell highly appreciated assets including a business and real estate (including a primary home) tax deferred, without having to buy replacement property like a 1031 exchange.


There comes a time when someone no longer wants to do a 1031 exchange and would appreciate the ability to sell their property (or business) and be shown flexible reinvestment options. The proceeds from the sale of the business or real estate are deposited into the Trust and it's then reinvested to meet the goals and objectives of the seller.


The following is taken right off of MY website.


Q. How am I taxed on the payments?

A. Part of each payment is returned to you tax-free as a return of your basis. The remainder of each payment is taxed partially as capital gains and partially as ordinary income. Some depreciation recapture may have to be accounted for as well, depending on the type of asset sold.

Riley2 (talk|edits) said:

28 January 2008
As Dennis mentioned, this strategy will not work if the proposed regulation are adopted.

Dennis (talk|edits) said:

28 January 2008
Sorry for being unclear. Deferred Sales Trust is the current replacement for Private Annuity. The front end is simply an installment sale. The back end gets really strange with many untested options.

Wexeter (talk|edits) said:

December 14, 2008
Riley2,

The final post above by Dennis is correct. This is not structured like a Private Annuity Trust or PAT and will not fall under the current proposesd regulations whether they remain proposed or go final. The Deferred Sales Trust or DST is stuctured like an installment sale and falls squarely under Section 453 unlike the Private Annuity Trust or PAT. Promoters tried to argue that the PAT was structured pursuant to Section 453, but there were many weaknesses.

You can Google "Deferred Sales Trust" and find quite a bit of information on the internet about Deferred Sales Trusts, and we expect a Private Letter Ruling on Deferred Sales Trusts in the near future.

To join in on this discussion, you must first log in.
Retrieved from "http://www.taxalmanac.org/index.php/Discussion:Deferred_Sales_Trust"