The Truth About Deferred Sales Trusts – A Rebuttal to “The Deferred Sales Trust is no Substitute for a 1031” Video
In my practice I’ve noticed there are myths that are being spread about Deferred Sales Trusts, when in fact it is often a better option than a 1031 exchange, especially in today’s real estate market.
Below is what the video goes wrong. Whether you decide to undergo a 1031 exchange, or a Delaware Statutory Trust is for you to decide but be sure you have the facts first!
Deferred Sales Trusts Have Been Around Well Before Delaware Statutory Trusts
The video claimed that the reason that the Deferred Sales Trust was named as such was because they wanted to confuse the public with the same initials as the established Delaware Statutory Trust initials. As the video mentioned, Delaware Statutory Trusts become available to the public in 2004, but Deferred Sales Trusts have been around since before 2000. Since the Deferred Sales Trust was here first maybe it was the Delaware Statutory Trust that “borrowed the acronym”.
Deferred Sales Trusts Mean the Seller Gets the Benefits of the Trust While Alive
They talked about the fact that when using a Deferred Sales Trust, you do not get a stepped-up basis. What the video failed to mention is that the seller gets the benefits of the trust while alive. The seller sells his property and gets the benefits. The tax deferral and income from the trust can be passed on to their heirs.
Deferred Sales Trusts Hold Your Rental’s Sales Proceeds and That’s a Good Thing!
The video commented that there are sales proceeds in a Deferred Sales Trust instead of a rental property, but that’s a good thing. When selling a property using a Deferred Sales Trust, the sales proceeds are invested and the seller has an unlimited amount of time to buy another property with no 1031 requirements. No 45-day period, no equal or great value, no equal or greater debt and so on. You can buy another property at any time in the future when it makes sense without any 1031 requirements. That sounds like a greater opportunity than having to jump through the 1031 hoops.
Deferred Sales Trust Have Transparent Fees
The video pointed out the fees when creating a Deferred Sales Trust. Guess what. If you transact a 1031 Exchange, you pay fees. When transacting a Deferred Sales Trust, once we know the amount going into the trust, we can tell the individual to the nickel what the fees are going to be. Try that with a Delaware Statutory Trust.
The IRS Has Conducted Tax Audits on Deferred Sales Trusts and It’s Passed Their Tests
The video also misrepresented the IRS by claiming that the Deferred Sales Trust has not been recognized by the IRS. Over the years, the IRS has conducted at least 20 tax audits. The largest tax audit was on the sale of a $130 million property with a $50 million tax deferral. The IRS conducted and completed the audit as they did with every other audit with a no change letter issued. A couple of years ago, the IRS audited all the trust documents, supporting documents and court cases surrounding Deferred Sales Trusts and again took no action.
Conclusion
Please make note of our webinar on Thursday, January 25, 2024, at 11amPT/2pmET led by Deferred Sales Trust expert and a cost segregation specialist who will discuss how using cost segregation and the Deferred Sales Trust can help property owners generate more real estate wealth than transacting a 1031 exchange. Click here to register now.
Best wishes for a happy holiday and a happy and healthy new year. Take care.
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