A Deferred Sales Trust is a strategic financial tool designed to help sellers defer capital gains taxes on the sale of appreciated assets such as real estate, businesses or cryptocurrency. Here's how it works:
1. Transaction Structure: The Deferred Sales Trust is structured as a "seller-carry back" transaction, where the seller receives a promissory note and will receive payments over time from the trust.
2. Trust Ownership: The Trust, acting as a separate entity, purchases the seller's property and subsequently resells it to the ultimate buyer.
3. Tax Deferral Mechanism: Through specific language in the Trust documents and purchase agreements, known as the "DST Note," the seller's capital gains tax liability on the sale is deferred until they receive the principal payments from the Trust. Payments that are interest only will keep 100% deferral of the capital gains tax owed
4. Investment Flexibility: Once the Trust has sold the asset to the ultimate buyer, it has the freedom to invest the proceeds in a variety of assets. There are no restrictions on investment types or time frames.
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