Estate Attorney Explains: What is a Deferred Sale Trust?

Описание: Board Certified Tax & Estate Attorney John Strohmeyer is here to explain what a Deferred Sale Trust is, and why you may or may not want to actually employ one in your estate plan.

Deferred Sales Trust can be used for either IRC § 1031 like-kind exchanges and IRC § 453 installment sales.

There are a lot of overly-complicated planning devices like this around, but John is here to make it simple and easy to understand.

Despite what some people on the internet may have said, there is no trust or other mechanism that will allow sellers to defer reporting and payment of income taxes beyond that payments are received on an installment basis. So, after the property has been sold, capital gains tax on the sale is generally deferred until the seller actually receives the payments, but no further.

If the proceeds of the sale are left in the trust, the payments would still be treated as received by the seller, and subject to income tax. The income tax laws on this are clear—because the seller is putting their own assets in their trust for their benefit, the seller is responsible for those taxes generated inside that trust.

If the proceeds stay in the trust, the person who created the trust would be treated as the owner for income tax purposes, estate tax purposes, and creditor-protection purposes.

The seller would likely be required to report gain as payments are received under the IRC § 453 installment sale rules. This would be true if the payments received by the seller directly, or by the trustee of a trust that the seller created.

Generally, installment sales treatment can be achieved with a combination of the purchase agreement and correct tax reporting with your CPA. No trust is required for installment sale treatment under the IRC § 453. Adding a trust that you have created, or worked with an attorney to create, will not change this tax result.

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Strohmeyer Law is a law firm based in Houston, Texas, specializing in tax law, estate planning, and probate law.

Nothing in this video is specific legal advice for you. Watching or commenting on this video doesn't create an attorney-client relationship.

For more information, visit: https://www.strohmeyerlaw.com
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