Refinance rental to avoid taxes - then sale /management in trust

[Dan S.]

Hey BP community...

I am talking to a guy about selling one of my properties to him and I had a question about tax implications as I am being told if I do it this way I am avoiding some taxes...

Here is what we are talking through.

Price of property 400K.  I currently have a mortgage of 100K on it.

1 - Do a refi and assuming it appraises for 400K take out 65% or 160K (assuming the 100K debt already there 65% is 260K ) in lump sum cash - and new owner takes over paying that as they take control of the property.

2 - The remainder owed to me (400K minus 160k) 240k they pay me out in installment with a balloon.

The buyer is saying that they would put the property into a trust and be the benefactors but I would still be trustee in charge of property.

So again questions is - am I (legally) avoiding paying capital gains tax on 160k if we do it this way?
The buyer is suggesting that this is so, but I am not so sure... 

Thanks!