Deferred Sales Trust

[Dennis Walker]

I'm doing a 1031 Exchange.  I'm right in the middle of the 45-day window to identify. I haven't yet found anything that gets me too excited yet and I'm feeling a little stressed about it. The whole thing could blow up in my face.

Yesterday I'm at the gym trying to manage my stress. l put on a podcast and the gest starts talking about Deferred Sales Trusts - What! Is this really a thing?

If this is a thing, why haven't I heard of it? Why are people doing 1031s if the Deferred Sales Trusts is an option? If this 1031 I'm in now starts to go sideways on me, can I move it to a DST as a plan B?

If this is legit where would I go to get this done?

[Jeff Glass]

A DST is a real thing. It is a way to defer capital gain. It's best when you want to exit your present investment and put your funds into a trust with a basket of investments managed by a professional investment advisor. The trust must be overseen by a third party trustee, for which you will pay a significant amount each year. You have freedom to invest as you wish, but most likely you will not have complete access to the funds as DST investments tend to be relatively non-liquid.

Another approach you may consider is even less well-known than the DST. It's called a Monetized Installment Sale. With this, you can sell your property and obtain 93.5% of the net sales proceeds in cash at closing, and the capital gains tax is deferred for 30 years. It is often used as a backup plan for 1031 exchanges that end up failing due to not being able to meet one of the two deadlines. If you have an MIS backup plan in place, you can quickly convert your exchange to a Monetized Installment Sale before your exchange dies. Then you can take your cash and shop for replacement property without worrying about those 1031 deadlines. That may help you to be in a better negotiating position when you make offers, and you probably will feel less stress.

With the MIS, you can also basically create your own DST, without the trust, the trustee, and the fees, so you can invest with complete freedom.