Is a Deferred Sales Trust (DST) Right for You? Key Benefits for Wealthy Sellers
The Tax Trap of Selling Appreciated Assets
Selling a highly appreciated asset—like a business, real estate, or stock portfolio—can trigger a massive capital gains tax bill. Business owners and investors often spend decades building wealth, only to lose 20–35% to taxes at the exit.
One California real estate investor sold a $4M multifamily property and faced over $950K in federal and state taxes. That’s the price of success without planning.
What’s the Alternative?
Enter the Deferred Sales Trust (DST)—a lesser-known but IRS-sanctioned strategy designed to legally defer capital gains tax, increase reinvestment flexibility, and create a lifetime income stream.
Enter the Deferred Sales Trust (DST)
A Deferred Sales Trust is a third-party trust that allows you to sell an appreciated asset without immediately triggering capital gains tax. Here's how it works:
You sell the asset to a DST in exchange for an installment note (promissory note).
The DST sells the asset to the final buyer.
The proceeds from the sale go into the trust, not to you directly.
You receive payments over time, based on terms you control, and pay taxes gradually as income is received.
This structure is fully legal under IRS Section 453, which governs installment sales. DSTs simply formalize and optimize the structure for large transactions.
How DSTs Help Different Seller Profiles
1. Business Owners Exiting for Liquidity
If you’re selling a business for $5M+ and don’t need all the money at once, a DST allows you to:
Defer 20–35% capital gains tax
Reinvest in diversified assets
Create a new income stream in retirement
Separate personal assets from business liabilities post-sale
2. Real Estate Investors Who Want Out (Without 1031 Strings)
Unlike 1031 exchanges, a DST:
Doesn’t require a “like-kind” replacement property
Doesn’t impose strict timelines or identification rules
Allows partial sales and liquidity
Offers true diversification beyond real estate
3. Stockholders or Founders with High-Basis Equity
Selling large equity positions or pre-IPO shares can come with enormous tax burdens. A DST helps avoid immediate tax and lets you spread tax liability over time, while keeping your portfolio in motion.
Benefits That Go Beyond Tax Deferral
| DST Advantage | Details |
|---|---|
| Capital Gains Tax Deferral | Defer tax until you receive installment payments |
| Investment Flexibility | Invest proceeds in stocks, bonds, real estate, funds—not locked to like-kind |
| Asset Protection | Assets held in the trust are separate from your personal estate |
| Estate Planning Leverage | Shift wealth to heirs with reduced estate tax exposure |
| Customized Income Streams | Choose your payout schedule—monthly, quarterly, lump sum |
Potential Pitfalls and What to Watch For
DSTs are powerful—but not simple. They must be set up by professionals and comply with IRS guidelines.
Common Risks:
Improper structuring could void tax deferral
IRS scrutiny increases if not documented and executed properly
Third-party trustee must be independent and compliant
Warning: DSTs are sometimes misrepresented by promoters. Stick with experienced fiduciaries and legal teams, not commission-driven salespeople.
Why Legacy Exits Is a Trusted DST Partner
At Legacy Exits, we understand how high-stakes liquidity events work. We act as your quarterback, coordinating a vetted team of:
DST legal counsel
Tax strategists
Investment advisors
Exit planners
Our DST Differentiators
Custom DST design based on your goals and timing
Compliance-first structuring with audit-ready documentation
Exit-to-income planning for post-sale financial freedom
Whether you're exiting a $10M portfolio or a $2M business, our focus is on maximizing what you keep—not just what you sell.
Next Steps: Making the Right Choice
DSTs are not one-size-fits-all. But if you're sitting on a large unrealized gain and value flexibility + control, a DST could be the strategy you didn’t know existed.
✅ Curious if a DST is the right fit for your situation?
➡️ Schedule your DST suitability review with Legacy Exits