Why Use the Albiron Deferred Sales Trust

The Process

A Deferred Sales Trust is one you create while engaging a true third-party company to act as trust.

You would sell your investment real estate to this trust in exchange for a promissory note or deferred installment contract which you design and document in advance of a sale.

Although you will be the beneficiary of the trust, the third-party company will act as trustee.

The trust you create will then sell the investment real estate and retain the proceeds which will be distributed to you, the beneficiary, according to the agreed-upon promissory note or installment contract.

Any undistributed proceeds from the sale can be held in cash or reinvested by the trust.

The capital gains tax on the sales of the investment real estate is deferred.

You will incur capital gains tax liability as your receive principal payments from the trust.

The Rules

As with any kind of tax-deferral investment, the Internal Revenue Service (IRS) has necessary qualification for the Deferred Sales Trust.

Independence

This means the trust is independent of you, your business interests, or your personal interests. If your brother or uncle is the trustee, the IRS could take a dim view of your activities.

No Money

The IRS is very clear that, for a Deferred Sales Trust to qualify as such, an investor is not allowed to take "constructive receipt" of money when disposing of an asset. Leave all of that to us as your independent trustee.

No Ownership

Before the asset sales takes place, you must transfer it to the trust, relinquishing your ownership of it. If the trust doesn't legitimately own the asset, you might not be able to enjoy the tax-deferred benefits.

The Advantages

Tax deferral is the main advantage with a Deferred Sales Trust. Other advantages can include —

Option for a failed exchange

If you miss a 1031 Exchange deadline, the exchange isn't considered complete, your Qualified Intermediary (QI) might relinquish the funds back to you. You could then be responsible for capital gains taxes and depreciation recapture taxes. With a Albiron Deferred Sales Trust, the QI releases any funds to the trust, rather than you, sparing you immediate taxes on a lump-sum payments. We call this a "No Fail 1031 Exchange."

More investment options

Unless you are living off the proceeds from the trust, the cash flow from the trust could be reinvested into other financial instruments that could, in turn, further defer your taxes.

The Disadvantages

There is, of course, another side to the Deferred Sales Trust.

Complexity

Few tax-deferral programs are simple to set up. However, the Deferred Sales Trust can be somewhat more difficult to launch and manage and the set-up fees could be higher.

The Albiron Deferred Sales Trust currently charges no set up fees.

The high interest rate that we offer, is a net return to you.

Not all depreciation recapture taxes are deferred

You will need solid advice from your tax professional here.

Any depreciation taken on the relinquished property using accelerated depreciation methods which resulted in depreciation deductions greater than the straight-line method could still incur depreciation recapture taxes when using the any Deferred Sales Trust.

Tax Deferred, Not Tax Eliminated

A 1031 Exchange, whether you use a Delaware Statutory Trust or some other qualifying replacement investment, does not eliminate capital gains taxes, they are deferred.

The same is true with an Albiron Deferred Sales Trust - at least, until you start receiving the principal, which triggers capital gains tax exposure.

At Albiron, our goal is to eliminate or reduce your taxes, or have someone else pay for them.

Using the Albiron Deferred Sales Trust over a long-term allows us to introduce options for the beneficiary to have a third party pay their tax liability.