When you sell a long-held, highly appreciated asset, the capital gains tax bill can take a surprisingly large chunk of your proceeds.
A deferred sales trust (DST) offers a way to defer those taxes and shape how and when you receive the money. However, it is not a one-size-fits-all solution.
The firm you choose to set up and manage a DST affects fees, investment options, legal robustness and how well the strategy fits your goals. Before signing anything, make sure the provider’s experience and alignment with your tax and estate advisers meets your standards so the arrangement protects more of what you sold.
What Is a Deferred Sales Trust?
A DST is a legal arrangement that lets you sell an asset now but receive the proceeds over time. This process gives you a way to avoid the 0% to 15% capital gains tax that would normally come with a lump sum sale.
Instead of taking the cash directly, you transfer the asset into a trust that sells it to the buyer. The trust becomes responsible for investing the proceeds and paying you according to a schedule or payout plan you agree on.
A DST separates the act of selling from receiving taxable income. Key pieces to understand are:
- The trust holds the sale proceeds and invests them on your behalf.
- You receive payments from the trust and pay tax as you get each one.
- The trustee’s investment choices and the trust agreement determine how much and when you get paid, so provider experience matters.
The benefits of a DST often include a tax deferral and flexibility for estate planning. However, it comes with fees and contractual obligations.
You would also need careful coordination, so a DST is worth considering only after you have vetted providers and confirmed it fits your situation.
What Is the Difference Between a DST and a 1031 Exchange?
A 1031 exchange lets you defer capital gains only when you reinvest the proceeds into like-kind real estate and follow strict identification and timeline rules. It is useful when you want to stay in real estate and can find a suitable replacement property quickly.
By contrast, a DST converts the sale into an installment-style arrangement managed by a trustee, allowing you to reinvest across a broader set of assets and receive structured payments. A 1031 is best when you want a tax-deferred swap into more property and can meet the timing rules.
Both strategies defer taxes, but they differ in eligible assets, timelines and liquidity.
The Mechanics of a Deferred Sales Trust
The following steps give you a baseline to help you better understand how a DST works.
1. Setup and Transfer of the Asset
You begin by executing trust documents and transferring the legal title of the asset into the DST. This could mean an assignment, deed or other legal step depending on the asset.
Once the trust owns it, it becomes the seller in the transaction, which is the structural move that enables the delay of tax recognition and lets the trust control how the sale proceeds are handled.
2. Trustee Appointment and Trust Agreement
The trustee you name runs the trust and implements the terms laid out in the agreement, so pick a provider with relevant experience and clear fiduciary practices.
This agreement is the playbook. It defines payout formulas, investment authority, reporting cadence and any limits on the trustee’s discretion, so small differences can have major impacts.
3. Sale Proceeds Are Invested
After closing, the trustee invests the proceeds in accordance with the trust’s investment policy and the risk profile you have accepted. Those results determine the cash available for future payments — meaning a conservative portfolio will produce different outcomes than a growth-oriented one, and market risk matters.
4. Structured Payments and Tax Timing
Payments can be set up as regular installments, occasional lump sums or a hybrid. You can use this timing flexibility to bring you income, but the tax outcome depends on payment pacing and your other earnings.
5. Ongoing Oversight and Coordination
A DST requires active coordination. Expect regular performance reports, occasional rebalancing, fee statements and tax reporting.
You will need to review these with your CPA and estate attorney. Staying engaged ensures distributions, investment choices and any estate planning remain aligned with your changing goals.
Who Is the Best Deferred Sales Trust Company?
Choosing the right DST provider is critical, as it determines whether the trust is executed cleanly, the fees stay reasonable and the payout plan meets your goals. Focus on the following considerations:
- Experience and track record: Look for a provider with a clear history of DST closings and verifiable client outcomes. Ask for references, sample deal summaries and how long the team has been running DSTs.
- In-house expertise: A strong DST firm will have a multidisciplinary team you can talk to, such as attorneys to draft agreements, tax professionals to model outcomes and investment managers to implement the trust’s policy. Insist on speaking with the people who will be responsible for your file.
- Customized investment strategies: The trust’s investment plan should be tailored to your payout needs and risk tolerance. Find out how the firm builds investor-specific portfolios, how it measures performance and whether it will provide a written investment policy for your trust.
- Compliance, custody and security: Prioritize firms that describe custody arrangements, third-party audits and regulatory safeguards in plain terms. Find out who holds the assets, how often you will receive reporting, and whether the firm carries errors and omissions or fiduciary insurance.
Sera Capital is one of the top choices. The firm is a fee-only, independent fiduciary that helps investors pursue tax-efficient exit strategies. It emphasizes education, clear fee disclosure, and coordinated tax and investment advice — qualities you should look for in a DST partner.
The Sera Capital Advantage
Sera Capital helps clients by converting a lump sum sale into a managed income stream. The firm aims to give investors more control over when capital gains are realized and how proceeds are reinvested to support future distributions.
Beyond simple tax timing, Sera prioritizes diversification and flexibility. Rather than forcing a 1031-style swap into a narrow asset class, the firm positions DSTs as a way to reallocate proceeds across a broader portfolio, tailoring investments to an investor’s payout needs and risk tolerance.
Estate planning integration is another advantage of Sera. A DST can be written and managed with beneficiary and succession considerations in mind, making the trust a piece of a larger estate strategy.
Finally, Sera offers hands-on guidance from a coordinated team. The firm is all about providing access to tax, legal and investment advisers who work together to translate the DST structure into a workable cash flow plan for each client.
Is a Deferred Sales Trust the Right Strategy for You?
A DST can be a good fit when you are selling a nonliquid asset and want more control over the proceeds. Common examples include commercial or investment real estate, privately held businesses and valuable collectibles.
It makes sense when the tax bill is substantial, as IRC 453 was designed to help those experiencing hardship pay the full amount. It is also a worthy consideration when immediate liquidity is unnecessary and when you want flexibility to reinvest across a broader portfolio.
A DST is the best choice for certain sellers. Consider your timeline, income needs, tolerance for the trust’s investment risk and whether estate planning goals make structured distributions attractive.
Smaller gains, urgent cash needs or a desire for a simple, low-cost exit may point you toward other solutions.
You can discuss the details with your CPA before proceeding. They can model tax outcomes and help you compare alternatives. If you need a starting point for those conversations, Sera Capital can give you advice and help with the next steps.
Choosing the Best Deferred Sales Trust Company
Choosing the right DST provider ultimately comes down to execution. Look for track records, clear fee disclosure and a team that will model outcomes with your CPA before you sign.
Consider reputable advisers only. Sera Capital is one firm that investors often evaluate alongside others, but let your vetting process decide the best fit. A brief review of samples and a consultation will determine whether a DST is suitable for your situation.
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