Deferred Sales Trust: The Essentials
A plain-language overview of how a Deferred Sales Trust works, who it serves, and where it fits in an exit plan.
Selling a highly appreciated asset can trigger a significant capital gains tax bill — one large enough to reshape the outcome of a lifetime of work. A Deferred Sales Trust (DST) is one structured approach that allows an owner to defer the recognition of that gain rather than paying it all at closing.
In simple terms, the asset is sold to a trust before the ultimate sale to a third-party buyer. The trust then sells the asset and holds the proceeds, paying the seller over time under an installment arrangement. Because the seller receives payments across multiple tax years, the capital gain is recognized gradually rather than all at once.
A DST is not a fit for every transaction. It is generally considered when the gain is large, the seller would prefer a stream of income, and there is interest in coordinating the sale with broader estate and charitable planning goals. Like any structured strategy, it carries costs, complexity, and specific qualification requirements that should be reviewed carefully with qualified advisors.
The most important point is timing. The trust must be established and the asset transferred before the sale closes. Once a sale is complete, the opportunity to defer has passed. This is why early conversation matters — even if a transaction is only on the horizon.