What are the risks of a deferred sales trust
This structure is often presented enthusiastically. The risks deserve equal airtime.
- Is the structure recognized
- These arrangements rely on installment sale principles, and their treatment can depend heavily on the specific facts and the quality of implementation. They have attracted scrutiny. Independent tax counsel should evaluate any specific arrangement.
- What is my position with respect to future payments
- The seller typically holds an installment note and is an unsecured creditor of the trust. Future payments depend on the trust's ability to make them.
- Who bears investment risk
- Proceeds held by the trust are generally invested, and poor performance can affect the trust's ability to make note payments. That risk effectively sits with the seller.
- What does it cost
- Setup, trustee, administration and tax filing costs continue for the life of the arrangement. Those costs should be modeled across the full expected term and compared against simply paying the tax.
- Can I change my mind later
- Unwinding is difficult and may itself carry consequences. This should be treated as a long term commitment.
Important disclosure
General education only, not legal or tax advice, and not a recommendation of any structure. Anyone considering a deferred sales trust should obtain independent written analysis from their own qualified tax counsel.
Last reviewed 2026-08-09 by Tim Parnell.
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