What Happens to my Deferred Sales Trust if I Die?

naming heirs in a deferred sales trust 

When you sell a property using a Deferred Sales Trust, the sale for tax purposes occurs when you convey the property to the deferred sales trustee. The payments will then be received over time according to the note you have with the trustee. Many people ask “what if I die before I receive all the payments?” That’s the question we will be tackling in this article.

Naming Heirs

Your heirs can be named as successors in interest to continue to receive Deferred Sales Trust payments after your death.

The next question that people have is “if I die, do my heirs get a step up in basis on my installment note arrangement with the trust?”

The answer to that question is no, there is no step up in basis on the note because the sale occurred many years ago when you conveyed the property to the trust and took back this installment note. So there’s no step up in basis under the Section 453 note with the trustee of the deferred sales trust. That is the downside to doing a deferred sales trust as there is no step up in basis, but another way to look at it is your heirs can step into your shoes and be the ones to continue to receive the payments under the note from your trustee.

  • 1031 Hotline: If you have questions about deferred sales trusts, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.


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