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Sample Legal Beneficiary Vesting for Seller Carry Back Notes

When you sell real estate that will be part of a 1031 Exchange and you will carry back an installment note (seller carry back financing) to facilitate the sale of the real property, the installment note must also be included as part of the tax-deferred exchange account held by the Qualified Intermediary, or in the Qualified Trust Account if one is used, in order to defer all of your income tax liabilities.  In other words, the note must be owned by and held by the Qualified Intermediary or on behalf of the Qualified Intermediary.  You can learn more by reading our web page entitled "Seller Carry-Back Financing Combined with a 1031 Exchange."

The procedure to include the seller carry-back installment note as part of your tax-deferred exchange account is actually very easy.  The installment note and the corresponding deed of trust or mortgage documents would be drafted with the Qualified Intermediary listed as the beneficiary or owner or the trustee of the Qualified Trust Account as the beneficiary or owner if one is used.  The installment note and corresponding documents cannot be drafted with your name listed as the beneficiary or owner.  The documents must be drafted in the name of the Qualified Intermediary so that the Qualified Intermediary owns the installment note as part of your 1031 Exchange account or controls the installment note on its behalf through a Qualified Trust Account. 

Notes incorrectly drafted with your name as the beneficiary or owner cannot be corrected after the close of the transaction and generally will be treated as boot and taxed as an installment sale note under Section 453 of the Internal Revenue Code. 

Qualified Trust Account

Exeter 1031 Exchange Services, LLC holds its clients' 1031 Exchange funds and assets, including any seller carry back notes, in separate, segregated Qualified Trust Accounts with Exeter Trust Company, which is licensed, regulated and audited by the Wyoming Division of Banking. 

The following is the legal beneficiary vesting used on any installment note and corresponding deed of trust or mortgage when Exeter 1031 Exchange Services, LLC adminsters your tax-deferred exchange transaction:

Exeter Trust Company, as Trustee of Qualified Trust Account No. 00 0000

205 Storey Boulevard, Suite 200

Cheyenne, WY 82009

Of course, this would not be required if you do not want to include the seller carry back note as part of your tax-deferred exchange and would prefer to treat it as an installment sale.  The documents would then be drafted with your name listed as the beneficiary or owner.

 

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