1031 Exchange Services

Sample Legal (Beneficiary) Vesting for Seller Carry-back Note

Seller carry-back notes are considered part of the net proceeds from the sale of the relinquished property. The promissory note (installment note) and corresponding deeds of trust or mortgages, or contracts for deed or land contracts, must be drafted with the correct legal beneficiary vesting to be included in (or excluded from) the 1031 Exchange transaction.

Including the Note in the 1031 Exchange

The procedure to include the seller carry-back note in the 1031 Exchange is actually very simple. The installment note and the corresponding deed of trust or mortgage documents would be drafted in the name of the Qualified Intermediary (or in the name of the Trustee of the Qualified Trust Account) as the beneficiary or lender. Promissory notes incorrectly drafted in the name of the seller as the beneficiary or lender will trigger constructive receipt or actual receipt of the amount reflected in the promissory note and be treated as taxable boot.

Excluding the Note From the 1031 Exchange

The procedure to exclude the seller carry-back note from the 1031 Exchange is also very simple. The installment note and the corresponding deed of trust or mortgage documents would be drafted in the name of the seller as the beneficiary or lender and would be taxable under the installment sale rules pursuant to Section 453 of the Internal Revenue Code.

Qualified Trust Account

Exeter 1031 Exchange Services, LLC deposits, holds, and safeguards clients’ 1031 Exchange funds, including seller carry-back notes, in separate, segregated Qualified Trust Accounts through Exeter Trust Company, Cheyenne, Wyoming. Exeter Trust Company serves as Trustee of the Qualified Trust Account and 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, or contract for deed or land contract, when Exeter 1031 Exchange Services, LLC administers your 1031 Exchange transaction:

Exeter Trust Company, as Trustee

of Qualified Trust Account No. 12345678

205 Storey Boulevard, Suite 200

Cheyenne, WY 82009

Sellers should always discuss these transactions, and the legal beneficiary vesting, with their own legal, tax and financial advisors in conjunction with Exeter 1031 Exchange Services, LLC before proceeding with a seller carry-back note.

 

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