Dst Wealth Management Llc

Summary: THIS MATTER OCCURRED PRIOR TO THE FORMATION OF THE COMPANY, AND AROSE FROM A DEFERRED SALES TRUST (DST) TRANSACTION WITH WHICH MR. BINKELE HAD SOME INVOLVEMENT. FOR YOUR INFORMATION, A DST IS A TAX DEFERRAL STRATEGY THAT IS EMPLOYED BY THE OWNER OF AN APPRECIATED ASSET WHO WANTS TO SELL THE ASSET BUT DEFER THE PAYMENT OF THE CAPITAL GAINS TAX THAT WOULD OTHERWISE BE DUE UPON THAT SALE. THE WAY A DST GENERALLY WORKS, THE OWNER OF THE APPRECIATED ASSET DONATES THE ASSET TO A SPECIALLY CREATED TRUST, WHICH THEN SELLS THE ASSET (TYPICALLY TO BUYER IDENTIFIED BY THE OWNER OF THE ASSET, AND AT A PRICE NEGOTIATED BY THE OWNER OF THE ASSET). THE SALES PROCEEDS ARE THEN PLACED INTO THE TRUST. IN TURN, THE TRUST ENTERS INTO A PROMISSORY NOTE WITH THE OWNER OF THE APPRECIATED ASSET TO PAY THE OWNER THE SALES PRICE, PLUS INTEREST, OVER A PERIOD OF TIME AND AT AN INTEREST RATE DETERMINED BY THE OWNER OF THE ASSET. AS THE OWNER RECEIVES THE PERIODIC PAYMENTS UNDER THE TERMS OF THE PROMISSORY NOTE, THE OWNER'S OBLIGATION TO PAY THE CAPITAL GAINS TAX IS TRIGGERED, ALBEIT IN INCREMENTS. IN ORDER TO HAVE ENOUGH MONEY TO PAY THE OWNER OF THE ASSET THE SALE PRICE OF THE ASSET PLUS INTEREST, THE TRUST HAS TO INVEST THE PROCEEDS OF THE SALE, TO ATTEMPT TO EARN A RETURN SUFFICIENT TO MEET THAT OBLIGATION. TYPICALLY, THE TRUSTEE OF THE TRUST ENGAGES AN INVESTMENT PROFESSIONAL TO HELP MANAGE THOSE INVESTMENTS. THIS PENDING CIVIL LITIGATION MATTER IN CALIFORNIA STATE COURT WAS BROUGHT BY AN INDIVIDUAL WHO UTILIZED A DST TO DEFER TAXES UPON THE SALE OF A PIECE OF APPRECIATED REAL PROPERTY. THE COMPANY INITIALLY DETERMINED THAT THIS MATTER APPLIED TO MR. BINKELE IN HIS CAPACITY AS THE OWNER OF THE ESTATE PLANNING TEAM, THE ENTITY THROUGH WHICH THE DST IS OFFERED TO THE PUBLIC, BUT NOT TO THE COMPANY. THE PLAINTIFF WAS NEVER AN ADVISORY CLIENT OF MR. BINKELE OR THE COMPANY, NOR WAS SHE A TRUSTEE OR BENEFICIARY OF THE DST TRUST THAT WAS CREATED IN CONNECTION WITH THE SALE OF HER PROPERTY. THE COMPANY DID NOT BELIEVE THAT THIS MATTER INVOLVED A SECURITIES RELATED ISSUE. MOREOVER, IT DID NOT OCCUR WHILE MR. BINKELE WAS ASSOCIATED WITH THE COMPANY. THUS, THE COMPANY DID NOT REPORT IT. IN HINDSIGHT, THAT WAS A MISTAKE. SO, IN ADDITION TO AMENDING THE FIRM'S FORM ADV TO DISCLOSE THIS MATTER, THE COMPANY IS BRINGING IT TO YOUR ATTENTION HERE.