Jim's Washington Dairy Operation: $4M Deferred via Combined CRUT + DST

Jim was a successful dairy farmer in Washington with three large asset categories on his books:

1,000 dairy cows worth approximately $3 million
$3 million in equipment (tractors, silos, milking parlors)
A farm sold for $7 million (originally purchased for $1 million)

The tax problem

Combined depreciation recapture across the herd, equipment, and farm operating assets, plus capital gains on the real estate, faced Jim with $3.9M to $4.4M in immediate taxes at closing.

The complication: livestock and equipment don’t qualify for a 1031 exchange. A simple 1031 would only handle the $7M farm sale, not the $6M in operating assets.

The two-mechanism strategy

Mechanism 1: CRUT for operating assets Jim transferred his dairy herd and equipment into a Charitable Remainder Unitrust (CRUT) before selling. The trust then sold the assets, meaning no tax was due at sale. The full proceeds stayed in the trust to be invested.

Mechanism 2: DST for the real estate The $7M farm sale proceeds rolled into a 1031 exchange into a Delaware Statutory Trust for diversified institutional real estate.

The outcome

Deferred nearly $4 million of immediate capital gains and depreciation recapture taxes
Structured for the potential of lifetime income (mailbox money) from both the CRUT and the DST, not guaranteed, varies based on trust performance and underlying property performance
Funded a Wealth Replacement Trust with second-to-die life insurance designed to deliver tax-free wealth to heirs at death
Structured DST shares as individual inheritances with stepped-up basis
A portion of the CRUT eventually directs to a family foundation that the children help oversee

The legacy

Jim went from facing a $4M tax check at closing to:

Lifetime potential mailbox money from two structures (not guaranteed)
Tax-free life insurance proceeds for his children (subject to policy terms)
A family foundation carrying his name into the next generation
DST shares heirs can independently manage post-step-up

Real names and exact numbers were not used. The concept reflected here is illustrative. Potential income, tax benefits, and appreciation are not guaranteed and may vary. DST 1031 properties are available only to accredited investors. Investments involve risk including loss of principal.