The short answer
A qualified trust is a trust holding exchange cash whose trustee is not you or a disqualified person and whose agreement expressly limits your rights to receive, pledge, borrow or otherwise benefit from the cash, under Reg. section 1.1031(k)-1(g)(3)(iii). It is the trust counterpart of a qualified escrow account and shares the same safe harbor against actual and constructive receipt. The trust relationship itself is ignored when testing whether the trustee is related to you.
At a glance
| Trustee | Not you and not a disqualified person |
|---|---|
| Relationship carve-out | The trust itself does not make the trustee related to you |
| Limits | The (g)(6) restrictions must be written into the trust agreement |
| Lost when | You gain an immediate or unrestricted right to the cash |
The trustee test borrows the disqualified person rules with one adjustment.
Paragraph (g)(3)(iii)(A) of Reg. section 1.1031(k)-1 bars you and any disqualified person from serving as trustee. Normally a trustee and a trust's grantor can be related under section 267(b), so the regulation says the relationship created by the qualified trust itself is not counted.
Under paragraph (k), a disqualified person includes anyone who acted as your employee, attorney, accountant, investment banker or broker, or real estate agent or broker within two years before the first relinquished property transfer, plus persons related to you or to such an agent at a 10 percent ownership threshold. Services on section 1031 exchanges and routine trust services by a financial institution are not counted.
So your family lawyer who drafted your will last year cannot be trustee, while a bank trust department that has only provided routine trust services to you can be, if no other relationship applies.
The (g)(6) limits decide when the money can come out.
Paragraph (g)(3)(iii)(B) requires the trust agreement to limit your rights as provided in paragraph (g)(6). You can have no right to the cash before the exchange period ends, except after day 45 if you identified nothing, after you receive everything you identified, or after a written, material contingency beyond your control occurs after day 45.
Hypothetical: you sell a building for $1,200,000 and the buyer's cash goes into a qualified trust. You identify two properties by day 45 and buy one for $1,000,000 on day 120. The agreement may release the remaining $200,000 only once you have received all the replacement property you are entitled to, or at the end of the exchange period, and that $200,000 is taxable boot. Confirm the release terms and tax with your CPA.
Rights under state law to remove the trustee are disregarded, but any clause that lets you draw the cash on demand ends the safe harbor; see touching or borrowing exchange funds.
A qualified trust usually works alongside a qualified intermediary rather than replacing one.
Paragraph (g)(1) allows more than one safe harbor in the same exchange, provided each is satisfied on its own terms. A trust secures the obligation to deliver replacement property, while the qualified intermediary is the party that acquires and transfers the properties.
Owners worried about an intermediary failing sometimes ask for funds to sit in a qualified trust or qualified escrow account rather than the intermediary's general accounts. The regulation does not require that, so it is a term to negotiate.
Because each safe harbor is tested separately, both the trust agreement and the exchange agreement need the (g)(6) limits written into them.
Related questions
Can my CPA be the trustee?
Not if the CPA performed accounting services for you, other than on section 1031 exchanges, within the two years before your first relinquished property transfer. Paragraph (k)(2) treats that person as your agent.
Is a qualified trust the same as a DST?
No. A qualified trust only holds exchange cash. A Delaware statutory trust owns real estate, and its interests can be replacement property; see what you own in a DST.
Who pays tax on the interest the trust earns?
That is governed by Reg. section 1.468B-6, summarized on interest on exchange funds.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.