(Listen Here 4:44 min)

More Safeguards – Adding a Qualified Escrow Agent

What other procedures can you use to make sure that your money stays safe.  The treasury regulations say that you can use more than one “safe harbor” in the same 1031 exchange.  Most people just use the “qualified intermediary safe harbor” in Treasury Regulation 1.1031(k)(1(g)(4). 

However, a better and more safe arrangement can be set up by requiring your qualified intermediary to deposit your 1031 money directly with a qualified escrow agent.  Treasury Regulation 1.1031(k)(1(g)(3) sets out another “safe harbor” for “qualified escrow agents”. 

Your FDIC insured bank can be the depository AND act as your qualified escrow agent… and even better yet, you can have a special written escrow agreement that states that two signatures are required to withdraw any money from the bank’s qualified escrow account: (1) your qualified intermediary’s signature; and (2) YOUR signature! 

Just like the in qualified intermediary safe harbor, your qualified escrow agent can not be a disqualified person and the written escrow agreement must incorporate the G(6) limitation that you can not have any right to receive, pledge, borrow or otherwise obtain the benefits of the escrowed money during the exchange period.