Treasury definitions · not a ranking

Qualified escrow vs qualified trust

People ask which wrapper is “safer.” The primary text does not pick one. Treas. Reg. §1.1031(k)-1(g)(3) defines a qualified escrow account and a qualified trust as parallel safe harbors against constructive receipt in a deferred exchange. This page restates what that paragraph says, how it differs from the qualified-intermediary safe harbor in (g)(4), and what you still have to ask a bank. It is not an opinion that either structure would have changed a historical bankruptcy, and it is not legal advice.

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What (g)(3) actually defines

Under Treas. Reg. §1.1031(k)-1(g)(3), a qualified escrow account is an escrow account in which the escrow holder is not the taxpayer or a disqualified person and the taxpayer’s rights to receive, pledge, borrow, or otherwise obtain the benefits of the cash or other property are limited as provided in paragraph (g)(6). A qualified trust is a trust in which the trustee is not the taxpayer or a disqualified person and the same (g)(6) limits apply.

The regulatory distinction is the wrapper and the person on it: an escrow holder versus a trustee. In both cases that person cannot be the taxpayer or a disqualified person. “Disqualified person” is defined later in the same regulation (see §1.1031(k)-1(k)). This page does not invent a list of who qualifies as an escrow holder or trustee in your state.

How this differs from a qualified intermediary

Paragraph (g)(4) is a different safe harbor: the qualified intermediary. A QI is typically the party that enters the exchange agreement and acquires the relinquished property from the taxpayer and the replacement property for the taxpayer, so the taxpayer is treated as not constructively receiving the proceeds — if the rules are met.

A closing can use a QI and place the cash in a (g)(3) qualified escrow or trust. Some state facilitator statutes treat “qualified escrow or qualified trust” plus dual written authorization as one statutory alternative to posting a large fidelity bond. That is a state financial-assurance election, not a Treasury ranking. See thestate bonding overviewfor cited statutes. Ask which alternative this file is using.

(g)(6) limits the taxpayer — not the QI’s creditors

Paragraph (g)(6) is about the taxpayer not being able to grab the cash mid-exchange. It is the reason a QI will say you cannot simply demand the funds on day 20. It is not, by itself, a statement that the QI’s bankruptcy estate cannot reach an account the QI solely controls. One reported illustration isMillard Refrigerated Services, Inc. v. LandAmerica 1031 Exchange Services, Inc., 412 B.R. 800 (Bankr. E.D. Va. 2009), discussed onwhat happens if a QI fails.

Operator questions the regulation does not answer: whose name is on the deposit account; whether the escrow holder or trustee must sign a wire; whether proceeds are commingled with operating cash. Those sit onsegregated vs commingled vs dual-signature.

What to ask, in the regulation’s words

Is this cash in a qualified escrow account, a qualified trust, or only in a QI account that the firm describes as segregated?
Who is the escrow holder or trustee, and are they the taxpayer or a disqualified person?
How are the (g)(6) restrictions written into the escrow or trust agreement?
Who must instruct a disbursement — QI alone, or QI plus escrow holder/trustee?

FAQ

Is a qualified trust safer than a qualified escrow?

The Treasury regulation does not say that. Treas. Reg. §1.1031(k)-1(g)(3) describes both a qualified escrow account and a qualified trust as safe harbors against constructive receipt when the other requirements are met. The difference in the text is who holds the money (escrow holder versus trustee) and that neither the taxpayer nor a disqualified person may be that holder or trustee. This page does not rank them.

Is a qualified intermediary the same thing as a qualified escrow?

No. Paragraph (g)(4) is the qualified-intermediary safe harbor. Paragraph (g)(3) is a separate safe harbor for a qualified escrow or qualified trust. A file can use a QI and also park cash in a (g)(3) account. Ask which structure this closing will actually use.

Do (g)(6) limits apply to both?

Yes. The (g)(3) definition requires that the taxpayer’s rights to receive, pledge, borrow, or otherwise obtain the benefits of the cash or other property are limited as provided in paragraph (g)(6). That is true of the qualified escrow and the qualified trust in the same sentence.

Sources

Treas. Reg. §1.1031(k)-1(g)(3), (g)(4), (g)(6), (k) — law.cornell.edu/cfr/text/26/1.1031(k)-1. Qualified escrow, qualified trust, qualified intermediary, taxpayer-benefit restrictions, disqualified person. Accessed 2026-09-08.
Millard Refrigerated Services, Inc. v. LandAmerica 1031 Exchange Services, Inc., 412 B.R. 800 (Bankr. E.D. Va. 2009) (April 15, 2009). Cited only as a reported illustration that QI-controlled accounts can be estate property; not a ranking of escrow versus trust.
Cal. Fin. Code §51003 — qualified escrow or qualified trust with dual written authorization as one financial-assurance alternative. California LegInfo, Division 20.5. Accessed 2026-09-08.

Editorial access date: 2026-09-08. This page is not tax, legal, or investment advice and does not recommend a wrapper.