Custody · not tax or legal advice

Who holds the money in a 1031 exchange

“The QI holds the funds” is a slogan. The tax question is whether you are treated as receiving the cash. The custody question is whose name is on the account and who can tell the bank to wire it. Those are different questions. This page names the parties that actually sit on proceeds in a delayed exchange and what each one is for. It is not a ranking of wrappers and not a substitute for the exchange agreement.

Constructive receipt is the tax problem

Treas. Reg. §1.1031(k)-1(f) and (g) are about whether the taxpayer has the actual or constructive receipt of money or other property before the exchange is done. Paragraph (g)(6) restricts the taxpayer’s right to receive, pledge, borrow, or otherwise obtain the benefits of the money or other property held in a qualified escrow, qualified trust, or by a qualified intermediary. If you can walk into the bank and take the cash, the safe harbor is not doing its job — regardless of who printed “1031” on the statement.

The IRS does not retrieve the money if the holder fails. The regulation is a characterization rule. Recovery, if any, is a contract, insurance, or bankruptcy question. Seewhat happens if a QI fails.

Four places the cash can sit

Title / closing escrow on the sale. The title company or closing attorney collects the buyer’s funds, pays off loans, and cuts checks. That escrow is a closing mechanic. If the net proceeds are then delivered to the taxpayer, the exchange story is usually over. If they are delivered to the QI (or a qualified escrow/trust) under the exchange documents, the tax-safe-harbor clock continues. Same building, different instruction. SeeQI vs title company.

Qualified intermediary. Treas. Reg. §1.1031(k)-1(g)(4): the QI is not the taxpayer or a disqualified person, enters a written exchange agreement, acquires the relinquished property from the taxpayer (often by assignment of contract rights — the QI need not take deed), transfers it, acquires replacement, and transfers that to the taxpayer. The QI is the usual party that receives the net proceeds. How it banks them is a separate sentence.

The depository bank. Most QIs place proceeds at a commercial bank or trust company. The bank is often only a depository. “FDIC-insured bank” is not the same as “the account is yours,” “the QI cannot wire alone,” or “the deposit is titled with your TIN.” Ask for the exact account title.

Qualified escrow or qualified trust. Treas. Reg. §1.1031(k)-1(g)(3): a separately identified account with a qualified escrow holder or trustee, subject to the (g)(6) restrictions. This is a Treasury wrapper, not a marketing synonym for “we opened a sub-account.” Definitions:qualified escrow vs qualified trust.

“Segregated” is not an owner

Directory firms that publish “segregated” are saying something about subaccounting or a dedicated account. They are not automatically saying the taxpayer is the account owner, that a trustee is a required signer, or that a bankruptcy estate cannot reach the cash. The reported counterexample isMillard Refrigerated Services, Inc. v. LandAmerica 1031 Exchange Services, Inc., 412 B.R. 800 (Bankr. E.D. Va. 2009): QI-controlled “segregated” sub-accounts remained estate property on those facts.

Ask, in writing: exact title; TIN; whether a qualified escrow holder or trustee must sign; and whether you can receive a bank statement. Longer treatment:segregated vs dual-signature.

What to put in the engagement letter

Who receives the net proceeds at the relinquished closing — legal name, not a brand.
Exact account title and TIN that will appear on the bank or trust statement.
Who the bank will take a wire instruction from, and whether a second signature is required.
Whether the file uses (g)(4) only, or also a (g)(3) qualified escrow or trust.

FAQ

Who holds the sale proceeds in a delayed 1031?

In the usual deferred-exchange safe harbor, a qualified intermediary receives the relinquished-property proceeds so the taxpayer is treated as not constructively receiving the cash (Treas. Reg. §1.1031(k)-1(g)(4)). The bank or trust company is often only the depository. A title or escrow company may hold earnest money or closing funds on the sale itself. Those are different accounts and different instructions.

Does “segregated” mean the taxpayer owns the account?

No. Segregation is a marketing or subaccounting word unless the documents and the bank signature card say who the owner is and who can instruct a wire. Millard / LandAmerica treated certain QI-controlled “segregated” sub-accounts as property of the QI’s bankruptcy estate. Ask for the exact title, TIN, and who the bank will take instruction from. See If a QI fails.

Is a qualified escrow or qualified trust the same as a QI?

No. Treas. Reg. §1.1031(k)-1(g)(3) is a separately identified escrow or trust with a qualified escrow holder or trustee. Paragraph (g)(4) is the qualified-intermediary safe harbor. They can be stacked. They are not synonyms. See qualified escrow vs qualified trust.

Sources

Treas. Reg. §1.1031(k)-1(f), (g)(3), (g)(4), (g)(6) — law.cornell.edu/cfr/text/26/1.1031(k)-1. Accessed 2026-09-11.
Millard Refrigerated Services, Inc. v. LandAmerica 1031 Exchange Services, Inc., 412 B.R. 800 (Bankr. E.D. Va. 2009).

Editorial access date: 2026-09-11. This page is not tax, legal, or investment advice. QI custody explainer, not a securities offering.