If you’re doing 1031 tax exchanges, you’ll want to make sure that your funds are safe. You don’t want to wake up to find out that some guy skimmed $100 million of taxpayer funds and yours are part of it.

Here are the questions you should ask to make sure your 1031 Exchange company is a good one, courtesy of Scott Nathanson, senior vice president of Nationwide Exchange Services, a 1031 exchange company that is Sarbanes-Oxley Section 404 compliant:

  1. Where will my funds be held and how will they be held? (The right answer is an FDIC-insured bank in an escrow trust account.)

  2. Does the 1031 exchange company have a fidelity bond and can you get a copy? (NES carries a $55 million fidelity bond for customer’s protection.)

  3. Does the 1031 exchange company have errors and omissions insurance? (The company should carry a separate E&O policy on each exchange.)

By the way, I’m not recommending that you use NES. You should make your own decisions and find a company that suits your needs. But the right answers to these questions will help keep you safe.

July 30, 2008