Introduction
This 1031 Exchange Funds Investment Policy and Disclosure Statement (hereinafter referred to as “Policy”) is written to provide clients and their advisors with transparency and disclosure regarding the policies and procedures used by Exeter 1031 Exchange Services, LLC (hereinafter referred to as “Exeter1031™”) and Exeter Trust Company (hereinafter referred to as “ExeterTrust™”) in the custody, administration, management and safeguarding of client 1031 exchange funds.
1. Purpose
This Policy establishes the investment management principles, authorized investment options, operational controls, and prohibited investment categories governing uninvested 1031 exchange funds held by ExeterTrust™ as trustee of qualified trust accounts in connection with 1031 like-kind exchange transactions facilitated by Exeter1031™ and ExeterTrust™ (hereinafter collectively referred to as “Exeter”).
This Policy exists to protect client 1031 funds by ensuring that all uninvested exchange proceeds are maintained in a manner that is safe, sound, conservative, liquid, and — to the greatest extent practicable — fully insured by the Federal Deposit Insurance Corporation (hereinafter referred to as “FDIC”). Safety of principal and immediate availability of funds take precedence over yield or investment return in all circumstances.
2. Scope
2.1 Applicability
This Policy applies to:
- All uninvested cash proceeds received from 1031 exchange transactions held by ExeterTrust™ as trustee of a qualified trust account;
- All personnel of Exeter1031™ and ExeterTrust™ responsible for directing, managing, approving, or overseeing the placement of exchange funds; and
- All financial institutions, custodians, or depository institutions at which exchange funds are deposited or held.
2.2 What This Policy Covers
This Policy governs the selection of authorized deposit accounts and investment vehicles, deposit diversification practices, liquidity requirements, operational controls, risk management procedures, and prohibited investment categories applicable to uninvested 1031 exchange cash.
2.3 What This Policy Does Not Cover
This Policy does not govern the selection of replacement property in a 1031 exchange transaction, the structuring of exchange agreements, the tax treatment of exchange proceeds, specific investment vehicles that may be requested or required by the client or their advisors, or the investment of client funds outside the qualified trust account structure. This Policy does not constitute legal, tax or financial advice. This policy does not cover other financial services, products or accounts offered by Exeter Trust Company.
3. Definitions
The following terms are used consistently throughout this Policy:
Exchange Funds: Cash proceeds received from the sale of relinquished property and held by ExeterTrust™ as trustee of a qualified trust account pending acquisition of replacement property as part of a tax-deferred exchange pursuant to Section 1031 of the Internal Revenue Code.
Qualified Trust Account: A separate, segregated, dual-signature, restricted trust account established by Exeter1031™ and the client with ExeterTrust™ as trustee to hold Exchange Funds on behalf of a specific exchange client in accordance with the governing like-kind exchange documents and applicable law.
FDIC Insurance: Deposit insurance coverage provided by the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act, currently up to $250,000 per depositor, per insured institution, per ownership category.
Authorized Investments: Deposit products and account structures expressly permitted under Section 6 of this Policy.
Prohibited Investments: Investment types, instruments, strategies and structures expressly excluded under Section 10 of this Policy.
Governing Exchange Documents: The exchange agreement, qualified trust account agreement, and any supplemental instructions or escrow directions executed in connection with a specific 1031 exchange transaction.
Depository Institution: An FDIC insured bank, savings bank, savings association, or trust company authorized to accept deposits under applicable federal or state law.
4. Fiduciary Standard and Governing Principles
4.1 Fiduciary Duty
ExeterTrust™ acts as trustee of each qualified trust account and owes a fiduciary duty to the exchange client. In that capacity, ExeterTrust™ must:
- Act solely in the best interest of the client with respect to the holding, safekeeping, administration and investment management of Exchange Funds;
- Exercise the standard of care, skill, and caution of a prudent person acting as trustee;
- Maintain Exchange Funds in a manner consistent with the Governing Exchange Documents, this Policy, and applicable federal and state law; and
- Avoid conflicts of interest and self-dealing in the placement of Exchange Funds.
4.2 Governing Legal Framework
The administration and investment management of Exchange Funds is subject to, and must remain consistent with the following:
- Section 1031 of the Internal Revenue Code (“IRC”) and the Treasury Regulations promulgated thereunder, including Treas. Reg. § 1.1031(k)-1;
- Applicable federal and state trust law;
- FDIC regulations and deposit insurance rules;
- Applicable state banking and trust company regulations governing ExeterTrust™; and
- The Governing Exchange Documents for each transaction.
4.3 Paramount Principle
Safety of principal and liquidity are the paramount principles governing all investment decisions under this Policy. Yield, return, or income generation is a secondary consideration and must never be pursued at the expense of capital preservation, FDIC insurance coverage, or immediate fund availability.
5. Primary Investment Objectives
Exchange Funds must be administered and managed to achieve the following objectives, listed in order of priority:
- Safety of Principal. Exchange Funds must be held in deposit products that preserve the face value of the principal amount at all times. No investment that places principal at risk is permitted.
- FDIC Insurance Coverage. Exchange Funds shall be held in FDIC insured deposit accounts at FDIC insured Depository Institutions to the greatest extent practicable.
- Liquidity and Immediate Availability. Exchange Funds must remain immediately available for disbursement to fund the acquisition of replacement properties, satisfy exchange-related obligations, or return funds to the exchange client in the event of an exchange failure, at any time and without penalty, delay, or restriction.
- Capital Preservation. Exchange Funds must not be exposed to market risk, credit risk, or interest rate risk.
- Yield. To the extent consistent with the four objectives above, Exchange Funds may be held in interest-bearing deposit accounts. Interest earned, if any, is subordinate to all other objectives and must not be pursued in a manner that compromises safety, FDIC coverage, or liquidity.
6. Authorized Account Structures and Investment Options
Only the following deposit account structures and products are authorized for the placement and safeguarding of Exchange Funds. All authorized accounts must be held at FDIC insured Depository Institutions.
6.1 Demand Deposit Accounts (DDAs)
Exchange Funds are generally held by ExeterTrust™ in non-interest-bearing demand deposit checking accounts (hereinafter referred to as “DDAs”) at FDIC insured Depository Institutions. DDAs provide immediate, unrestricted access to funds and represent the baseline authorized structure for Exchange Fund placement.
6.2 Money Market Deposit Accounts (MMDAs)
Exchange Funds may be held in money market deposit accounts (hereinafter referred to as “MMDAs”) at FDIC insured Depository Institutions. MMDAs must be true bank deposit accounts insured by the FDIC. Money market mutual funds — which are investment products and not bank deposits — are expressly prohibited under Section 10 of this Policy.
6.3 Short-Term Certificates of Deposit (CDs)
Exchange Funds may be held in certificates of deposit (hereinafter referred to as “CDs”) with maturities consistent with the anticipated timeline of the exchange transaction, subject to the following requirements:
- The CD must be issued by an FDIC insured Depository Institution;
- The maturity date must not extend beyond the earlier of (a) the 180th calendar day following the transfer of the relinquished property, or (b) the date the replacement property acquisition is anticipated to close;
- The CD must be redeemable without material penalty or restriction, upon maturity. Should the CD be liquidated prior to maturity, penalties may be applied by the issuing bank. The face value of the CD, together with all other Exchange Funds held at the same Depository Institution in the same ownership category, must remain within applicable FDIC insurance limits to the greatest extent practicable.
6.4 Account Titling
All qualified trust accounts must be titled in the name of Exeter Trust Company as trustee for the benefit of the identified exchange client, consistent with FDIC pass-through insurance rules and the Governing Exchange Documents.
7. Deposit Diversification and FDIC Insurance Coverage
7.1 Coverage Objective
ExeterTrust™ must structure deposit placements to ensure that Exchange Funds in each qualified trust account are fully covered by FDIC deposit insurance to the greatest extent practicable.
7.2 Diversification Across Institutions
When the aggregate cash position of Exchange Funds in a single qualified trust account exceeds applicable FDIC insurance limits at a single Depository Institution, ExeterTrust™ should – to the greatest extent practicable:
- Allocate the excess cash balance across two or more separate FDIC insured Depository Institutions; or
- Utilize an FDIC insured network deposit or demand deposit marketplace program that allocates funds across multiple participating FDIC insured banks in insured increments, provided that such program qualifies as a direct deposit relationship with each participating bank for FDIC insurance purposes and does not involve any non-deposit investment vehicle.
7.3 Monitoring of Insurance Limits
ExeterTrust™ must monitor current FDIC insurance limits and applicable ownership categories and must adjust deposit allocations promptly upon any change in FDIC rules, account balance, or account ownership structure that would cause Exchange Funds to exceed insured limits at any single institution.
7.4 Client Disclosure
ExeterTrust™ must provide each exchange client upon demand with clear written disclosure of the deposit placement practices used to maintain FDIC insurance coverage for their qualified trust account, including the identity of any Depository Institutions at which Exchange Funds are held.
8. Segregation and Restriction of Client Funds
8.1 Separate Accounts Required
Exchange Funds for each client must be held in a separate, segregated, dual-signature, restricted and individually identified qualified trust account. Commingling of Exchange Funds belonging to different exchange clients in a single qualified trust account is prohibited.
8.2 Restricted Access
Qualified trust accounts are restricted accounts. Exchange Funds may only be disbursed in accordance with the Governing Exchange Documents, the instructions of the exchange client, and applicable law. ExeterTrust™ personnel must not access, transfer, pledge, hypothecate, or otherwise encumber Exchange Funds for any purpose other than those expressly authorized by the Governing Exchange Documents.
8.3 Consistency with Exchange Documents
All investment decisions and deposit placements must remain consistent with the terms of the Governing Exchange Documents for each transaction. In the event of any conflict between this Policy and the Governing Exchange Documents, the more restrictive provision governs unless applicable law requires otherwise.
9. Liquidity Requirements
9.1 Immediate Availability
Exchange Funds must be available for immediate disbursement at all times during the exchange period. No deposit structure, term, lock-up, withdrawal restriction, redemption gate, or penalty that would prevent or materially delay access to funds on any business day is permitted.
9.2 Replacement Property Closings
Exchange Funds must be available to fund replacement property acquisitions on the date of closing. ExeterTrust™ must confirm fund availability prior to authorizing any replacement property closing and must coordinate with the applicable Depository Institution to ensure timely wire transfer or other payment on the closing date.
9.3 Exchange Failures
In the event that an exchange fails — including if the exchange client fails to identify or acquire replacement property within the applicable identification or exchange periods — Exchange Funds must be immediately returnable to the exchange client without restriction, penalty, or delay, except as required by applicable law or the Governing Exchange Documents.
10. Prohibited Investments
The following investment types, instruments, structures, and arrangements are expressly prohibited for the placement of Exchange Funds. No exception to this section is permitted without the prior written approval of ExeterTrust’s™ Executive Committee, and any exception must remain consistent with applicable law and FDIC insurance rules.
10.1 Equity Securities
Exchange Funds must not be invested in common stock, preferred stock, equity-linked instruments, exchange-traded funds, or any other equity security, regardless of issuer, market capitalization, or listed exchange.
10.2 Corporate Debt Securities
Exchange Funds must not be invested in corporate bonds, notes, debentures, commercial paper, or any other debt obligation issued by a private or public corporation.
10.3 Municipal Securities
Exchange Funds must not be invested in bonds, notes, warrants, or other debt obligations issued by any state, municipality, county, special district, or other governmental subdivision.
10.4 Money Market Mutual Funds
Exchange Funds must not be placed in money market mutual funds or any other registered investment company product, regardless of the fund’s stated investment objective, credit quality, or liquidity profile. Money market mutual funds are investment products — not FDIC insured bank deposits — and are therefore prohibited under this Policy.
10.5 U.S. Treasury and Agency Securities
Exchange Funds must not be invested in U.S. Treasury bills, notes, bonds, Treasury Inflation-Protected Securities (TIPS), U.S. agency securities, or government-sponsored enterprise obligations unless separately and specifically authorized in writing by ExeterTrust’s™ Executive Committee for a specific transaction, and only where such investment is consistent with the applicable Governing Exchange Documents and prior written approval has been obtained from the 1031 exchange client.
10.6 Mutual Funds and Registered Investment Company Products
Exchange Funds must not be placed in any registered investment company, including open-end mutual funds, closed-end funds, interval funds, or exchange-traded funds of any type or investment objective.
10.7 Structured Products
Exchange Funds must not be invested in structured notes, collateralized debt obligations, collateralized loan obligations, asset-backed securities, mortgage-backed securities, or any other structured financial product, regardless of credit rating or stated principal protection.
10.8 Derivatives and Hedging Instruments
Exchange Funds must not be used in connection with futures contracts, options, swaps, forward rate agreements, currency forwards, interest rate caps or floors, or any other derivative instrument or hedging arrangement.
10.9 Real Estate Investments
Exchange Funds must not be used in connection with any investment in real property assets, including fee simple title, promissory notes secured by deeds of trust or mortgage, or tax lien certificates.
10.10 Cryptocurrency and Digital Assets
Exchange Funds must not be invested in cryptocurrency, digital tokens, stablecoins, non-fungible tokens, or any other digital asset or blockchain-based instrument, regardless of market capitalization, liquidity profile, or claimed backing.
10.11 Hedge Funds and Private Funds
Exchange Funds must not be invested in hedge funds, private equity funds, private debt funds, venture capital funds, real estate investment trusts (whether public or private), or any other pooled investment vehicle that is not an FDIC insured bank deposit.
10.12 Repurchase Agreements
Exchange Funds must not be placed in repurchase agreements, reverse repurchase agreements, or any similar arrangement involving the transfer of securities as collateral, regardless of counterparty credit quality or term.
10.13 Non-Deposit Sweep Arrangements
Exchange Funds must not be swept into money market mutual funds, Treasury securities, or any non-deposit investment product through automatic or discretionary sweep arrangements. Sweep arrangements are only permitted where funds sweep into FDIC insured demand deposit accounts or money market deposit accounts at FDIC insured Depository Institutions.
10.14 Speculative, Illiquid, Volatile, or Uninsured Investments
Exchange Funds must not be placed in any investment or instrument that is:
- Speculative in nature or subject to material credit, market, or principal risk;
- Illiquid or subject to any restriction, lock-up, redemption gate, or withdrawal limitation;
- Volatile in value or subject to market price fluctuation;
- Not fully covered by FDIC deposit insurance (subject to the diversification practices described in Section 7); or
- Not immediately available for disbursement on any business day without penalty or restriction.
11. Operational Controls
11.1 Authorization Requirements
All deposit placements, account openings, and fund transfers involving Exchange Funds must be authorized by at least two designated ExeterTrust™ officers or authorized signatories in accordance with ExeterTrust’s™ internal authorization matrix and trust operations procedures.
11.2 Dual Control
Disbursements of Exchange Funds — including wire transfers for replacement property acquisitions and returns of funds to 1031 exchange clients — must be subject to dual control review and approval by at least two (2) authorized Exeter1031™ personnel and two (2) authorized ExeterTrust™ personnel before execution.
11.3 Documentation
ExeterTrust™ must maintain complete, accurate, and current records for each qualified trust account, including:
- Account opening documents and account agreements;
- Deposit placement confirmations and account statements;
- FDIC insurance coverage calculations;
- Wire transfer instructions and disbursement records; and
- Copies of the Governing Exchange Documents applicable to each transaction.
11.4 Reconciliation
ExeterTrust™ must reconcile all qualified trust account balances against account statements and bank records no less frequently than daily and must promptly investigate and resolve any discrepancy.
12. Risk Management
12.1 Counterparty Risk
ExeterTrust™ must periodically assess the financial condition and FDIC insured status of each Depository Institution at which Exchange Funds are held. If ExeterTrust™ determines that a Depository Institution presents an elevated risk of failure or insolvency, ExeterTrust™ must promptly take steps to transfer Exchange Funds to one or more alternative FDIC insured Depository Institutions.
12.2 Concentration Risk
ExeterTrust™ must monitor aggregate deposit balances at each Depository Institution across all qualified trust accounts and must manage concentration risk by diversifying deposit placements in accordance with Section 7 of this Policy.
12.3 Regulatory Change Risk
ExeterTrust™ must monitor changes in FDIC insurance rules, federal and state banking regulations, and applicable trust and exchange laws that could affect the permissibility, coverage, or availability of any authorized account structure. ExeterTrust™ must update this Policy and adjust deposit practices promptly upon any material regulatory change.
13. Monitoring and Review
13.1 Ongoing Monitoring
ExeterTrust’s™ Trust Committee of the Board of Directors or Board of Directors must monitor the investment and deposit activities of all qualified trust accounts on an ongoing basis to verify compliance with this Policy, the Governing Exchange Documents, and applicable law.
13.2 Annual Policy Review
This Policy must be reviewed and approved by ExeterTrust’s™ Executive Committee or Board of Directors at least annually to assess its continued appropriateness, accuracy, and compliance with applicable law and regulatory guidance. Material changes to this Policy must be approved by ExeterTrust’s™ Executive Committee or Board of Directors or designated governance committee and must be communicated to applicable personnel promptly upon adoption.
13.3 Compliance Reporting
ExeterTrust’s™ Corporate Finance Group must prepare and present a summary of deposit placement activity, FDIC insurance coverage status, and any policy exceptions or compliance concerns to ExeterTrust’s™ Board of Directors on a quarterly basis.
14. Exceptions
Requests for any exception to this Policy — including any deviation from the authorized investment options in Section 6 or the prohibited investments in Section 10 — must be:
- Submitted in writing to ExeterTrust’s™ Executive Committee;
- Reviewed and approved in writing by ExeterTrust’s™ Executive Committee;
- Confirmed to be consistent with applicable law, FDIC insurance rules, and the Governing Exchange Documents for the applicable transaction; and
- Documented and retained in ExeterTrust’s™ records.
No exception that would expose Exchange Funds to uninsured risk, loss of principal, or restricted availability is permissible under any circumstances.
15. Disclaimer
This Policy is a general statement of investment management principles adopted by Exeter Trust Company and Exeter 1031 Exchange Services, LLC for the management of uninvested Exchange Funds held in qualified trust accounts. This Policy does not constitute legal, tax, or financial advice and does not create any contractual obligation or guarantee of a specific investment outcome or rate of return.
This Policy may be supplemented, modified, or superseded with respect to any specific transaction by the Governing Exchange Documents for that transaction, written client instructions, or applicable federal or state law. In the event of any conflict between this Policy and applicable law, applicable law governs.
Exchange clients with questions about the management of their Exchange Funds, deposit placement practices, or FDIC insurance coverage should contact Exeter directly for transaction-specific information and assistance.
16. Contact
Exeter 1031 Exchange Services, LLC | Exeter Trust Company
For questions regarding this Policy, deposit placement practices, FDIC insurance coverage, interest rates, or the management of Exchange Funds in a specific qualified trust account, please contact Exeter’s experienced 1031 exchange specialists:
Exeter 1031 Exchange Services, LLC National Corporate Headquarters Office 404 Camino del Rio South, Suite 600 San Diego, CA 92108 (619) 239-3091 notices@exeterco.com Exeter Trust Company Corporate Headquarters Office 205 Storey Boulevard, Suite 200 Cheyenne, WY 82009 (307) 222-8750 support@exeterco.comUpdated: Wednesday, June 10, 2026
State of Washington Required Notice
Washington state law, RCW 19.310.040, requires an exchange facilitator to either maintain a fidelity bond in an amount of not less than one million dollars that protects clients against losses caused by criminal acts of the exchange facilitator, or to hold all client funds in a qualified escrow account or qualified trust that requires your consent for withdrawals. All exchange funds must be deposited in a separately identified account using your taxpayer identification number. You must receive written notification of how your exchange funds have been deposited. Your exchange facilitator is required to provide you with written directions of how to independently verify the deposit of the exchange funds. Exchange facilitation services are not regulated by any agency of the state of Washington or of the United States government. It is your responsibility to determine that your exchange funds will be held in a safe manner.