Let’s just start off by stating that if you are trying to defer taxes on capital gains from a real estate sale by using a 1031 exchange, you are going to need to engage a Qualified Intermediary or QI. Although the 1031 DST exchange is fairly simple in nature, If mistakes are made during any of the required processes or you miss a deadline you may have nullified your chances of using the 1031 exchange to defer taxes. The QI acts as an accommodator for these processes and ensures the safety and security of the funds during the exchange.
One of the key elements of a 1031 Exchange is that the person who has sold their property, the “exchanger” must assign to the Qualified Intermediary their interest in the property that they have just sold. This is referred to as the relinquished property. The QI also acquires the Replacement property as you assign your interest in that property to them becoming a principal in this transaction, in your place.
It is not until the entire 1031 exchange process is completed that you will have full access to the funds of this arrangement, however up until this point it is the duty of the Qualified Intermediary to safeguard that money.
Ultimately, it is your responsibility to ensure what happens during your 1031 exchange process and the QI is there to support you during this period. You should still work with your attorney or tax professional. The QI is there to protect your money, coordinate the exchange process and basically to make certain that the 1031 exchange is done properly and observes the IRS 1031 exchange rules.