Chapter 2
DST Advantages
Key advantages of using Delaware Statutory Trusts for 1031 exchanges.
Delaware Statutory Trusts (DSTs) have become a popular replacement option for investors completing 1031 exchanges, particularly those seeking to reduce or eliminate active management responsibilities. While DSTs are not appropriate for every investor, they offer several distinct advantages when they align with an investor’s goals.
True Passivity
One of the primary benefits of a DST is the elimination of day-to-day landlord responsibilities. The sponsor handles all property management, leasing, maintenance, capital improvements, and tenant issues. Investors are not required to take phone calls, coordinate repairs, or manage vacancies.
Access to Institutional-Quality Assets
DSTs typically own larger, professionally managed properties that would be difficult for most individual investors to acquire directly. These assets often feature stronger tenant profiles, better locations, and more sophisticated underwriting than many smaller, direct purchases.
Diversification
Rather than concentrating proceeds into a single property, investors can allocate across multiple DSTs. This allows for diversification by asset class (multifamily, industrial, self-storage, etc.), geography, and sponsor.
Debt Replacement Without Personal Liability
Many DSTs include non-recourse financing. This allows investors to replace the debt from their relinquished property without having to personally guarantee new loans — an important consideration for many investors, especially those nearing or in retirement.
Simplified Estate Planning
Because DST interests are fractional and professionally managed, they can be easier to transfer to heirs compared to direct ownership of multiple properties. In many cases, heirs receive a step-up in basis upon the investor’s death.
Potential for Tax Efficiency
Certain DSTs, particularly those with moderate leverage, can generate meaningful depreciation deductions that may help shelter cash flow from current taxation.
These advantages make DSTs especially relevant for investors who have built wealth through active real estate ownership and are now looking to simplify their portfolio while preserving tax deferral.
Explore Whether DSTs Could Be a Suitable Replacement Strategy for You
If you would like to explore whether DSTs could be a suitable replacement strategy for your situation, Schedule a consultation or a brief call today by calling (949) 722-1031.
This content is educational and is not tax or legal advice. Please consult your CPA and attorney.
This content is educational and is not tax or legal advice. Please consult your CPA and attorney.
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