Estate Planning with DSTs: Exploring how Delaware statutory trusts can be incorporated into estate planning strategies.

Investors who are seek­ing an alter­na­tive strat­e­gy to trans­fer­ring real estate assets may inves­ti­gate Delaware Statu­to­ry Trusts (DSTs).  DST may pro­vide a strate­gic role in gen­er­a­tional wealth trans­fer uti­lized in estate plan­ning.  

April 1, 2024

By Al DiNi­co­la, AIF®, CEPA™
DST 1031 Spe­cial­ist
NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC
Secu­ri­ties offered through MSC-BD, LLC Mem­ber of FINRA/SIPC

The effi­cien­cy of the struc­ture and func­tion of DSTs sur­pris­es many investors new to alter­na­tive invest­ments like DSTs. The unique ben­e­fits in how the legal enti­ty (known as a DST) owns, man­ages, and pro­vides exit strate­gies pro­vide alter­na­tives that may stream­line wealth trans­fer. While there are many strate­gies, we will cov­er a few of the most rec­og­nized strate­gies.

Tax Effi­cien­cy:
Many tax plan­ners and investors are open to tools that may per­mit the trans­fer of wealth with­out hav­ing imme­di­ate tax con­se­quences. Investors who own DSTs may defer cap­i­tal gains on the sale of appre­cia­ble assets through 1031 exchanges.

Asset Diver­si­fi­ca­tion:
The abil­i­ty of the investors to invest in mul­ti­ple DST (because of the low bar­ri­er to entry $100,000) enables diver­si­fi­ca­tion poten­tial. In plan­ning the investor’s estate diver­si­fi­ca­tion may help to min­i­mize risk and poten­tial­ly have a port­fo­lio with more bal­ance.  The frac­tion­al nature of the DST own­er­ship enables the abil­i­ty to invest in a vari­ety of pro­fes­sion­al­ly man­ages real estate assets.

Wealth Preser­va­tion:
How inter­est ae dis­trib­uted amongst heirs may be a con­cern. Own­ing mul­ti­ple DSTs may be used to pre­serve wealth and enable a smooth trans­fer of real estate assets to ben­e­fi­cia­ries.  There would also be a step up on the basis when the DST would be sold elim­i­nat­ing cap­i­tal gains tax­es for the heirs.

Avoid­ing Pro­bate:
Pro­bate takes time and may be a cost­ly legal process.  Poten­tial­ly, pro­bate may be avoid­ed and assets that are held in a DST may pass direct­ly to ben­e­fi­cia­ries. Hold­ing a  DST may be an effi­cient method to dis­trib­ute wealth. The DST will need to be held until the spon­sor elects to sell the DST at the prop­er time.

Income Stream for Ben­e­fi­cia­ries:
One of the rea­sons investors acquire DST is the poten­tial for tax effi­cient dis­tri­b­u­tions. The under­ly­ing real estate invest­ments are designed to gen­er­ate income typ­i­cal­ly paid out on a month­ly basis. The ben­e­fi­cia­ries (heirs of investors) would receive the income until the DST would be sold. Note: the sale of the DST would be deter­mined by the spon­sor. Ben­e­fi­cia­ries may also ben­e­fit in a step up in basis for tax pur­pos­es.  

Flex­i­bil­i­ty in Estate Plan­ning:
Investor ben­e­fi­cia­ries may include fam­i­ly mem­bers, char­i­ta­ble orga­ni­za­tions, oth­er trusts and the DST struc­ture pro­vides for own­er­ship flex­i­bil­i­ty. There will be vari­a­tions in the indi­vid­ual estate plans. The under­ly­ing goals of the indi­vid­ual investor needs can be tai­lored to achieve those goals.

Pro­fes­sion­al Man­age­ment:

One of the orig­i­nal goals of the investor may be to avoid active man­age­ment. Investors (and the heirs) seek to avoid the bur­den of man­ag­ing the prop­er­ty. The heirs may not have the time nor abil­i­ty to man­age the assets on a dai­ly basis. The orig­i­nal investor moved from active to pas­sive man­age­ment (and income) for a vari­ety of rea­son. AS investors age this pas­sive nature of the DST is espe­cial­ly attrac­tive.

Final Com­ment:
As always investors should seek advice from advi­sors who spe­cial­ize in DST struc­ture. In addi­tion­al estate and tax pro­fes­sion­als are also need­ed to ensure the plan­ning of the estate is car­ried out accord­ing to the wish­es and desires of the investors. There is also the needs to be com­pli­ant with reg­u­la­tions when design­ing the estate strat­e­gy.

Investor Restric­tion:
DST’s (Delaware Statu­to­ry Trusts) are for accred­it­ed investors only.  Con­tact your invest­ment advis­er for addi­tion­al details on how a DST may be a solu­tion to your 1031 Exchange and com­pli­ment your finan­cial objec­tives. For more infor­ma­tion on how to prop­er­ly set up an IRC 1031Tax Deferred Exchange or if you are an accred­it­ed investor and would like addi­tion­al infor­ma­tion on a DST con­tact Al DiNi­co­la at 239–691-8098 or email adinicola@namcoa.com.

This is not an offer to pur­chase or solic­i­ta­tion to pur­chase any secu­ri­ty, as such be made only through an offer­ing mem­o­ran­dum or prospec­tus.  Invest­ing in secu­ri­ties, real estate, or any invest­ment, in any form, involves risk, includ­ing but not lim­it­ed to the poten­tial of los­ing some or all of your invest­ment dol­lars when you invest in secu­ri­ties. You should review any planned finan­cial trans­ac­tions that may have tax or legal impli­ca­tions with your per­son­al tax or legal advi­sor.   NAMCOA, LLC is a Reg­is­tered Invest­ment Advi­sor, reg­u­lat­ed by SEC (Secu­ri­ties and Exchange Com­mis­sion). Our cor­po­rate office is locat­ed at 999 Van­der­bilt Beach Road, Suite 200, Naples Flori­da 34108. Secu­ri­ties Offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC. 8215 SW Tualatin ‑Sher­wood Rd, Suite 200 Tualatin, OR 97062. MSC-BD, LLC and NAMCOA are inde­pen­dent­ly owned and are not affil­i­at­ed. 

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