Common CPA Concerns About DSTs—and How to Address Them

We con­tin­ue our short series on how valu­able we feel a CPA may be for investors seek­ing advice on their real estate held for invest­ment pur­pos­es. Delaware Statu­to­ry Trusts (DSTs) have become an increas­ing­ly pop­u­lar solu­tion for clients com­plet­ing §§1031 exchanges, seek­ing pas­sive income, or sim­pli­fy­ing real estate own­er­ship. How­ev­er, despite their ben­e­fits, many CPAs approach DSTs with under­stand­able cau­tion.

April 6, 2026

By Al DiNi­co­la, AIF®
adinicola@fiduciarycm.com
Pri­vate Fund Advisor/DST §1031 Spe­cial­ist
Fidu­cia­ry Cap­i­tal Man­age­ment ^®, LLC
Secu­ri­ties offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC

Con­cerns around liq­uid­i­ty, con­trol, spon­sor reli­a­bil­i­ty, com­pli­ance, and tax report­ing are not only valid, but they are also essen­tial con­sid­er­a­tions when advis­ing clients. By under­stand­ing these issues and how to prop­er­ly address them, CPAs can pro­vide con­fi­dent, well-round­ed guid­ance that pro­tects clients while unlock­ing the strate­gic advan­tages DSTs offer. We wel­come the oppor­tu­ni­ty when an investor brings us in for a con­fer­ence call with their CPA. In some cas­es, CPA may be very famil­iar with §1031 exchanges while oth­ers know about the IRC §1031 but may not have been involved with any spe­cif­ic trans­ac­tions.  We will always stress that DST (and §1031 for that mat­ter) are not for every investor or sit­u­a­tion.

Com­mon CPA Con­cerns

1. Liq­uid­i­ty

One of the most com­mon con­cerns is that DSTs are inher­ent­ly illiq­uid invest­ments. Unlike pub­licly trad­ed secu­ri­ties, DST inter­ests can­not be eas­i­ly sold or redeemed. Investors are typ­i­cal­ly required to hold their inter­est until the under­ly­ing prop­er­ty is sold, which may take any­where from 5 to 10 years (or longer depend­ing on mar­ket con­di­tions). Some DST may offer exit strate­gies after 2–3 years uti­liz­ing a sec­tion 721 UPREIT.

Why this mat­ters:
Clients who may need access to cap­i­tal in the short term could find them­selves con­strained, mak­ing liq­uid­i­ty plan­ning crit­i­cal.

2. Con­trol

DST investors are com­plete­ly pas­sive. They do not have deci­sion-mak­ing author­i­ty over prop­er­ty man­age­ment, financ­ing, leas­ing, or dis­po­si­tion.

Why this mat­ters:

Clients accus­tomed to active­ly man­ag­ing real estate may strug­gle with the lack of con­trol. CPAs often wor­ry about how this impacts a client’s com­fort lev­el and long-term strat­e­gy.  As an aside many times CPAs are not con­sult­ed until after investors have made deci­sions.

3. Spon­sor Risk

The suc­cess of a DST invest­ment is heav­i­ly depen­dent on the expe­ri­ence and integri­ty of the spon­sor (the firm man­ag­ing the DST and under­ly­ing prop­er­ty).

Why this mat­ters:
A poor­ly man­aged spon­sor can neg­a­tive­ly impact cash flow, prop­er­ty per­for­mance, and exit tim­ing. Unlike direct own­er­ship, the investor is rely­ing entire­ly on third-par­ty exe­cu­tion. Man­ag­ing prop­er­ties dur­ing mar­ket changes cre­ate chal­lenges even expe­ri­enced spon­sor may encounter.

4. Com­pli­ance

DSTs must adhere to strict IRS guide­lines, par­tic­u­lar­ly under Rev­enue Rul­ing 2004–86, to qual­i­fy as like-kind prop­er­ty for §1031  exchanges. Expe­ri­enced investors and occa­sion­al­ly a CPA may over­look all the details of the exchange guide­lines includ­ing finan­cial aspects as well as dates that need adher­ence.

Why this mat­ters:
Fail­ure to meet IRS require­ments, whether in struc­ture or exe­cu­tion, could jeop­ar­dize the tax-deferred sta­tus of the entire exchange, expos­ing the client to imme­di­ate cap­i­tal gains tax­es. One part of com­pli­ance DST offers is the abil­i­ty to replace exist­ing debt from the sale of the relin­quished prop­er­ty with non-recourse debt that may be avail­able in cer­tain DST.

5. Tax Report­ing Com­plex­i­ty

DSTs can intro­duce more com­plex tax report­ing com­pared to direct real estate own­er­ship. Investors receive K‑1s, and income, expens­es, and depre­ci­a­tion are allo­cat­ed across mul­ti­ple prop­er­ties and struc­tures. Spon­sors have the respon­si­bil­i­ty to pre­pare and send all per­ti­nent tax report­ing doc­u­ments on time.

Why this mat­ters:
CPAs must ensure accu­rate report­ing while help­ing clients under­stand how DST income, depre­ci­a­tion, and poten­tial future tax lia­bil­i­ties fit into their broad­er finan­cial pic­ture. Some investors may uti­lize cost seg­re­ga­tion stud­ies as well as bonus depre­ci­a­tion for enhanced tax ben­e­fits. These strate­gies need to be ana­lyzed as to the avail­abil­i­ty and use by each investor.

How to Address These Con­cerns

While these risks are real, they can be effec­tive­ly man­aged with prop­er dili­gence, edu­ca­tion, and plan­ning. We will cov­er the use of oth­er pro­fes­sion­als to assist. The fol­low­ing may be ques­tions the CPA ask the investor. CPAs do not have the time (and poten­tial­ly exper­tise) to con­duct due dili­gence tasks.

Eval­u­ate the Sponsor’s Track Record

One of the most impor­tant steps is thor­ough­ly vet­ting the DST spon­sor. CPAs should look for:

• A proven his­to­ry of suc­cess­ful DST offer­ings
• Expe­ri­ence across mul­ti­ple mar­ket cycles
• Trans­par­ent finan­cial report­ing
• Strong asset man­age­ment capa­bil­i­ties

Review­ing past per­for­mance, occu­pan­cy rates, and exit strate­gies can pro­vide valu­able insight into the sponsor’s reli­a­bil­i­ty. Many investors and CPA will uti­lize expe­ri­enced advi­sors who research, eval­u­ate, and make rec­om­men­da­tions on spe­cif­ic DST offer­ings. As a note spon­sors will have offer­ings avail­able at dif­fer­ent time peri­ods. In oth­er words, there may or may not be an avail­able DST from a cer­tain spon­sor at all times.  The exper­tise of advi­sors are active­ly eval­u­at­ing DST on a week­ly basis, which has become most valu­able to the CPAs and the investor. 

Ensure Prop­er Use of Qual­i­fied Inter­me­di­aries and Legal Doc­u­men­ta­tion

CPA should under­stand basic require­ments of the §1031 exchange. A suc­cess­ful DST trans­ac­tion depends on strict adher­ence to §1031  exchange rules. CPAs should con­firm that:

• A rep­utable Qual­i­fied Inter­me­di­ary (QI) is engaged
• All exchange time­lines (45-day iden­ti­fi­ca­tion, 180-day clos­ing) are met
• Legal doc­u­ments align with IRS require­ments

This reduces the risk of dis­qual­i­fi­ca­tion and ensures com­pli­ance is main­tained through­out the process. QIs are mem­bers of pro­fes­sion­al orga­ni­za­tions but there are no licens­es require­ments for QI.  Ask­ing the right back­ground ques­tions and obtain­ing ref­er­ences should be part of the due dili­gence. CPAs com­plet­ed hours of train­ing and con­tin­u­ing edu­ca­tion.  Finan­cial advi­sors who deal in DST are required to obtain a vari­ety of secu­ri­ties licens­es as well as reg­is­ter­ing with the SEC or FINRA. 

Review the Offer­ing Mem­o­ran­dum Care­ful­ly

The Pri­vate Place­ment Mem­o­ran­dum (PPM) pro­vides crit­i­cal details about the DST invest­ment. CPAs should pay close atten­tion to the details includ­ed in the PPM. Among the many details are Cash flow pro­jec­tions and assump­tions, Debt struc­ture and financ­ing terms (if applic­a­ble), Fee struc­tures and spon­sor com­pen­sa­tion and Exit strat­e­gy and hold peri­od. At time this may be over­whelm­ing.

Coor­di­nate with Reg­is­tered Rep­re­sen­ta­tives / Bro­ker-Deal­ers

DSTs are secu­ri­ties, so a licensed finan­cial advi­sor or bro­ker-deal­er should be involved.

Their role:

• Ensure suit­abil­i­ty and com­pli­ance with FINRA stan­dards
• Review the PPM in the con­text of the client’s full finan­cial pic­ture
• Con­firm offer­ing is approved on the bro­ker-deal­er plat­form
• Explain how com­pen­sa­tion and fees are struc­tured

Why it mat­ters:
CPAs should avoid cross­ing into “sell­ing” secu­ri­ties. Part­ner­ing with a licensed pro­fes­sion­al keeps the CPA in an advi­so­ry lane while ensur­ing reg­u­la­to­ry com­pli­ance.

Under­stand­ing these ele­ments allows CPAs to bet­ter assess whether the invest­ment aligns with the client’s finan­cial goals and risk tol­er­ance. How­ev­er, the vol­ume of mate­r­i­al includ­ed in a PPM is over­whelm­ing for any­one not famil­iar with review­ing the mate­r­i­al.  Finan­cial advi­sors who are expe­ri­enced and inter­face with var­i­ous spon­sors can be a valu­able asset to the CPA and nat­u­ral­ly the investor.

Incor­po­rate DSTs into a Diver­si­fied Strat­e­gy

DSTs should not be viewed as a stand­alone solu­tion, but rather as one com­po­nent of a diver­si­fied real estate or invest­ment port­fo­lio.

CPAs can add val­ue by help­ing clients:

• Allo­cate cap­i­tal across mul­ti­ple DSTs or asset class­es
• Bal­ance DST invest­ments with more liq­uid assets
• Align­ing DST hold­ings with retire­ment income needs

Diver­si­fi­ca­tion helps mit­i­gate risk while enhanc­ing over­all port­fo­lio sta­bil­i­ty. This ser­vice may be out­side the typ­i­cal tax prepa­ra­tion billing and may be rec­om­mend­ed for high-net-worth clients.

Edu­cat­ing Clients on Expec­ta­tions

Clear com­mu­ni­ca­tion is key. CPAs should ensure clients under­stand:

• The illiq­uid nature of DSTs
• The pas­sive struc­ture and lack of con­trol
• The antic­i­pat­ed time­line and income pro­file
• Poten­tial risks and mar­ket depen­den­cies

Set­ting real­is­tic expec­ta­tions upfront helps pre­vent mis­un­der­stand­ings and builds long-term trust.

Con­clu­sion

Delaware Statu­to­ry Trusts offer mean­ing­ful ben­e­fits, par­tic­u­lar­ly for clients seek­ing tax defer­ral, pas­sive income, and sim­pli­fied real estate own­er­ship. How­ev­er, they also intro­duce com­plex­i­ties that require care­ful con­sid­er­a­tion.

By address­ing con­cerns around liq­uid­i­ty, con­trol, spon­sor risk, com­pli­ance, and tax report­ing, CPAs can guide clients with clar­i­ty and con­fi­dence. Through due dili­gence, coor­di­na­tion with pro­fes­sion­als, and thought­ful inte­gra­tion into broad­er finan­cial strate­gies, DSTs can become a pow­er­ful tool rather than a source of uncer­tain­ty.

Ulti­mate­ly, CPAs who take the time to under­stand and nav­i­gate these con­cerns posi­tion them­selves as trust­ed advi­sors, help­ing clients reduce risk, main­tain com­pli­ance, and make smarter long-term invest­ment deci­sions.

Fidu­cia­ry Cap­i­tal Man­age­ment (Fidu­cia­ry CM^®) is a SEC reg­is­tered invest­ment advi­so­ry firm that pro­vides com­pre­hen­sive port­fo­lio man­age­ment, finan­cial plan­ning, and fidu­cia­ry deci­sion-mak­ing ser­vices on behalf of retire­ment plan spon­sors. Our Dif­fer­ence is sum­ma­rized by our fidu­cia­ry approach which enables us to bet­ter meet port­fo­lio and retire­ment plan objec­tives, result­ing in stronger risk adjust­ed returns for investors and peace of mind for Clients. We also focus on alter­na­tive real estate invest­ment. Many real estate investors are seek­ing tax deferred solu­tions uti­liz­ing §1031 exchanges or Oppor­tu­ni­ty Zones.

DSTs are not for all investors.  The acqui­si­tion of a DST is for accred­it­ed investors only.  Con­tact your invest­ment advis­er for addi­tion­al details on how a DST may be a solu­tion to your §1031 Exchange and suit­ed for your invest­ment future. 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@fiduciarycm.com

Advi­so­ry and Con­sult­ing Ser­vices offered through FIDUCIARY CM^® (Fidu­cia­ry Cap­i­tal Man­age­ment LLC). FIDUCIARY CM^® is an SEC Reg­is­tered Invest­ment Advis­er. Infor­ma­tion pre­sent­ed is for edu­ca­tion­al pur­pos­es only for a broad audi­ence. The infor­ma­tion does not intend to make an offer or solic­i­ta­tion for the sale or pur­chase of any spe­cif­ic secu­ri­ties, invest­ments, or invest­ment strate­gies. Invest­ments involve risk and are not guar­an­teed. FIDUCIARY CM^® has rea­son­able belief that this mar­ket­ing does not include any false or mate­r­i­al mis­lead­ing state­ments or omis­sions of facts regard­ing ser­vices, invest­ment, or client expe­ri­ence. Please refer to our Firm Brochure (ADV2) for mate­r­i­al risks dis­clo­sures. The opin­ions ref­er­enced are as of the date of pub­li­ca­tion and are sub­ject to change due to changes in the mar­ket or eco­nom­ic con­di­tions and may not nec­es­sar­i­ly come to pass. FIDUCIARY CM^® may dis­cuss and dis­play, charts, graphs, for­mu­las, and stock picks which are not intend­ed to be used by them­selves to deter­mine which secu­ri­ties to buy or sell, or when to buy or sell them. Con­sul­ta­tion with a licensed finan­cial pro­fes­sion­al is strong­ly sug­gest­ed. Please remem­ber that secu­ri­ties can­not be pur­chased, sold, or trad­ed via e‑mail or voice mes­sage sys­tem. For more infor­ma­tion, please vis­it www.FiduciaryCM.com  Secu­ri­ties may be offered through MSC-BD, LLC. Mem­ber of FINRA / SIPC.

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