Understanding Delaware Statutory Trusts: Risks and Benefits

Delaware Statu­to­ry Trusts (DSTs) have become an increas­ing­ly pop­u­lar solu­tion for investors seek­ing tax defer­ral through §1031 exchanges, pas­sive income, and relief from active prop­er­ty man­age­ment. For many clients, espe­cial­ly those tran­si­tion­ing into retire­ment or exit­ing hands-on real estate own­er­ship, DSTs can offer a com­pelling com­bi­na­tion of sim­plic­i­ty and income poten­tial.

April 27, 2026

By Al DiNi­co­la, AIF®
adinicola@fiduciarycm.com
Fidu­cia­ry Cap­i­tal Man­age­ment ^®, LLC
NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC
Secu­ri­ties offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC

There are also invest­ment strate­gies for direct cash invest­ments.  DST are not for all investors and investors need to be accred­it­ed.

How­ev­er, like any invest­ment, DSTs come with risks. These risks are not inher­ent­ly neg­a­tive, but they must be clear­ly under­stood and prop­er­ly com­mu­ni­cat­ed. The role of the advi­sor or CPA is not to “sell” DSTs, but to edu­cate, guide, and set real­is­tic expec­ta­tions. We have found over the years that investors appre­ci­ate our ini­tial analy­sis of investor needs pri­or to jump­ing into poten­tial solu­tions.  All investors’ sit­u­a­tions are dif­fer­ent and require dif­fer­ent alter­na­tives. Occa­sion­al­ly after our ini­tial analy­sis DST is not a solu­tion.

When clients ful­ly under­stand both the ben­e­fits and the risks, they are more con­fi­dent in their decisions—and more like­ly to main­tain trust in their advi­sor over the long term. Trans­par­ent com­mu­ni­ca­tion is not just best prac­tice; it is essen­tial for build­ing last­ing client rela­tion­ships.

Com­mon DST Risks to Dis­cuss

A thought­ful DST con­ver­sa­tion should always include a clear expla­na­tion of the core risks.

Illiq­uid­i­ty Until Prop­er­ty Sale

DSTs are illiq­uid invest­ments. Once a client invests, their cap­i­tal is typ­i­cal­ly tied up for a peri­od of 5–10 years or longer, depend­ing on the sponsor’s busi­ness plan and mar­ket con­di­tions. Recent­ly there have been short­er exit strate­gies via 721 UPREIT. How­ev­er, that strat­e­gy is not for all investor.

Unlike pub­licly trad­ed invest­ments, there is no active sec­ondary mar­ket where investors can eas­i­ly sell their inter­est. While some lim­it­ed sec­ondary options may exist, they are not guar­an­teed and often come at a dis­count.

Here is how we explain it to clients:
DSTs are posi­tioned as a long-term com­mit­ment, sim­i­lar to own­ing real estate direct­ly. Clients should under­stand that they are trad­ing liq­uid­i­ty for poten­tial income and tax advan­tages.

Lim­it­ed Investor Con­trol

DST investors are com­plete­ly pas­sive. They do not make deci­sions regard­ing leas­ing, refi­nanc­ing, prop­er­ty improve­ments, or the tim­ing of a sale. All oper­a­tional and strate­gic deci­sions are made by the spon­sor. For clients who are used to being land­lords or active­ly man­ag­ing invest­ments, this can feel like a sig­nif­i­cant shift.

How we explain it to clients:
We frame this as both a ben­e­fit and a trade-off. Clients gain free­dom from day-to-day respon­si­bil­i­ties, but they give up con­trol. The key is deter­min­ing whether that trade-off aligns with their lifestyle and pref­er­ences.

Spon­sor Per­for­mance Depen­den­cy

The suc­cess of a DST invest­ment is heav­i­ly depen­dent on the expe­ri­ence, integri­ty, and exe­cu­tion of the spon­sor. The spon­sor is respon­si­ble for acquir­ing the prop­er­ty, man­ag­ing oper­a­tions, and ulti­mate­ly exe­cut­ing the exit strat­e­gy. This is one of the rea­sons we attend a vari­ety of third par­ty due dili­gence meet­ings to meet spon­sors face to face to fur­ther enhance the dili­gence we under­take.

If the spon­sor under­per­forms, it can impact:

• Cash flow dis­tri­b­u­tions
• Prop­er­ty val­ue
• Tim­ing of the sale

How to explain it to clients:
Empha­size that invest­ing in a DST is, in many ways, invest­ing in the spon­sor as much as the prop­er­ty. This nat­u­ral­ly leads into a dis­cus­sion about due dili­gence and track record.

Mar­ket or Ten­ant Risk

Even sta­bi­lized, income-pro­duc­ing prop­er­ties are sub­ject to broad­er mar­ket forces. Risks can include:

• Eco­nom­ic down­turns
• Ris­ing inter­est rates
• Ten­ant vacan­cies or defaults
• Changes in local mar­ket con­di­tions

For exam­ple, a strong prop­er­ty today may face chal­lenges if a major ten­ant leaves or if the sur­round­ing mar­ket soft­ens.

How to explain it to clients:
Help clients under­stand that while DSTs aim for sta­bil­i­ty, they are still real estate invest­ments sub­ject to cycles and exter­nal fac­tors.

Best Prac­tices for Com­mu­ni­ca­tion

Effec­tive­ly com­mu­ni­cat­ing DST risks is not just about list­ing poten­tial downsides—it’s about deliv­er­ing infor­ma­tion in a way that clients can under­stand, process, and use to make informed deci­sions.

Use Clear, Non-Tech­ni­cal Lan­guage

DST struc­tures can be com­plex, involv­ing legal enti­ties, IRS rul­ings, and tax con­sid­er­a­tions. How­ev­er, most clients do not need a tech­ni­cal breakdown—they need clar­i­ty.

Instead of say­ing:
“DSTs are illiq­uid secu­ri­ties with lim­it­ed trans­fer­abil­i­ty,”

Say:
“You should plan to keep this invest­ment for sev­er­al years because it’s not some­thing you can eas­i­ly sell if you change your mind.”

Clear lan­guage reduces con­fu­sion and builds con­fi­dence.

Explain Pas­sive Income and Cash Flow Expec­ta­tions

Many clients are drawn to DSTs because of the promise of pas­sive income. How­ev­er, it’s crit­i­cal to set real­is­tic expec­ta­tions.

Advi­sors should explain:

• Dis­tri­b­u­tion rates are pro­jec­tions, not guar­an­tees
• Income may fluc­tu­ate over time
• Exter­nal fac­tors (like vacan­cies or expens­es) can impact returns

By posi­tion­ing income as poten­tial and vari­able, rather than fixed, advi­sors avoid future dis­ap­point­ment.

Show His­tor­i­cal Per­for­mance and Spon­sor Track Record

Data builds cred­i­bil­i­ty. When dis­cussing a DST oppor­tu­ni­ty, advi­sors should review:

• The sponsor’s pri­or DST offer­ings
• His­tor­i­cal occu­pan­cy rates
• Past dis­tri­b­u­tion per­for­mance
• Exit out­comes

This does not guar­an­tee future results, but it pro­vides con­text and helps clients eval­u­ate the sponsor’s con­sis­ten­cy and expe­ri­ence.

Dis­cuss Align­ment with Client Goals and Risk Tol­er­ance

Every DST con­ver­sa­tion should be ground­ed in the client’s broad­er finan­cial plan.

Ask ques­tions such as:

• Do you need imme­di­ate income, or are you focused on growth?
• How impor­tant is liq­uid­i­ty to you?
• Are you com­fort­able giv­ing up con­trol in exchange for sim­plic­i­ty?

DSTs are not suit­able for every investor. The goal is to deter­mine whether the struc­ture aligns with the client’s goals.

• Income needs
• Time hori­zon
• Risk tol­er­ance
• Lifestyle pref­er­ences

When clients see that the rec­om­men­da­tion is tai­lored to their spe­cif­ic sit­u­a­tion, trust deep­ens.

Frame Risks as Part of a Bal­anced Strat­e­gy

Rather than pre­sent­ing risks in iso­la­tion, advi­sors can posi­tion DSTs with­in a diver­si­fied port­fo­lio strat­e­gy.

For exam­ple:

• DSTs may pro­vide income and sta­bil­i­ty
• Oth­er assets (stocks, bonds, liq­uid funds) pro­vide liq­uid­i­ty and flex­i­bil­i­ty

This fram­ing helps clients under­stand that risk is being man­aged, not ignored.

Con­clu­sion

Talk­ing about DST risks is not a hur­dle, it is an oppor­tu­ni­ty. It allows advi­sors and CPAs to demon­strate trans­paren­cy, pro­fes­sion­al­ism, and a gen­uine com­mit­ment to the client’s best inter­ests. By clear­ly explain­ing illiq­uid­i­ty, lack of con­trol, spon­sor depen­den­cy, and mar­ket risks, advi­sors empow­er clients to make informed deci­sions. More impor­tant­ly, they set expec­ta­tions that reduce the like­li­hood of sur­pris­es or dis­sat­is­fac­tion down the road.

The most suc­cess­ful client rela­tion­ships are built on hon­est, proac­tive com­mu­ni­ca­tion. When clients feel ful­ly informed—both about the ben­e­fits and the risks, they are more con­fi­dent, more engaged, and more trust­ing.

In the end, dis­cussing DST risks the right way doesn’t weak­en the recommendation—it strength­ens it.

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.

Thank you.