Case Study: Simplifying an Estate with DSTs

Estate plan­ning often becomes increas­ing­ly com­plex as real estate investors accu­mu­late prop­er­ties over time. While mul­ti­ple invest­ment prop­er­ties can gen­er­ate sig­nif­i­cant wealth, they can also cre­ate sub­stan­tial chal­lenges for heirs, trustees, and estate admin­is­tra­tors.

July 28, 2026

By Al DiNi­co­la, AIF®
Pri­vate Fund Advi­sor
DST 1031 Spe­cial­ist
Fidu­cia­ry Cap­i­tal Man­age­ment, LLC
Secu­ri­ties offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC

Intro­duc­tion

Man­ag­ing prop­er­ties across dif­fer­ent states, han­dling ten­ant issues, coor­di­nat­ing main­te­nance, and nav­i­gat­ing poten­tial tax lia­bil­i­ties can quick­ly become over­whelm­ing for fam­i­ly mem­bers who inher­it these assets.

For many investors, the goal is not only to build wealth but also to ensure that wealth is trans­ferred effi­cient­ly to future gen­er­a­tions. Delaware Statu­to­ry Trusts (DSTs) have emerged as a valu­able tool for investors seek­ing to sim­pli­fy own­er­ship, reduce man­age­ment respon­si­bil­i­ties, and cre­ate a more stream­lined estate plan.

For back­ground on What Heirs Need to Know About Inher­it­ed DST Inter­ests Click Here

The fol­low­ing case study illus­trates how one fam­i­ly used DSTs as part of a broad­er estate plan­ning strat­e­gy to sim­pli­fy a com­plex real estate port­fo­lio while pre­serv­ing income and poten­tial tax advan­tages for future gen­er­a­tions.

The Sit­u­a­tion

The Ander­son fam­i­ly (name changed for illus­tra­tive pur­pos­es) spent more than thir­ty years build­ing a sub­stan­tial real estate port­fo­lio. What began as the pur­chase of a sin­gle rental prop­er­ty even­tu­al­ly grew into a col­lec­tion of invest­ment assets locat­ed across sev­er­al states.

By retire­ment, the fam­i­ly owned:

• Three sin­gle-fam­i­ly rental homes
• Two small apart­ment build­ings
• A retail prop­er­ty leased to a local busi­ness
• An indus­tri­al ware­house

The port­fo­lio had appre­ci­at­ed sig­nif­i­cant­ly over the years and pro­vid­ed reli­able income. How­ev­er, it also cre­at­ed sev­er­al estate plan­ning con­cerns.

Man­age­ment Bur­dens

Although the prop­er­ties gen­er­at­ed pos­i­tive cash flow, they required ongo­ing over­sight. Ten­ant turnover, main­te­nance requests, insur­ance renewals, tax assess­ments, and prop­er­ty improve­ments demand­ed con­tin­u­ous atten­tion.

The fam­i­ly patri­arch, who had man­aged the port­fo­lio for decades, rec­og­nized that his chil­dren had lit­tle inter­est in becom­ing land­lords.

Mul­ti­ple State Own­er­ship

Because the prop­er­ties were locat­ed in dif­fer­ent states, estate admin­is­tra­tion would like­ly become com­pli­cat­ed.

Poten­tial con­cerns includ­ed:

• Mul­ti­ple pro­bate pro­ceed­ings
• Vary­ing state laws
• Prop­er­ty title trans­fers
• Ongo­ing man­age­ment oblig­a­tions dur­ing estate set­tle­ment

Sig­nif­i­cant Cap­i­tal Gains Expo­sure

Per­haps the largest con­cern involved tax­es.

Many of the prop­er­ties had been owned for decades and had appre­ci­at­ed sub­stan­tial­ly. Sell­ing the assets out­right could trig­ger sig­nif­i­cant:

• Fed­er­al cap­i­tal gains tax­es
• Depre­ci­a­tion recap­ture tax­es
• Poten­tial state tax lia­bil­i­ties

The fam­i­ly want­ed to pre­serve as much wealth as pos­si­ble while sim­pli­fy­ing future inher­i­tance issues.

Eval­u­at­ing Poten­tial Solu­tions

The fam­i­ly worked with a team con­sist­ing of:

• An estate plan­ning attor­ney
• A CPA
• A finan­cial advi­sor
• A qual­i­fied inter­me­di­ary expe­ri­enced in Sec­tion 1031 exchanges

Sev­er­al options were con­sid­ered. One pos­si­bil­i­ty was main­tain­ing direct own­er­ship and allow­ing heirs to inher­it the prop­er­ties indi­vid­u­al­ly. Anoth­er option involved sell­ing the prop­er­ties out­right and invest­ing the pro­ceeds into tra­di­tion­al finan­cial assets. How­ev­er, nei­ther approach ful­ly addressed the fam­i­ly’s objec­tives.

The fam­i­ly want­ed to:

• Pre­serve real estate own­er­ship
• Con­tin­ue gen­er­at­ing pas­sive income
• Reduce man­age­ment respon­si­bil­i­ties
• Sim­pli­fy inher­i­tance admin­is­tra­tion
• Improve estate plan­ning effi­cien­cy
• Min­i­mize imme­di­ate tax con­se­quences

After eval­u­at­ing avail­able alter­na­tives, the advi­so­ry team rec­om­mend­ed uti­liz­ing Delaware Statu­to­ry Trust invest­ments as part of a coor­di­nat­ed estate plan­ning strat­e­gy.

The Strat­e­gy

Step 1: Con­sol­i­dat­ing Prop­er­ties Through 1031 Exchanges

Rather than sell­ing the prop­er­ties and rec­og­niz­ing tax­able gains, the fam­i­ly elect­ed to com­plete a series of Sec­tion 1031 exchanges. Over time, the indi­vid­u­al­ly owned prop­er­ties were sold, and the pro­ceeds were rein­vest­ed into two pro­fes­sion­al­ly man­aged DST offer­ings.

The select­ed DSTs pro­vid­ed expo­sure to:

• A diver­si­fied mul­ti­fam­i­ly port­fo­lio
• An insti­tu­tion­al-qual­i­ty indus­tri­al prop­er­ty port­fo­lio

This tran­si­tion imme­di­ate­ly reduced many of the oper­a­tional chal­lenges asso­ci­at­ed with direct own­er­ship. Instead of man­ag­ing mul­ti­ple prop­er­ties and ten­ants, the fam­i­ly now held ben­e­fi­cial own­er­ship inter­ests in pro­fes­sion­al­ly man­aged real estate assets.

Step 2: Plac­ing DST Inter­ests into a Revo­ca­ble Trust

We are not pro­vid­ing tax or estate plan­ning advice and shar­ing poten­tial strate­gies. Here may be one option, once the port­fo­lio was con­sol­i­dat­ed, the fam­i­ly worked with their estate plan­ning attor­ney to inte­grate the DST inter­ests into a revo­ca­ble liv­ing trust. The trust struc­ture offered sev­er­al advan­tages. First, it helped avoid many of the pro­bate con­cerns asso­ci­at­ed with own­ing mul­ti­ple prop­er­ties in dif­fer­ent juris­dic­tions.

Sec­ond, the trust estab­lished clear instruc­tions regard­ing:

• Asset dis­tri­b­u­tion
• Suc­ces­sor trustees
• Ben­e­fi­cia­ry rights
• Ongo­ing income allo­ca­tions

By con­sol­i­dat­ing own­er­ship through the trust, the fam­i­ly cre­at­ed a more orga­nized frame­work for future wealth trans­fer. Oth­er con­sid­er­a­tions will include how to trust is named and the tax pay­er ID and how the attor­ney devel­op the prop­er­ty paper­work trail to com­ply with IRC/IRS reg­u­la­tions.

Step 3: Main­tain­ing Pas­sive Income

One of the fam­i­ly’s pri­ma­ry objec­tives was pre­serv­ing income for future gen­er­a­tions. The DST invest­ments con­tin­ued gen­er­at­ing peri­od­ic cash dis­tri­b­u­tions derived from the under­ly­ing real estate oper­a­tions.

These dis­tri­b­u­tions pro­vid­ed:

• Ongo­ing retire­ment income for the par­ents
• Future income oppor­tu­ni­ties for ben­e­fi­cia­ries
• Reduced oper­a­tional respon­si­bil­i­ties
• Pro­fes­sion­al man­age­ment over­sight

Because the prop­er­ties were pro­fes­sion­al­ly man­aged, fam­i­ly mem­bers no longer need­ed to address main­te­nance issues, ten­ant con­cerns, or leas­ing respon­si­bil­i­ties. The result was a tran­si­tion from active real estate own­er­ship to pas­sive real estate invest­ing.

Step 4: Posi­tion­ing for Poten­tial Step-Up in Basis Ben­e­fits

Anoth­er impor­tant com­po­nent of the strat­e­gy involved estate plan­ning. Under cur­rent fed­er­al tax law, inher­it­ed assets gen­er­al­ly receive a step-up in basis equal to their fair mar­ket val­ue at the own­er’s date of death. Because the DST inter­ests remained part of the estate, the fam­i­ly antic­i­pat­ed that heirs could poten­tial­ly ben­e­fit from this basis adjust­ment. This plan­ning con­sid­er­a­tion offered the pos­si­bil­i­ty of sig­nif­i­cant­ly reduc­ing future cap­i­tal gains tax expo­sure for ben­e­fi­cia­ries. While tax laws may change and out­comes vary by indi­vid­ual cir­cum­stances, the poten­tial step-up in basis rep­re­sent­ed a mean­ing­ful estate plan­ning advan­tage.

The Out­come

Sev­er­al years after imple­ment­ing the strat­e­gy, the fam­i­ly reviewed the results.

Estate Admin­is­tra­tion Was Sim­pli­fied

One of the most sig­nif­i­cant improve­ments involved admin­is­tra­tive effi­cien­cy. Instead of mul­ti­ple prop­er­ties scat­tered across sev­er­al states, the estate now con­tained two DST invest­ments held through a trust struc­ture.

This is great­ly sim­pli­fied:

• Asset inven­to­ry
• Ben­e­fi­cia­ry allo­ca­tions
• Own­er­ship doc­u­men­ta­tion
• Estate set­tle­ment pro­ce­dures

The fam­i­ly and advi­sors believed this would reduce future bur­dens on heirs and trustees.

Income Con­tin­ued With­out Man­age­ment Stress

The chil­dren inher­it­ed access to pas­sive real estate income with­out becom­ing land­lords.

They no longer faced con­cerns such as:

• Ten­ant dis­putes
• Main­te­nance emer­gen­cies
• Prop­er­ty man­age­ment over­sight
• Cap­i­tal improve­ment deci­sions

Instead, pro­fes­sion­al man­age­ment teams han­dled dai­ly oper­a­tions while ben­e­fi­cia­ries received ongo­ing report­ing and dis­tri­b­u­tions.

Poten­tial Tax Ben­e­fits Were Pre­served

The fam­i­ly suc­cess­ful­ly deferred cap­i­tal gains tax­es through the 1031 exchange process. Addi­tion­al­ly, the trust struc­ture posi­tioned the estate to poten­tial­ly ben­e­fit from step-up in basis treat­ment under applic­a­ble tax laws. This com­bi­na­tion helped pre­serve more wealth for future gen­er­a­tions.

Diver­si­fi­ca­tion Improved

Before imple­ment­ing the strat­e­gy, the fam­i­ly’s wealth was con­cen­trat­ed in a rel­a­tive­ly small group of indi­vid­u­al­ly owned prop­er­ties. Fol­low­ing the tran­si­tion, the DST invest­ments pro­vid­ed expo­sure to larg­er insti­tu­tion­al-qual­i­ty assets and broad­er ten­ant bases. This diver­si­fi­ca­tion reduced con­cen­tra­tion risk while main­tain­ing a real estate-focused invest­ment strat­e­gy.

Lessons Learned

The Ander­son fam­i­ly’s expe­ri­ence high­lights sev­er­al impor­tant estate plan­ning prin­ci­ples.

First, suc­cess­ful wealth trans­fer plan­ning often begins long before assets are inher­it­ed.

Sec­ond, sim­pli­fy­ing own­er­ship struc­tures can pro­vide mean­ing­ful ben­e­fits for both investors and ben­e­fi­cia­ries.

Third, com­bin­ing DST invest­ments with trust plan­ning may help address mul­ti­ple objec­tives simul­ta­ne­ous­ly, includ­ing:

• Tax effi­cien­cy
• Pro­bate reduc­tion
• Income preser­va­tion
• Admin­is­tra­tive sim­plic­i­ty
• Pro­fes­sion­al man­age­ment

Most impor­tant­ly, the fam­i­ly rec­og­nized the val­ue of coor­di­nat­ing with expe­ri­enced pro­fes­sion­als through­out the plan­ning process.

Con­clu­sion

This case study demon­strates how Delaware Statu­to­ry Trusts can trans­form a com­pli­cat­ed real estate port­fo­lio into a more stream­lined and man­age­able struc­ture. By exchang­ing mul­ti­ple indi­vid­u­al­ly owned prop­er­ties into pro­fes­sion­al­ly man­aged DST invest­ments and incor­po­rat­ing those assets into a revo­ca­ble trust, the fam­i­ly sim­pli­fied admin­is­tra­tion, main­tained pas­sive income, and posi­tioned future gen­er­a­tions for poten­tial tax advan­tages.

While every fam­i­ly’s sit­u­a­tion is unique, DSTs can offer a pow­er­ful com­bi­na­tion of estate plan­ning flex­i­bil­i­ty, income con­ti­nu­ity, diver­si­fi­ca­tion, and tax effi­cien­cy. For investors seek­ing to pre­serve wealth while reduc­ing com­plex­i­ty, DSTs may pro­vide an effec­tive solu­tion that sup­ports both cur­rent finan­cial goals and long-term fam­i­ly lega­cy objec­tives.

With thought­ful plan­ning and pro­fes­sion­al guid­ance, com­plex real estate hold­ings can be trans­formed into a struc­ture that pre­serves wealth, sim­pli­fies inher­i­tance, and helps future gen­er­a­tions ben­e­fit from years of dis­ci­plined real estate invest­ing.

Delaware Statu­to­ry Trusts (DSTs) have become a notable part of com­mer­cial real estate invest­ing. As Al DiNi­co­la empha­sizes, a DST is a struc­ture, not an asset class, the focus should remain on the qual­i­ty of the under­ly­ing prop­er­ty and how it fits your goals.  DSTs are for accred­it­ed investors and car­ry risks, i.e. illiq­uid­i­ty, real estate mar­ket fluc­tu­a­tions, and spon­sor deci­sions. Con­sult your advis­er about suit­abil­i­ty, espe­cial­ly for §1031 exchanges. For more details, please con­tact:

• Al DiNi­co­la adnicola@fiduciarycm.com  
• Direct: 239 691 8098
• Sched­ule Appoint­ment

Advi­so­ry ser­vices are offered through Fidu­cia­ry CM, an SEC-reg­is­tered advis­er. Invest­ments involve risk and are not guar­an­teed. Always refer to offer­ing doc­u­ments for full risk dis­clo­sures. Delaware Statu­to­ry Trust (DST) invest­ments involve risks asso­ci­at­ed with com­mer­cial real estate own­er­ship and are not suit­able for all investors. These risks may include, but are not lim­it­ed to, loss of prin­ci­pal, illiq­uid­i­ty, ten­ant vacan­cy, financ­ing risk, inter­est rate fluc­tu­a­tions, prop­er­ty val­ue declines, eco­nom­ic and mar­ket con­di­tions, and risks asso­ci­at­ed with spon­sor and prop­er­ty man­age­ment deci­sions. Please refer to the applic­a­ble Prop­er­ty Pri­vate Place­ment Mem­o­ran­dum (PPM) for a com­plete dis­cus­sion of the risks and con­sid­er­a­tions spe­cif­ic to that offer­ing. For addi­tion­al infor­ma­tion regard­ing gen­er­al DST invest­ment risks, please click here. Past per­for­mance is not indica­tive of future results. Nei­ther the Reg­is­tered Rep­re­sen­ta­tive nor the Bro­ker-Deal­er can con­trol or guar­an­tee future deci­sions made by the DST spon­sor, asset man­ag­er, prop­er­ty man­ag­er, ten­ants, lenders, or oth­er third par­ties involved in the oper­a­tion of the prop­er­ty. Past per­for­mance is not indica­tive of future results. Secu­ri­ties may be offered through MSC-BD, LLC, a mem­ber of FINRA/ SIPC.