How Delaware Statutory Trusts Offer Three Key Benefits 

Real estate investors often encounter unique challenges as they approach retirement and prioritize estate planning. Over the years, their real estate assets tend to appreciate in value, while annual depreciation gradually reduces the property's cost basis. Consequently, selling a property before the investor's demise can lead to significant capital gains taxes. However, it's not uncommon for the investor's heirs to lack interest in actively managing these real estate holdings once they inherit them.

In such cases, an effective solution that I have witnessed as a seasoned financial investor with 30 years of experience is the utilization of a 1031 Exchange into a Delaware Statutory Trust (DST). By opting for a DST, investors can sell their properties without incurring immediate tax consequences, while also benefiting from potential consistent income derived from real estate investments. Additionally, this approach allows for the preservation of the eventual step-up in basis upon the investor's passing, which can further enhance the financial benefits for their heirs.

What is A Delaware Statutory Trust?

Customer signing a contract for buying a house illustrating the process of investing in real estate using a 1031 exchange for tax deferral

A Delaware Statutory Trust (DST) is a legally recognized trust structure established for business purposes. It is often referred to as an Unincorporated Business Trust (UBO). DSTs are predominantly formed in Delaware due to the state's favorable statutory trust law. In 2004, the Internal Revenue Service (IRS) granted approval for qualified DSTs as a viable investment option for individuals seeking to reinvest their funds from a 1031 Exchange.

Rather than acquiring replacement rental properties, investors have the opportunity to reinvest their proceeds into a Delaware Statutory Trust while deferring capital gains taxes. Whether the proceeds are allocated to a single trust or distributed among multiple trusts, each investment is treated as an exchange-qualified co-ownership. Essentially, from the perspective of the IRS, investing in a DST is equivalent to purchasing another 1031 Exchange-qualified real estate property.

One of the primary appeals for retiring investors or those looking to pass on assets to their beneficiaries is the combination of tax benefits and potential monthly income provided by a DST. By participating in a DST, investors can enjoy the advantages of a 1031 Exchange while alleviating themselves from the responsibilities associated with owning and managing additional properties.

Delaware Statutory Trusts (DSTs) offer several estate planning benefits that sophisticated investors often recognize. By implementing a DST strategy, beneficiaries can enjoy advantages such as the avoidance of capital gains taxes on inherited real estate, the minimization of disagreements among heirs, and the facilitation of charitable giving. Let's explore these benefits in more detail:

1. Elimination of Capital Gains Tax:

When an investor passes away, estate beneficiaries receive a stepped-up basis for tax purposes. This means that the beneficiaries are not required to pay capital gains taxes on the accumulated appreciation of the inherited property from the time it was originally acquired until the investor's death. This also includes any deferred capital gains on real estate that was previously involved in a 1031 Exchange and subsequently transferred into the DST.

Consequently, when a beneficiary sells an asset, the tax basis is stepped up to the value as of the date of the investor's death. It is important to note that while capital gains tax on inherited property can be avoided, assets held within a Delaware Statutory Trust are still considered part of the investor's estate. Therefore, normal estate tax rules and exclusions apply. To understand the implications for your specific estate, it is recommended to consult with an estate planning professional.

2. Flexible Distribution of Trust Assets to Beneficiaries:

A Delaware Statutory Trust (DST) can help minimize disagreements among partners and heirs regarding the distribution of trust assets. Upon the passing of an investor, there may be varying opinions on how to handle the assets, particularly when it comes to larger assets like real estate investments that are challenging to divide equitably.

In such cases, some investors take a proactive approach to avoid potential conflicts. By incorporating a DST into their estate plan, they can sell their real estate holdings and allocate the proceeds into different trusts. Each investment can be clearly identified and distributed to individual beneficiaries, granting them more control over the assets without involving other family members. This flexible distribution mechanism provides a practical solution to potential disputes.

3. Simplified Distributions to Charities:

Delaware Statutory Trusts also streamline the process of leaving real estate investments to charitable organizations. If a charity is designated as a beneficiary of real estate assets, it may lack the capacity or desire to actively manage the properties. In such situations, the charity might opt for an immediate liquidation of the property, even if its value is temporarily impacted by economic conditions. However, with a DST, the charity can receive the investor's interest in the trust without assuming day-to-day management responsibilities for rental properties.

The charity can benefit from potential monthly income generated by the trust until the sponsors of the DST determine the opportune time to sell the underlying assets. As each property within the trust is sold, the charity will receive its designated portion of the proceeds. This streamlined approach ensures that the charity maximizes the potential benefits of the donation without having to handle property management intricacies.


In a Delaware Statutory Trust (DST), the trust sponsor assumes the responsibility of making all decisions on behalf of the trust's investors. This structure allows investors to own real estate assets without the typical challenges and burdens associated with being a landlord and property owner. DSTs serve as legal entities that enable real estate investors to sell their properties and utilize a 1031 Exchange to defer capital gains taxes on the appreciated value of their real estate.

When participating in a DST, an investor's funds are typically pooled with those of other investors to acquire larger or multiple assets through the trust. These investments are treated as a direct interest in real estate for the purposes of IRS Section 1031.

Upon making an investment in a DST, owners have the potential to receive income from the trust's underlying real estate assets, typically on a monthly basis. It is important to note that the trust is required to retain a portion of its income in reserves, as it is not permitted to take on debt or request additional capital once it has completed its initial offering or closed.

By utilizing a DST, investors can benefit from professional property management and avoid the day-to-day operational responsibilities typically associated with owning and managing individual properties. The trust sponsor assumes the role of making strategic decisions and overseeing the management of the trust's real estate assets, providing investors with a hassle-free ownership experience.

Fractional Ownership of Institutional-Grade Real Estate

One of the advantages of investing in a Delaware Statutory Trust (DST) is the opportunity for fractional ownership of institutional-grade real estate. Many real estate investors tend to focus on specific property types or regions based on their expertise, preferences, or proximity to attractive investment opportunities. However, with a DST, investors have the advantage of pooling their exchange proceeds with other investors, enabling the trust to own larger properties that individual investors may not be able to acquire on their own.

By participating in a DST, investors can diversify their investments across multiple trusts, allowing them to select and tailor their investment strategies based on their objectives. This flexibility enables investors to choose from various property types, geographic regions, and investment strategies that best align with their goals.

DSTs offer a wide range of industries and property types within their portfolios, including multi-family or student housing, healthcare facilities, office buildings, storage units, and retail properties. When considering DST options, it is important to inquire about the specific types of properties included in the offering to ensure they align with your investment preferences and objectives.

Delaware Statutory Trust Taxes

Delaware Statutory Trusts (DSTs) formed in Delaware benefit from the state's favorable tax environment. Delaware does not impose a Franchise Tax or income tax on statutory trusts established within its jurisdiction. This absence of state-level taxes reduces expenses associated with the trust, allowing more income potential to be retained by investors.

However, it's important to note that tax obligations are passed through to each individual investor in the DST. The tax liabilities are distributed proportionally based on the investor's investment in the trust. As a result, investors may receive 1099 and 1098 forms from the sponsor of the DST each year, reflecting the income and interest generated by the trust's portfolio performance. Additionally, an income statement is provided to facilitate the calculation of depreciation for tax purposes.

One significant advantage of investing in a DST is the simplified tax planning it offers for estate purposes. The monthly accounting of revenues and expenses is managed by the trust sponsor, which streamlines the tax reporting and planning process for investors. This alleviates the need for individual investors to handle the intricacies of tracking and reporting revenues and expenses related to the DST, thus providing convenience and ease in managing the tax aspects of the investment.

Here are the disadvantages of Delaware Statutory Trusts 

Young man signing a contract for buying a house with a real estate broker illustrating the process of investing in real estate using a 1031 exchange for tax deferral despite potential disadvantages

While Delaware Statutory Trusts (DSTs) offer several advantages, it's important to consider the potential disadvantages before deciding to utilize this strategy in your estate planning. Consulting with a licensed 1031 Exchange professional is recommended for a comprehensive evaluation of the pros and cons. Here are a couple of disadvantages to consider:

No Input on Decisions:

DSTs are passive investments managed by the trust's sponsor. The IRS approval conditions dictate that investors cannot have operational control or decision-making authority over the underlying properties. While a trust sponsor may be open to receiving feedback, they are not obligated to follow investors' recommendations.

This lack of control can be challenging for investors who are accustomed to being the final decision-maker on their investments. However, beneficiaries who have no interest in taking over the family real estate business may appreciate the hands-off approach that DSTs provide.

Illiquid Investments:

Investing in a DST involves acquiring a fractional interest in the trust, which can make it more challenging to liquidate part or all of your investment. Unlike listing an individual real estate property for sale, liquidating a DST investment is not as straightforward.

Investors should anticipate that their investment will remain tied to the trust until the properties held by the trust are sold. Unlike the stock market, there is no public market where investors can easily sell their interest in a DST. Therefore, DST investments should be approached with the understanding that they are generally illiquid and require a longer-term investment horizon.

It's crucial to evaluate these potential drawbacks alongside the advantages of DSTs and assess how they align with your specific investment goals and preferences.

Moderate To Long-term Hold Periods

Another disadvantage of Delaware Statutory Trusts (DSTs) to consider are the moderate to long-term hold periods associated with these investments. The trust sponsors typically adopt a long-term perspective for their investments, which means investors should anticipate a hold period ranging from 5 to 10 years before being able to access their investment. While many investors in rental real estate properties already expect to hold their assets for an extended duration, the inability to liquidate the investment early, if needed, can be a source of concern for some individuals.

Cannot Raise New Capital

Additionally, it's important to note that once a DST has closed, it cannot raise new capital from existing or new investors. The ongoing maintenance and capital improvements required by the trust must be funded by the reserves set aside by the trust.

This allocation of reserves reduces the amount of cash available to distribute to investors on a monthly basis. In cases where there are insufficient reserves available, the sponsor may need to sell one or more properties to ensure that there is enough cash flow to meet the trust's obligations.

Understanding these moderate to long-term hold periods and the limitations on raising new capital is crucial when considering DST investments. It is recommended to carefully evaluate your liquidity needs and investment time horizon to ensure they align with the characteristics of a DST investment.

Cannot Be Refinanced

Another important disadvantage to consider is that Delaware Statutory Trusts (DSTs) cannot be refinanced once the trust has closed, according to IRS rules. While not all DSTs have loans against their underlying properties, if there are loans in place, the inability to refinance can have implications for both the sponsor and investors.

In cases where the properties within the DST have loans, this restriction means that the sponsor cannot take advantage of potential drops in interest rates. If there is a decrease in interest rates, the sponsor is unable to refinance the loans to secure a lower rate, which could have been beneficial in reducing costs and increasing cash flow potential.

Conversely, if a property within the DST has a variable rate loan and interest rates increase, the sponsor is also unable to refinance the loan to lock in a lower rate before rates climb even higher. This can result in higher mortgage payments, potentially leading to reduced cash flow for investors. In extreme cases, the property may become unprofitable, necessitating a sale before it was initially planned.

It's important to understand the implications of the inability to refinance loans within a DST, particularly in a changing interest rate environment. Investors should carefully assess the potential impact on cash flow and profitability when considering DST investments.

Learn More About Delaware Statutory Trusts (DSTs)

If you are interested in learning more about Delaware Statutory Trusts (DSTs) and considering them for your 1031 Exchange, contact us to schedule a complimentary consultation with one of our licensed 1031 Exchange professionals. We offer free consultations that can be conducted over the phone, via web, or in person to accommodate your preferences.

During the consultation, our experienced professionals can provide you with valuable insights and information specific to your situation. They can address any questions or concerns you may have about DSTs, guide you through the process, and help you make informed decisions regarding your 1031 Exchange.

To schedule your free consultation, please visit us at We look forward to assisting you with your DST and 1031 Exchange needs.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication. 

1031 Risk Disclosure: 

Unlock the Potential: 1031 Exchange Into a REIT and Seek Potential Rewards

While some real estate professionals argue that a 1031 exchange into a Real Estate Investment Trust (REIT) is not feasible due to the contrasting nature of real property assets and REIT shares, the truth is that with careful navigation, it can be accomplished. However, it requires following intricate procedures to ensure a seamless exchange.

Curious to learn more? Dive into the world of real property, 1031 exchanges, and REITs, and discover the path to exchanging your investment property for REIT ownership.

Distinguishing Between Real Property and Securities: Exploring 1031 Exchanges and REITs.

When it comes to investment property, the IRS classifies it as "real property," a tangible asset that can be exchanged for similar assets under Section 1031 of the Internal Revenue Code. This allows investors to defer capital gains taxes by reinvesting the proceeds into like-kind properties within a specific timeframe.

On the other hand, Real Estate Investment Trusts (REITs) operate differently. While they also deal with real estate properties, the investment structure revolves around investors purchasing shares in the REIT rather than owning the properties directly. REITs seek to generate cash through dividends, not rental income, which categorizes them as securities rather than real property.

It's important to note that a direct exchange from real property to a security is not permissible in a tax-deferred 1031 exchange since they are not considered like-kind assets.

Navigating the Path: Transitioning from Real Property to REIT Investment

If you aspire to transition from owning real property to becoming a REIT investor, you can achieve this by exchanging your real property assets for shares in a Delaware Statutory Trust (DST). Subsequently, you have the option to convert your DST shares into Operating Partnership (OP) units through an Umbrella Partnership Real Estate Investment Trust (UPREIT).


To reach your desired destination of REIT investment, consider the path of fractional ownership in a DST and its conversion into UPREIT OP units. Many REITs offer UPREITs as a means for DST investors to convert their interests into OP units within the UPREIT structure. By making this conversion into a partnership, you can still defer capital gains taxes, unless you choose to convert your UPREIT OP units into REIT shares.

This type of exchange comes with potential advantages and risks:

  1. Liquidity: Real property assets lack liquidity, but by exchanging your UPREIT OP units for REIT shares, you can access liquidity. However, keep in mind that this may trigger taxable events.
  2. Diversification: Instead of relying on a single property for cash flow, investing in UPREIT allows you to hold interest in a portfolio of assets with the potential for increased balance against economic volatility.
  3. Efficient estate planning: Passing down UPREIT OP units to heirs can provide a stepped-up basis, eliminating accumulated capital gains taxes (unless the units are converted into REIT shares).

It's crucial to note that once you complete the UPREIT process, you cannot execute a 1031 exchange to revert back to real property. Your investment must remain in the form of UPREIT OP units to continue deferring capital gains taxes.

Breaking It Down: Understanding the UPREIT Process

To better understand the UPREIT process, let's delve into how it works from both the perspective of the sponsor and the investor:

  1. Sponsor's Role:

The sponsor typically selects a high-quality asset, either from an existing REIT or through a new acquisition, and places it into a newly formed Delaware Statutory Trust (DST).

During the syndication period, the DST offers a predetermined amount of equity to investors, including those seeking 1031 exchanges. Investors acquire beneficial interests in the trust and have the potential to receive distributions similar to a standard DST investment.

2. Investor's Journey:

Investors become part of the DST by acquiring beneficial interests in the trust, enabling them to participate in the investment and receive the potential for regular distributions.

After a hold period of approximately two to three years, which satisfies the IRS safe-harbor guidelines for investment properties, the sponsor initiates a Section 721 UPREIT transaction for the property held under the trust.

As part of this transaction, investors have the opportunity to exchange their DST beneficial interests for operating partnership (OP) units in an entity owned by the REIT.

Following a predetermined lockout period, investors may have the option to redeem their OP units. They can choose to convert them into common stock in the REIT or receive cash, subject to the terms and conditions specified by the REIT.

Understanding the UPREIT process involves recognizing the roles of both the sponsor and the investors. The sponsor identifies and places a suitable asset into the DST, while investors participate by acquiring beneficial interests and later have the opportunity to exchange them for OP units. The ability to redeem OP units for common stock or cash becomes available after a lockout period, subject to the specific terms established by the REIT.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

·     There’s no guarantee any strategy will be successful or achieve investment objectives;

·     All real estate investments have the potential to lose value during the life of the investments;

·     The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;

·     All financed real estate investments have potential for foreclosure;

·     These 1031 exchanges are offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.

·     If a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;

·     Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits

Alternative Real Estate Funds for Cash Investors

Real estate has long been considered a strategic investment – not only does it allow investors to potentially earn income, leverage debt to build equity, strive to build wealth, and potentially hedge against inflation, but it also can offer various tax breaks.

However, real estate investing is not for everyone. It generally requires a large capital investment to get started and is limited to those who are ready to engage in active management.

Those looking to access the potential benefits of real estate investing, seek to earn income, and diversify their portfolios, all while investing in passive real estate investment opportunities, can consider turning to alternative funds. In this article, we explore alternative real estate investment funds available for today’s cash investors and review examples of funds offered historically by Perch Wealth.

Alternative Investments: Funds, Syndications, and DSTs

One alternative is to invest in a commercial real estate syndicate or fund. However, investments in funds, syndications and DSTs are typically illiquid. This can have an investor's capital tied up from three to seven years or longer, depending on the anticipated business plan and hold period. Those looking to preserve more liquidity opportunities have a few other options if interested in adding real estate to their portfolios.

Delaware Statutory Trusts (DSTs)

Delaware Statutory Trusts allow accredited investors to co-invest in institutional-quality real estate alongside many others. This lowers the barrier to entry and allows for indirect ownership (the IRS still treats it as direct ownership for tax purposes), while the property is otherwise managed and overseen by an experienced third-party sponsor.

Real Estate Investment Trusts

A REIT, which stands for "real estate investment trust," is a corporation that owns and/or manages income-producing commercial real estate. There are many types of REITs. Most will focus on a specific product type (e.g., retail, hospitality, multifamily housing, senior living facilities, student housing, office, self-storage, industrial and the like) or geography (e.g., commercial real estate in the Northeast vs. Southwest).

When an individual buys a REIT share, they are purchasing a share of the company that owns and manages the rental property. Shares of publicly traded REITs can be purchased and sold as easily as other stocks, even on a daily basis, thereby providing significant liquidity to investors.

REITs typically have well-defined investment parameters. They then invest in real estate that meets those parameters. By law, REITs are required to return 90% of profits to investors in the form of dividends.

Interval Funds

An interval fund is a type of closed-end fund that offers liquidity to investors at stated intervals - typically quarterly, semi-annually or annually. This means investors can sell a portion of their shares at regular intervals at a price based on the fund's net asset value. However, there is no guarantee that investors can redeem their shares during a given redemption period. As such, interval funds should generally be treated as long-term investments but in turn, will usually seek to offer an illiquidity premium in exchange.

Interval funds can be used to invest in many securities and asset classes, including but not limited to real estate. A single interval fund is not limited to investing in a single asset class; in fact, they can invest in various assets as a means of diversifying their holdings.


Other Income Funds

There are dozens, if not hundreds or thousands, of different types of investment funds. These include equity funds, bond funds, money market funds, mutual funds, and hedge funds. Many investors have started investing in real estate through one of these types of funds.

A real estate income fund is a specific subset of funds that is focused exclusively on investing in income-generating real estate. Real estate income funds provide another entry point for those looking to invest cash in large commercial real estate portfolios. Real estate income funds are particularly appealing to retail investors who want to own institutional-quality real estate that would otherwise be out of reach to them.

A real estate income fund pools capital from many investors, and then the fund's sponsor oversees all of the fund's activities - from due diligence and underwriting, to property renovations, stabilization, ongoing management and eventually, disposition. Depending on the nature of a real estate income fund, the fund can have different investment minimums as well as lengthy hold periods and therefore, the capital invested should be considered illiquid during that hold period.

Are you ready to consider investment options that seek to provide greater, more predictable returns on your investments? If so, it might be time to consider investing in a high-yield real estate fund. Contact us today. We are happy to discuss available options with you to determine which combination of investments would be best for you based upon your specific investment objectives.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

The Potential Benefits of Using DSTs for Estate Planning

Baby Boomers are one of the nation’s largest demographics and by some estimates, more than 10,000 are reaching the retirement age of 65 each day. As Baby Boomers prepare to retire, many place a renewed focus on estate planning.

Estate planning used to be considered something that only the super wealthy had to worry about. When middle-income families then found their assets tied up and disputed in probate court, more people started to realize the many benefits associated with estate planning – regardless of how much wealth you hope to pass on to heirs. Without an estate plan, the courts often decide who inherits what. This process can be lengthy, costly, and lead to family strife in the process.

Estate planning is a great way to potentially a) protect your beneficiaries and b) preserve the wealth you’ve worked so hard to create. DSTs, in particular, are a potentially great way to maximize the value of real estate assets that can then be passed down to heirs.

In this article, we look at the specific benefits of DSTs for estate planning purposes.

What is a DST?

A Delaware Statutory Trust, or DST, is a real estate investment vehicle that allows individuals to own a fractional share of institutional-quality assets. DSTs are managed by third-party real estate sponsors. The sponsors identify, acquire, and then manage the DST’s assets on investors’ behalf.

The properties held by a DST are considered a “like-kind” exchange, and therefore, investors can sell their individually-owned properties and roll the proceeds of the sale into a DST through a 1031 exchange. In doing so, they can defer paying capital gains tax – sometimes indefinitely.


How to Use a DST for Estate Planning Purposes

Many investors, especially those who are at or nearing retirement age, decide that they no longer want to actively manage their real estate holdings. Owning property individually can be time consuming and stressful. You’re dealing with tenants, repairs and maintenance, costly capital improvement projects, ongoing marketing and leasing efforts and the like. For those who own many rental properties, these headaches can become overwhelming during a phase of life where they otherwise want to relax and spend time doing more pleasurable things.

Those who are looking to simplify their investments and transition to more passive ownership will want to consider investing in a DST.

With a DST, investors can sell off their real estate portfolios (in whole or in part) and reinvest the proceeds into a DST. Using a 1031 exchange to do so, investors can defer paying capital gains tax. This is especially valuable to those who have been long-term holders of real estate, as the properties have likely taken most or all applicable depreciation and have likely appreciated in value. These properties would otherwise be subject to hefty capital gains tax.

Once the proceeds of a real estate sale are invested into a DST, the DST investor can place those beneficial ownership interests into their personal trust for the benefit of their heirs.

Upon the owner’s death, the real estate assets held in that trust receive a stepped-up basis, meaning that the property’s value is assessed based on the time of the owner’s death rather than the value when it was first acquired. This will reduce the tax burden on the heirs and may be able to serve as a tremendous wealth preservation strategy.

The Potential Benefits of Using DSTs for Estate Planning

There are many potential benefits associated with DSTs when used for estate planning purposes. These benefits include:

Passive real estate investments are also specifically attractive in the context of estate planning. Let’s say, for example, that someone owns a 200-unit apartment building. When that person passes away, their children inherit the property. The children may have little to no real estate experience and may have no interest in managing the property.

However, just because the children are ill-equipped to manage the property doesn’t mean the property won’t still need immediate and ongoing maintenance. Situations like these often result in properties falling into a state of disrepair, which ultimately erodes the property’s value. Instead, someone who has invested in a DST has the peace of mind that if they pass away, their children benefit from the DST’s real estate holdings without taking on the responsibility of property management.

Clearly, Scenario 3 is the best way to reduce the likelihood of family disputes. It gives many investors comfort knowing that DST investments can be structured to ensure parity amongst their heirs when they pass.

Considerations When Using DSTs for Estate Planning Purposes


There are a few other considerations for investors when thinking about using a DST for estate planning. The first thing to realize is that DST investments are illiquid. When someone invests in a DST, the holding period may be anywhere from five to seven years, so an investor should expect their money to be tied up for at least that long. This may be good or bad in the context of estate planning purposes.

If an investor passes away during that hold period, their heirs may be forced to wait the balance of the hold period before selling their shares – a period of time that can give them time to understand the implications of continuing to hold the DST investment vs. selling their interest (vs. making a gut-reaction decision at the time of the owner’s death).

Conversely, heirs who are hoping to access the value of the real estate asset in the short-term may be frustrated by their inability to liquidate shares during the balance of the hold period.

Secondly, DST investments are truly passive. This means that the heirs will have little to no say in the direction of the DST portfolio. For example, they cannot influence if and when properties are purchased or sold. They cannot weigh in on a property’s repositioning strategy.

They are passive investors and all portfolio decisions are made by the DST sponsor. Those with little real estate experience will appreciate this oversight, but those who want to be more hands-on real estate investors may prefer owning their own property outright.


Estate planning is important for all individuals, regardless of whether they own real estate or not. However, those who own real estate will want to pay close attention to what happens to that property if they pass away. Having a solid estate plan in place can help to avoid probate court and reduce family strife.

DSTs are a great way to do just that. What’s more, the indefinite deferral (or entire elimination) of capital gains tax ensures that the value the owner has worked so hard to create is passed on in full to their heirs.

Are you considering a DST investment? Contact Perch Wealth today to learn more about your 1031-exchange real estate investment options.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

• There is no guarantee that any strategy will be successful or achieve investment objectives;

• Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;

• Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;

• Potential for foreclosure – All financed real estate investments have potential for foreclosure;

• Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.

• Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;

• Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits

How to Defer Taxes with Real Estate Ownership Structures

Upon the sale of an investment property, the real estate owner, or landlord is responsible for paying capital gains taxes. Capital gains taxes are taxes owed on the profit an investor has made on an asset and is calculated by subtracting what an investor paid for the asset (also known as the “basis”) from the sale price. For example, if an investor bought a property for $1 million and then sold it fifteen years later for $2.5 million, the investor would be responsible for paying capital gains on $1.5 million.

However, the Internal Revenue Service (IRS) allows investors to defer capital gains tax if they trade into a new property via a 1031 exchange. This exchange allows investors to trade from one property into one or more “like-kind” properties, so long as the exchange and replacement properties meet all criteria outlined by Internal Revenue Code (IRC) Section 1031. Essentially, investors can avoid capital gains tax by reinvesting.

While many investors refer to this as a “tax-free” exchange, it’s important to emphasize that this exchange is only tax-free until the property sells. Once the property is sold, and the investor receives the profits, the investor is responsible for paying capital gains tax. Good news, though, the property can be exchanged an unlimited number of times so long as it is held for investment purposes, which generally means multiple years.


How to Defer Capital Gains Tax When Selling Investment Property

Per IRC 1031, any property held for investment purposes or for productive use in a trade or business qualifies for a 1031 exchange. Most investors directly own the qualifying real estate, which can include but is not limited to commercial assets, raw land or farmland, and residential rental units. Unfortunately, personal property and real property used for personal purposes does not qualify.

Many times, an investor will sell one property and buy a new one – for example, the investor might sell a multi-tenant retail property and buy a single-tenant asset to reduce management responsibilities. Investors who want to avoid capital gains tax on a land sale can also use a 1031 exchange to roll over profits through the closing of a new land purchase.

In addition, two fractional ownership structures qualify for a 1031 exchange: Delaware Statutory Trusts (DSTs) and Tenants in Common (TICs).

Deferring Capital Gains Tax on Property by Investing in a TIC

A TIC is a legal ownership structure with up to 35 investors who co-own individual, undivided interest in real property.

TICs, however, can be challenging from a management perspective. “TICs are unique in that decisions, even the most mundane like with whom to refinance, require consent of all participating members. TICs are limited to 35 members (or ‘co-owners’), and while that may seem like a small group, in practice, this can complicate decision making. It also means that investors are more hands-on than investors in a REIT [Real Estate Investment Trust] fund or DST – investment vehicles that are fully passive in nature.”

Deferring Capital Gains Tax on Property by Investing in a DST

Due to the complications with TICs, investors looking for truly passive income often invest in DSTs. “A Delaware Statutory Trust … is another structure often used by those wanting to co-invest in real estate. Most DST programs are sponsored by large and experienced national real estate companies and offered through third-party broker dealers. The DST sponsor uses its own capital to acquire the property(s) to be offered within the trust. The DST sponsor then makes the asset(s) available to investors on a fractional ownership basis. DSTs are completely passive in nature to investors.” DSTs are professionally managed and the number of investors who can own fractional interest is unlimited.

A DST qualifies for a 1031 exchange and offers numerous benefits to investors. Beyond access to institutional quality assets, excellent financing, and a truly passive investment – DSTs allow investors to truly diversify their portfolio among asset types and location. For example, if an investor sells a property for $4 million, the investor can participate in four different DSTs – a multifamily property in Texas, a senior housing asset in Florida, a storage facility in Massachusetts, and a healthcare facility in Kansas.

What are Qualified Opportunity Zones, and do they qualify for a 1031 exchange?

A Qualified Opportunity Zone (QOZ) is a designated census tract in an economically distressed area where new investments may be eligible for preferential tax treatment under certain conditions. Introduced as part of the Tax Cuts and Jobs Act of 2017, investors can sell a range of investments, including but not limited to stocks, bonds, real estate, closely held business assets, cryptocurrency, jewelry, and art, and reinvest in a QOZ to access various tax benefits.

To invest in a QOZ, an investor must go through a Qualified Opportunity Zone Fund (QOF). A QOF is an investment vehicle organized as either a partnership or a corporation and must hold at least 90 percent of its assets in QOZ property. 

While an excellent investment vehicle, a QOF does not qualify as “like-kind” property and is one of the few ways an investor can defer capital gains tax without a 1031 exchange. Investors can opt to invest their returns from the sale of their property in a QOZ and defer capital gains. The tax deferral is effective until the QOF investment is sold or exchanged, or until December 31, 2026, whichever is first.


How to Execute a 1031 Exchange when Selling Property

Those interested in selling their real estate and trading into another asset via a delayed exchange – the most common type of exchange – must set up an account with a qualified intermediary (QI) or accommodator before they close on their relinquished property. Once the property closes, the proceeds from the sale are then placed with the QI and the investor has 45 days to identify a replacement property or properties. If at any point the funds are placed with the exchanger, the transaction could become a taxable event.

When identifying a replacement property, an exchanger must identify according to one of the following rules outlined by the IRS:

-       3 Property Rule: An exchanger can identify any three properties for the exchange.

-       200% Rule: An exchanger can identify as many properties as preferred, but the total value of the properties must not exceed 200 percent of the relinquished property’s value.

-       95% Rule: An exchanger can identify as many properties as preferred, but they must close 95 percent of the aggregate value of all properties that have been identified.

The seller has 180 days from the close of the relinquished property to purchase a replacement property, otherwise, the event becomes taxable.

It’s important to note that while a majority of tax-deferred exchanges are delayed or deferred exchanges, other types of exchanges may better suit an individual’s situation. For instance, if circumstances require investors to buy before they sell, they should consider a reverse exchange. Likewise, if their replacement property needs some improvement or full-on construction to meet their needs, they may want to consider an improvement or construction exchange. And lastly, if their construction exchange must exceed the 180-day safe harbor timing requirement, they should inquire about a non-safe harbor exchange.

Real estate investing offers various potential benefits,[MG1]  and those looking to access these benefits while minimizing their responsibility, should speak with a qualified professional about how to invest in an alternative real estate investment.

1031 Risk Disclosure:

·      There’s no guarantee any strategy will be successful or achieve investment objectives;

·      All real estate investments have the potential to lose value during the life of the investments;

·      The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;

·      All financed real estate investments have potential for foreclosure;

·      These 1031 exchanges are offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.

·      If a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;

·      Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits

Opportunity Zone Disclosures

·      Opportunity Zones (“OZ”) are speculative. OZs are newly formed entities with no operating history. There’s no assurance of investment return, property appreciation, or profits. The ability to resell the fund’s underlying assets is not guaranteed. Investing in OZ funds may involve higher risk than investing in other established real estate offerings.

·      Long-term. OZ funds are illiquid and return of capital and realization of gains, if any, from an investment will generally occur only upon partial or complete disposition or refinancing of such investments.

·      Limited secondary market. Although secondary markets may provide a liquidity option in limited circumstances, the amount you will receive is typically reduced.

·      Difficult valuation assessment. The portfolio holdings in OZ funds may be difficult to value. As such, market prices for most of a fund’s holdings will not be readily available.

·      Default consequences. Meeting capital calls to provide pledged capital is a contractual obligation of each investor. Failure to meet this requirement in a timely manner could have adverse consequences including forfeiture of your interest in the fund.

·      Leverage. OZ funds may use leverage in connection with investments or participate in investments with highly leveraged structures. Leverage involves a high degree of risk and increases the exposure of the investments to factors such as rising interest rates, downturns in the economy, or deterioration in the condition of the assets underlying the investments.

·      Unregistered. The regulatory protections of the Investment Company Act of 1940 are not available with unregistered securities.

·      Regulation. It is possible, due to tax, regulatory, or investment decisions, that a fund, or its investors, are unable to realize any tax benefits. Evaluate the merits of the underlying investment and do not solely invest in an OZ fund for any potential tax advantage.

Understanding a "Like-Kind" Exchange's Holding Period

Every investor must adhere to rigorous deadlines in order to effectively conduct a 1031 exchange. However, investors frequently inquire as to whether a property must be held for a specific period of time in order to be eligible for an exchange. Although the IRS hasn't stated a holding time specifically, a few factors could shed light on the matter.

During the 1031 Holding Period

How long an investor keeps a piece of property is known as the holding period. IRC Section 1031 does not specify the length of the holding period, as was previously indicated. Instead, it depends on the investor's goals.

No gain or loss shall be recognized on the exchange of property held for productive use in a business, according to the IRS.

"Even though properties vary in grade or quality, they are still of the same sort if they have the same nature or character.

Whether they are renovated or unimproved, real estate properties are often of a like kind. An apartment building would often be similar to another apartment building, for instance. However, real estate within the United States is not comparable to real estate outside.


Recognizing Intent

The goal of Section 1031 is to make it possible for investors who have owned their property for a long time, particularly those who did so for income-producing purposes, to exchange it for another property that would serve the same function.

Since not all real estate is owned for the same purpose, not all of it is eligible. A primary residence is the most frequent case that should be considered. A primary residence does not qualify for an exchange since it is not "kept for productive use in a trade or industry or for investment." On the other hand, because they are held as investments, residential complexes, office and medical buildings, shopping malls, and single-tenant assets typically qualify.

In order to achieve a 1031 exchange, developers must overcome additional obstacles. Purchasing land, constructing a property, and then selling it for a profit frequently disqualifies a transaction from a 1031 exchange since a property must be held for investment purposes. In this case, the property was held for profit-making purposes rather than as an investment.

If investors are unsure whether the property will satisfy Section 1031, they should think about holding it for at least one year, if not two.

Even while the IRS has never explicitly said that there must be a minimum hold period, there have been instances where the IRS refused to allow an exchange because the owner's intent was ambiguous.

Investors who are unsure of their eligibility may choose to follow the two-year advice in general. However, as always, consult with a tax expert to receive their opinion on your specific case. The IRS referred to the two-year holding term in Private Letter Ruling 8429039 from 1984. The letter was written in response to a request for an exchange from an investor who wished to sell his property. Until 1981, the subject property served as the investor's primary residence. The investor leased out the property in 1983. The IRS granted the investor's request for a 1031 exchange in 1984, noting that keeping rental property for at least two years satisfies the holding period test required by Section 1031. But since a private letter ruling only applies to this specific instance, it may only be regarded as a general recommendation for 1031 exchanges.

The one-year holding consideration, on the other hand, was first proposed by Congress in 1989 as a requirement for a property to be eligible for a 1031 exchange. However, because this suggestion was never included in the Tax Code, it is not necessary. Instead, in order to determine whether a property would be eligible under Section 1031, tax professionals have referred to this idea.

The fact that the investment will appear on one's taxes as an investment property for two filing years if it is held for at least a year is another factor for the one-year holding period.

Nevertheless, these factors are but that—factors. In the past, the IRS has made choices on like-kind exchanges that do not support these ideas. For instance, in the case Allegheny County Auto Mart v. C.I.R. from 1953, the court allowed an investor to complete a 1031 exchange even though they had only owned the property for five days. However, in other cases, like Klarkowski v. Commissioner from 1967, an investor was still ineligible even after six years of ownership.

Is a vacation home acceptable?

Those who own property as a vacation home can often sell it and buy a new property via a 1031 exchange, however this is typically how commercial investors talk about 1031 exchanges. The vacation home must, however, have tenants, and it must be managed like a company. In addition, if the vacation home is purchased as the replacement property, the investment-related use of the property must continue. The property can usually not be turned into a primary residence within five years of the exchange.


Additional 1031 Exchange Timelines That Are Important

Investors must be aware of and abide by the deadlines specified in Section 1031 in order to be eligible for a like-kind exchange.

There is no time limit on how long an investor has to sell an asset after it is put on the market. They can market it for one day or five years and sell it on or off the open market. In reality, they have the option to list the asset before deciding otherwise. Any gains are unrealized until the property is sold. A timetable doesn't begin until the property actually closes, and the investor may be liable for paying taxes on the realized gains.

An investor has 45 days to choose their replacement property and 180 days to close after the initial property, or surrendered property, closes. The 180-day period begins on the same day as the property's closure. With very few exceptions, every exchange that doesn't take place by these dates has all gains subject to taxation.

Speak with a Professional You Can Trust

Speaking with a trained professional is highly advised for anyone considering selling their real estate and buying a new property via a 1031 exchange. Many 1031 swaps have distinct looks. In addition to providing insight on the potential exchange, 1031 experts can lead investors to other 1031 exchange investment opportunities that might otherwise go unnoticed.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only, and should not be relied upon to make an investment decision. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

The Importance of a QI in Your 1031 Exchange

A qualified intermediary (QI) is required for all 1031 exchanges. Given the importance of the QI in an exchange, it is imperative for real estate investors to identify one they can trust and rely on. Achieving this, however, can be difficult – how does an investor know whether a particular QI is credible? Here is a brief tutorial on how to select a reputable QI for a 1031 exchange.

What is a QI?

A QI, also known as an accommodator, is an individual or entity that facilitates a 1031, or like-kind, exchange as outlined in Internal Revenue Code (IRC) Section 1031. The role of a QI is defined in the Federal Code as follows:

A qualified intermediary is a person who -

(A) Is not the taxpayer or a disqualified person, and

(B) Enters into a written agreement with the taxpayer (the “exchange agreement”) and, as required by the exchange agreement, acquires the relinquished property from the taxpayer, transfers the relinquished property, acquires the replacement property, and transfers the replacement property to the taxpayer. (26 CFR § 1.1031(k)-1)

An individual does not need to meet any eligibility requirements or acquire a license or certificate to become a QI. However, the Internal Revenue Service (IRS) does stipulate that anyone who is related to the exchanger or has had a financial relationship with the exchanger – such as an employee, an attorney, an accountant, an investment banker or broker, or a real estate agent or broker – within the two years prior to the sale of the relinquished property is disqualified from acting as the exchanger’s QI.

Why is having a QI important in a 1031 Exchange?

Every 1031 exchanger must identify a QI and enter into a written contract prior to closing on the relinquished property. Once selected, the QI has three primary responsibilities: prepare exchange documents, exchange the properties, and hold and release the exchange funds.

Preparing Exchange Documents

Throughout the exchange, the QI prepares and maintains all relevant documentation, including escrow instructions for all parties involved in the transaction.


Exchanging Properties

A 1031 exchange requires the QI to acquire the relinquished property from the exchanger, transfer the relinquished property to the buyer, acquire the replacement property from the seller, and transfer the replacement property to the exchanger. Although the QI also transfers the title, the QI does not actually have to be part of the title chain. 

Holding and Releasing Exchange Funds

For an exchanger to defer capital gains, all proceeds from the sale of the relinquished property must be held with the QI; any proceeds held by the exchanger are taxable. Therefore, the QI must take control of the proceeds from the sale of the relinquished property and place them in a separate account, where they are held until the purchase of the replacement property.

Exchangers must meet two key deadlines for the exchange to be valid. The first comes at the end of the identification period. Within 45 calendar days of the transfer of the relinquished property, the exchanger must identify the replacement property to be acquired. The second comes at the end of the exchange period. The exchanger must receive the replacement property within 180 calendar days of the transfer of the relinquished property. These deadlines are strict and cannot be extended even if the 45th or 180th day falls on a Saturday, Sunday, or legal holiday.

What should investors consider when choosing a QI?

Since a QI is not required to have a license, investors should conduct due diligence to ensure they select an individual who can properly manage the 1031 exchange. Unfortunately, the IRS does not excuse any errors committed by a QI, and, as a result, investors may be required to pay taxes on the exchange due to these mistakes. Here are a few things investors should consider when selecting a QI.

State Regulations

While the federal government does not regulate QIs, some states have enacted legislation that does. For example, California, Colorado, Connecticut, Idaho, Maine, Nevada, Oregon, Virginia, and Washington have all passed laws overseeing the industry. Many of these states have requirements for licensing and registration, separate escrow accounts, fidelity or surety bond amounts, and error-and-omission insurance policy amounts.

Federation of Exchange Accommodators

The Federation of Exchange Accommodators (FEA) is a national trade association that represents professionals who conduct like-kind exchanges under IRC Section1031. The FEA’s mission is to support, preserve, and advance 1031 exchanges and the QI industry. Association members are required to abide by the FEA’s Code of Ethics and Conduct.

In addition, the FEA offers a program that confers the designation of Certified Exchange Specialist® (CES) upon individuals who meet specific work-experience criteria and pass an examination on 1031 exchange laws and procedures. Holders of this certificate must pass the CES exam and meet continuing education requirements. The “designation demonstrates to taxpayers considering a 1031 exchange that the professional they have chosen possesses a certain level of experience and knowledge.”

Knowledge and Experience

As mentioned, a QI’s mistake in a 1031 exchange can result in a taxable transaction. Investors who are in the process of selecting an accommodator should review each individual’s qualifications – including knowledge and experience in the industry – before making a final decision. Investors should inquire whether the individual is full- or part-time; how many transactions and how much in value the individual has facilitated. Additionally, it is important to know whether the individual has any failed transactions and, if so, why.

Knowledge about 1031 exchanges is critical. Not only should potential QIs know the basics, but they should understand the ins and outs of the 1031 exchange process. For example, QIs should know what qualifies as a like-kind property. Likewise, they should know about Delaware Statutory Trusts (DSTs), one of the most commonly overlooked alternative 1031 exchange solutions. Unfortunately, many QIs are not familiar with DSTs. Finding a knowledgeable and experienced QI is crucial for investors who want to successfully defer capital gains while continuing to meet their overall financial objectives.


How should an investor go about selecting a QI?

To find a QI in good standing, investors should seek referrals. Word of mouth can be a great way to find a credible QI. Investors can ask for a referral from a certified public accountant (CPA) with 1031 exchange experience, a real estate attorney, a reputable title company, or even the other party in the exchange.

When vetting a potential QI, investors need to ask questions that will reveal the individual’s depth of knowledge and experience – beyond just the basics. For instance, the FAE requires potential QIs to work full-time for at least three years before they can even sit for the CES exam. Three years is a good baseline to start from when judging a QI’s experience; five to 10 years is a solid amount.

Finding a QI is one of the most critical parts of a 1031 exchange, as the transaction cannot be completed without one. Investors must ensure that their QI is experienced and thoroughly understands the various tax codes involved. Investors also need to ensure that the QI has not been financially connected to them within the past two years and is not a relative, employee, or agent. The IRS does not take these factors lightly; failure to comply with what is presented here may lead to hefty penalty fees – or the IRS may prohibit the exchange from occurring altogether.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only, and should not be relied upon to make an investment decision. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

The Benefits of DSTs for Real Estate Investors

What exactly is a DST (Delaware Statutory Trust)?

For authorized investors who want to make fractional real estate investments, a Delaware Statutory Trust, or DST, is a frequently used structure.

The main benefit of investing in a DST is that it qualifies for a 1031 Exchange, which enables investors who are selling a property to postpone paying capital gains tax by putting the profits into a DST, which the IRS has determined is an investment of "like kind."

National real estate corporations typically "sponsor," or bring to market and make available to accredited investors, DST offers. These offerings can be made available through third-party securities broker-dealers. The property(ies) to be offered under the trust are purchased by DST sponsors.

The DST support will do an expected level of effort on the property, at times secure long haul obligation that is non-response to financial backers, and organizes all lawful desk work to guarantee that the trust meets all requirements for 1031 trade purposes. The DST support will then make the asset(s) accessible to certify financial backers on a partial proprietorship premise, and will gather a charge for organizing, directing, and dealing with the speculation in the interest of financial backers.

The Historical backdrop of DSTs

In the mid 2000s, a portion of the country's biggest land supports and their lawyers pushed the IRS to lay out rules that would permit Spasms, or "occupant in like manner" land (a co-possession structure depicted in more detail beneath) to fit the bill for 1031 exchanges. Thus, interest in Spasms soar. Before long, financial backers were gone up against with a portion of the difficulties introduced by Spasms, for example, requiring consistent agree among financial backers to pursue particular kinds of choices connected with the property.

Around this equivalent time, the idea of financial planning through a DST built up some decent momentum. DSTs gave more adaptability than Spasms and tended to a portion of financial backers' interests especially around the consistent assent arrangements.

It was nothing unexpected, then, that financial backers and supporters encouraged the IRS to take on comparative 1031 trade rules for DSTs. Accordingly, in 2004, the IRS gave Income Deciding 2004-86 that permitted the utilization of the DST construction to get land where the useful interests of the trust would be treated as immediate interests in trade property for the reasons for a 1031 trade. This was proclaimed as a significant triumph for the partnered land industry.

The two Spasms and DSTs were broadly spent until the Incomparable Downturn in 2008. At the point when land values plunged, so did their notoriety. Spasms were influenced more than DSTs. Scarcely any singular financial backers needed to assume on the liability of co-claiming submerged land with so many others. Basically with DSTs, individual financial backers were not obligated for any advance reimbursement - the DST support was. As the economy improved, interest in land partnership got back. Today, DSTs are many times considered the favored strategy for partial land proprietorship given the intricacies related with Spasms.

The Contrast Among Spasms and DSTs


For long-term land financial backers, DSTs are a somewhat new idea. Most long-term financial backers are rather acquainted with Spasms, or occupant in like manner land speculations. The two Spasms and DSTs permit individuals to put partially in land. Both can be utilized related to 1031 exchanges. All things considered, it is no big surprise certain individuals befuddle Spasms and DSTs. Notwithstanding, there are a few critical contrasts between the two.

An essential distinction has to do with the degree of contribution of financial backers. The co-proprietors of a Spasm are normally more engaged with the everyday administration of the land, including property the executives. DSTs are genuinely latent interests in which the support regulates the arrangement for financial backers' sake.

One reason the executives of Spasms can be so unwieldy is that choices require consistent assent of co-proprietors on any significant choices. As a matter of fact, this is one of the moves that prompted the production of DSTs. The consistent assent expected by Spasms was a side road for some financial backers and made difficulties for some who had previously put resources into Spasms.

One more distinction among Spasms and DSTs is the manner by which they hold title to the property. Spasm co-proprietors each hold a fragmentary portion of the title to the property. Alternately, the DST holds genuine title to the land resource - individual financial backers don't. This has suggestions in accordance with funding. At the point when obligation is utilized to fund the property, either securing or enhancements, the singular co-proprietors of a Spasm subsequently convey risk for that obligation. This additionally implies that banks need to endorse every borrower exclusively, which can demonstrate oppressive for most loan specialists and accordingly, can make land held in Spasms hard to back. DST financial backers don't convey obligation straightforwardly, since the resource is held solely by the DST for the financial backers' sake in a trust structure.

Spasms and DSTs additionally contrast as far as the quantity of financial backers permitted to partake. Spasms are restricted to 35 financial backers (or "co-proprietors") versus DSTs which are covered at 499 individual financial backers.

At last, in light of the fact that DSTs consider more financial backers to take part, the base speculation is by and large lower than what is expected by Spasms. Numerous Spasms expect basically a $500,000 venture versus a DST which typically permit speculations as low as $100,000 (or once in a while less).

How do Financial backers Utilize DSTs?

There are two different ways a financial backer can exploit the advantages DSTs offer. The first, and most well known way, is to contribute utilizing 1031-trade reserves. The other choice is an immediate money interest into a DST.

o Reinvest 100 percent of net deals continues, otherwise called value, into the substitution property;
o Get an equivalent or more noteworthy measure of obligation on the substitution property;
o Recognize potential substitution property(s) in the span of 45 days of offer; and
o Close on the substitution property(s) in something like 180 days of the deal.
Meeting these rules can be troublesome, especially in the present cutthroat housing market.

DSTs offer an option in contrast to "entire property" 1031 exchanges.

All things considered, financial backers can move the returns of the offer of their property into a DST. The financial backer will then, at that point, hold relatively partial possession in the property (or properties) claimed by the DST. DSTs are now settled ("pre-bundled," maybe) and prepared to acknowledge financial backers, which permits somebody offering their property to move rapidly as per the IRS' 1031 trade rules by and large. All reasonable level of investment on the land is as of now complete. Besides, the returns from the offer of the financial backers' property will fit the bill for similar capital increases charge deferral, under current regulation, as though they had contributed through an entire property 1031 trade.

In some cases, financial backers will consolidate systems by putting resources into both entire property and a DST. This is many times the situation when a financial backer tracks down a reasonable substitution property (or properties) yet has overabundance cash staying from the offer of their other resource. The financial backer can take the leftover deals continues and put that capital into a DST to make use advantage, under current regulation, of the 1031 trade benefits.


Expected Advantages to Putting resources into DSTs

There are numerous expected advantages to putting resources into a DST, a few of which are framed beneath:

Instead, the sponsor is only the lenders. Real estate held in DST is also easy to invest because the lender guarantees only the sponsor, usually a large company with a good reputation with a track record, not just anyone. invested, as in TIC.

- Access to industry-grade assets: Direct investors in real estate often have limited access to assets of the same caliber simply because of the costs and expenses associated with investing in real estate. Those looking to invest at the corporate level can do so by investing through DST given its minority ownership principle. Through DST, an individual investor can hold a small share of a high-quality asset that would have a high barrier to entry. - Diversification: There are many DST real estate investments available to investors from different DST sponsors, including multi-family, security, corporate and NNN rentals. And not only can you invest in one type of DST, like many families, but you can do it in many different regions of the country, so that even if one region of the country will - there is a breakdown in its area. economy, there are greater opportunities than elsewhere, or at least those opportunities are reduced by various changes. Conclusion
As you can see, there are many reasons for an investor to consider investing in real estate through DST. The DST model offers great flexibility, opportunity and investment diversity for those looking to take advantage of the benefits associated with a traditional 1031 exchange. Additionally, investors can close DST investments quickly – often within days. So whether you're a seasoned investor looking to put your money to work for the first time, or someone with a deadline to cash out from a 1031 sale, investing in a DST can be a great option.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only, and should not be relied upon to make an investment decision. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure: