Why Delaware Statutory Trusts (DSTs) are Excellent Choice for Estate Planning

Written By
Carl E. Sera, CMT
Published On
July 9, 2021

Why DSTs are Excellent Choice for Estate Planning

Many of Sera Capital’s clients have used the Delaware Statutory Trust (DST) for their 1031 exchange transactions.  They certainly recognize the tax-deferral benefits this structure affords them. But many of these investors may not be aware that the DST also provides several important estate planning benefits recognized by a growing number of estate planning professionals.

Here is an overview of several reasons why a DST is an excellent estate planning tool among our older clients at Sera Capital.

  • Prevents Infighting Between Heirs

Most estate attorneys have frightening stories of family feuds resulting from inheritance conflicts. A daughter may want to take over the management of her parent’s investment properties, but the other siblings wish to liquidate and pay off debt. A son may desire to keep the parent’s beach rental, but his sister needs the money to pay for her kid’s college. This often causes devastating consternation to exacerbate an already stressful situation.

DST are not suitable for everyone. However, for many heirs, DSTs may provide a turn-key options for passive income and offer the flexibility to choose what they wish to do with their inheritance without impeding on the priorities of the other heirs.

  • Ability to Avoid Headaches of Property Management

DST properties are structured with in-place professional management. The advantage for heirs, obviously, is that they need not contend with all the work and anxieties that go along with managing investment property. This can be particularly important when estates are being settled since heirs need time to grieve and would much prefer to do so without having to deal with all the hassles of property management.

  • Elimination of Capital Gains Tax

When the investor passes away, estate beneficiaries receive a stepped-up basis for tax purposes. This means that beneficiaries do not pay capital gains taxes on the accumulated appreciation from when the original assets were purchased until the investor passes away. This includes deferred capital gains on real estate that was 1031 Exchanged into the DST.

When a beneficiary sells an asset, there is a step up in basis to the value as of the date of the investor’s death. Although capital gains tax on an inherited property can be avoided, assets in a DST are still considered part of the investor’s estate. Normal estate tax rules and exclusions apply. Consult with your estate planning professional to determine how this may affect your estate.

  • Simplified Distributions to Charities

Delaware Statutory Trusts also make it easier to leave your real estate investments to charity. If you name a charity as the beneficiary of your real estate, it may not have the ability or desire to manage your properties. This could lead the charity to liquidate the property immediately, even if the value is temporarily down due to economic conditions. A quick sale during a downturn minimizes the potential good that your donation can do for the charity.

With a DST, the charity can receive your interest in the trust without having to assume day-to-day management of a rental property. It will benefit from the monthly stream of income until the sponsors determine the appropriate time to sell the underlying assets. As each property in the trust is sold, the charity will receive their portion of the proceeds.

About Sera Capital Investments

Navigating the Exchange process successfully can be challenging and complex. For over a decade, Sera Capital has helped investment property owners navigate and execute tax-deferred 1031 Exchanges, Delaware Statutory Trusts (DSTs), complex real estate investments, and tax planning strategies. Our team of licensed 1031 Exchange Advisors will help you select and acquire Exchange properties that are carefully designed to help meet your objectives. To learn more about Sera Capital, visit our website at www.seracapital.com.

Learn more about Delaware Statutory Trusts and 1031 Exchanges and Delaware Statutory Trust Fees and Commissions.

If you want to see current DST offerings and DST properties and you’re an accredited investor, Schedule Your Call Today.

Carl E. Sera, CMT

Carl E. Sera, CMT

Managing Principal, Sera Capital
Carl Sera is a Chartered Market Technician and the Managing Principal at Sera Capital Management, LLC. He has over 16 years of experience in the financial services industry with a focus on investment management.

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