Using DSTs for Charitable Giving: A Guide to Estate Planning

Written By
Carl E. Sera, CMT
Published On
May 30, 2023

Leave Your Investments to Charity With a DST

Leaving a legacy is a big deal to many people. It's heartening to think about how people will celebrate us, even after we're gone. One significant aspect of leaving a legacy is donating to charity. Many people make charitable giving part of their wills and bequest funds to their favorite organization. Even if your assets are all tied up in real estate, there's still a way to give to charity through a DST. These trusts allow people to make their real estate investments a pivotal part of their estate planning and donate to a good cause at the end of the day. The team at Sera Capital is skilled in helping clients nationwide navigate this process with ease. You can learn more about how DSTs can be a route to charitable giving.

The Basics of Working With a Delaware Statutory Trust

In short, a Delaware Statutory Trust (DST) is a type of 1031 exchange investment property that allows investors to defer taxes on their real estate investments by exchanging one property for another. Using this strategy, investors can reduce capital gains taxes significantly while setting up a lasting legacy. Here's how we recommend using a DST to give to charity:

Step 1

First, investors will want to set up a DST that results in passive income. The investor typically doesn't have much say in the running of the property but still receives income from rent payments. They have no landlord responsibilities and avoid the complications of owning a property in the traditional sense. While making passive income, they also benefit from tax deferrals, including the following:

• State capital gains

• Federal capital gains

• Medicare tax

• Depreciation recapture

Step 2

Next, the investor transfers 50% of the property's undivided interest into a Charitable Remainder Trust (CRT). This is a type of irrevocable trust that, upon expiration, distributes remaining assets to charities designated by the investor. CRTs also result in charitable income tax deductions that reduce the investor's taxes in the year of the gift and up to five years afterward. Think of this as gifting stock to a charity of your choice.

Step 3

The final step is to transfer another 10% of the undivided interest into a Donor Advised Fund. This charitable giving approach doesn't give the investor any income but allows a portion of the property to be sold tax-free. Donor Advised Funds are a great way to donate to charity automatically while still keeping funds invested for your heirs, grandchildren, and children.

The Result

The result of using a DST to enhance charitable giving is twofold. First, investors can feel good about helping out a good cause, and that organization can use funds to further its mission. What's more, DSTs mean the investor's heirs have access to assets without paying excessive capital gains taxes. Everyone benefits in the end.

Other Ways to Benefit From a DST

While here we focused on real estate investments and charitable donations, there are many other ways to benefit from DSTs. Including a DST in your estate planning can bring the following advantages:

• Minimize capital gains tax

• Eliminate disagreements between heirs

• Promote flexible distribution of assets to heirs

• Avoid the stress of property management

• Save time and spend it doing what you love

Make DSTs Part of Your Estate Planning

Including a DST in your estate planning is an excellent way to minimize your taxes and support your philanthropic goals. However, navigating the process can be challenging. Be sure to talk to one of our seasoned advisors at Sera Capital. We're experienced in helping clients across the United States maximize their legacy to their heirs and to charity.

Please reach out to us today to get started.

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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