Why Delaware Statutory Trust Are Great for Estate Planning

The fractional ownership benefit of DSTs can help ease family tensions among heirs.

Few would think of a real estate investment property from the lens of estate planning. But most should. Here’s a hypothetical example that illustrates that point:

Bob and Linda owned several residential rental properties in San Diego which, over the years, proved to be a reliable and important source of income as they raised their four children and ultimately launched them into college and adulthood. When Linda died unexpectedly, Bob made the decision to keep these investment properties, rather than sell them, because he thought they would be important for his sons and daughters as supplementary income while they were raising their own children.

Bob never asked his children or considered if they wanted to be landlords as he and Linda had always been. When Bob died, his attorney was faced with the very uncomfortable responsibility of having to mitigate the disputes that arose amongst Bob’s heirs. Turns out, only two of his four children had an interest in owning and managing investment property, and the others wanted to sell. Ultimately it was determined they would sell the properties, even though the capital gains that had been deferred for years, finally had to be recognized and the tax obligation paid.

Had Bob used a 1031 Exchange and a Delaware Statutory Trust (DST) structure to sell his portfolio of properties and invest as a fractional interest owner in a portfolio of professionally managed properties within the DST, he not only could have eliminated the family disputes (each heir could do what they wanted with their proportional interest), but the capital gains tax could have been deferred even further into a new generation of investors.

There are many reasons why DSTs continue to grow in popularity among real estate investors, but this often-overlooked benefit of fractional ownership should perhaps be one of the most important benefits.

For more information this, please feel free to contact Financial Designs, Ltd at (858) 597-1980. You can also schedule a phone call, one on one meeting with us or on Zoom at your convenience.