For accredited investors seeking tax-efficient exposure to real estate without the burdens of active management, Delaware Statutory Trusts (DSTs) offer a compelling alternative. These structures are particularly popular for investors executing 1031 exchanges, aiming to defer capital gains while accessing institutional-quality properties.

This blog unpacks how DSTs work, their advantages, and how they fit into a long-term real estate and tax strategy.

What Is a Delaware Statutory Trust?

A DST is a legal entity created under Delaware law that allows multiple investors to own fractional interests in real estate. Each investor holds a "beneficial interest" in the trust, which owns and operates income-producing properties like:

  • Multifamily apartments

  • Industrial parks

  • Medical office buildings

  • Net lease retail centers

DSTs are managed by a sponsor, with no active involvement required from investors.

Key Benefits of DSTs

  1. 1031 Exchange Eligible: DST interests qualify as "like-kind" property for capital gains deferral

  2. Passive Income: Investors receive pro-rata rental income without management responsibilities

  3. Diversification: Access to institutional-grade properties across sectors and geographies

  4. Low Minimums: Often accessible starting at $100K per investor

  5. Estate Planning Alignment: Step-up in basis at death eliminates deferred gains for heirs

Ideal Use Cases

  • Downsizing landlords seeking relief from active property management

  • Estate or trust beneficiaries inheriting appreciated real estate

  • Investors timing a 1031 exchange to avoid capital gains tax

  • Retirees looking for stable, passive income with low volatility

DST vs. Other Real Estate Structures

Feature

DST

REIT

Direct Real Estate

1031 Eligible

✔️

❌

✔️

Active Management

❌ (passive)

❌

✔️

Liquidity

Limited

High (if public REIT)

Low

Income Distribution

Monthly or quarterly

Variable

Self-managed

Diversification

Sector and geography

Broad or sector-specific

Property-specific

Key Risks and Considerations

  • Illiquidity: DST interests are typically held for 5–10 years with limited secondary markets

  • Sponsor Quality: Management, due diligence, and communication vary by sponsor

  • Loss of Control: No voting rights or direct property decisions

  • Market Exposure: Subject to sector and macroeconomic trends (e.g., interest rates, vacancies)

  • IRS Rules: DSTs must adhere to specific guidelines to maintain 1031 eligibility

A Passive Path to Real Estate and Tax Efficiency

Delaware Statutory Trusts bridge the gap between direct real estate ownership and institutional diversification. For investors seeking passive income, capital gains deferral, and simplicity, DSTs offer a streamlined, tax-advantaged solution.

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