The plain-words version
What a DST is
DST stands for Delaware Statutory Trust. Think of it as a big, professionally managed pool of income properties. When you sell a rental or another business-use property, you can move the money into the trust instead of buying another building yourself.
You own shares of the pool. The tax bill on your sale stays deferred, the trust manages the properties, and income is often paid monthly. Here is how Scott explains it.
In the expert’s words
A financial planner on how the DST works
A DST (Delaware Statutory Trust) is a great tool for real estate investors to utilize when it comes to selling property used for business. With the DST, the investor can shield and defer any taxation from the transaction by transferring the proceeds into a DST which is classified as a separate legal entity. Once the property owner transfers the proceeds into the DST, they get ownership and "shares" of the trust and can often times benefit from monthly income that is kicked off. The DST is structured very similarly to a REIT (Real Estate Investment Trust) in the sense that it provides a diverse portfolio of real estate holdings instead of transferring into a single physical piece of property using a traditional 1031 exchange. On top of the benefits of diversification, a DST requires less physical demand of maintaining a property that a traditional 1031 exchange entails. Like all investments and financial planning strategies, the DST has many benefits, but also has disadvantages. Please make sure to consult a financial professional on guidance when it comes to implementing a DST.
Scott Efrusy, CFP®, Financial Planning Analyst, Horizon Advisers
The 10-second read
The trade, in one look
Why people do it
- +Put off the tax bill, like a 1031
- +Income is often paid monthly
- +Your money is spread across many properties
- +Nobody calls you about a broken AC
What can go wrong
- !Your money is locked up for years
- !Returns are not guaranteed
- !You give up control of the property
- !Fees and rules vary trust by trust
Two roads, same tax break
DST or traditional 1031?
Traditional 1031 exchange
- •You buy one replacement property
- •You manage it, or hire someone who does
- •Strict 45 and 180 day deadlines
- •You keep control of the asset
DST
- •You buy shares of a managed portfolio
- •The trust handles everything
- •Same tax-deferral purpose
- •You give up control
New to the 1031 itself? Read our plain-words 1031 guide first.
Is it for you
Who a DST tends to fit
The classic fit is a landlord near retirement. You want the income and the tax deferral, but you are done with tenants, toilets, and 2 a.m. phone calls.
It tends NOT to fit someone who wants control, quick access to their money, or the chance to force a property’s value up with their own work. As Scott says above: talk to a financial professional before implementing one.
Quick answers
Frequently asked questions
What does DST stand for?
Delaware Statutory Trust. It is a legal entity that holds a portfolio of income properties. Investors own shares of the trust rather than a building.
Is a DST the same as a 1031 exchange?
It uses the same tax-deferral rules. The difference is what you buy: a traditional 1031 puts you into one replacement property you manage, while a DST puts you into shares of a professionally managed portfolio.
Can Chapter3 set up a DST for me?
No. DSTs are securities offered through licensed financial professionals, not through a real estate brokerage. We handle the property sale and work alongside your advisor. Scott Efrusy at Horizon Advisers wrote this guide and can answer DST questions directly.
About the author
Scott Efrusy, CFP® is a Financial Planning Analyst at Horizon Advisers in Plymouth, Michigan.
248-265-6662 · horizonadviser.com
Disclosure: Financial Advisor offering Securities offered through Cetera Wealth Services, LLC, member FINRA/SIPC. Advisory Services offered through Cetera Investment Advisers LLC, a registered investment adviser. Cetera is under separate ownership from any other named entity. Tax services provided by Horizon Advisers. Cetera Wealth Services LLC does not provide tax services. Tax and accounting services provided by Horizon Advisers CPA. Cetera Wealth Services LLC does not provide tax nor accounting services.
Scott Efrusy is a guest contributor. Chapter3 Realty is a real estate brokerage, not a financial or tax advisor. Nothing on this page is financial, tax, or investment advice.
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