Beyond 1031 Exchanges: Why DSTs Deserve a Seat at the Table in Long-Term Wealth Planning

Delaware Statutory Trusts (DSTs) are often discussed by an investment advisor at a specific moment in a client’s journey; typically, when a 1031 exchange is imminent and the client is facing the pressure of reinvestment. In that context, DSTs have become a powerful tool for tax deferral, portfolio diversification, and hands-off property ownership.

However, when the 1031 exchange is completed, the conversation often comes to a close. That’s a missed opportunity for many advisors because 

DSTs can also serve a strategic role in wealth planning, well beyond the moment of an exchange.

In today’s environment, where tax efficiency, diversification, and succession planning are front and center for many high-net-worth investors, DSTs deserve a more permanent seat at the wealth planning table.

DSTs in the Traditional 1031 Conversation

Let’s start with the familiar. As you know, DSTs are structured to meet the IRS’s like-kind property requirements under Section 1031, making them a compliant and attractive replacement option for real estate investors looking to defer capital gains taxes.

They offer:

• Capital gains deferral
• Turnkey property management
• Access to diversified real estate portfolios
  

But here’s the challenge. When DSTs are viewed solely as a transaction tool, their long-term value is overlooked. Advisors often close the book on DSTs once the exchange is complete, missing opportunities to integrate them into a more durable, long-term wealth strategy.

Reframing DSTs as a Strategic Wealth Planning Tool

Viewed through the right lens, DSTs can enhance a client’s income strategy, support multi-generational wealth transfer, and provide sector-specific diversification, all within a passive ownership structure.

1. Post-Exchange Income Generation

• DSTs may offer predictable monthly income, which can make them particularly attractive for retirees seeking dependable cash flow.
• They can align nicely with retirement income planning, complementing bond ladders or annuities without the day-to-day management burdens of direct real estate ownership.

2. Estate Planning Efficiency

• DSTs may qualify for a step-up in basis upon death, helping heirs avoid capital gains taxes.
• Because DSTs are divided into fractional shares, they can be easily split among multiple beneficiaries, often eliminating disputes that arise from single-property inheritances.
• They can also spare heirs from the challenges of managing physical real estate, yet allow them to remain invested in income-generating assets.

3. Diversification Without Operational Complexity

• DSTs offer access to institutional-grade assets like healthcare facilities, manufacturing essential assets (MEAs), logistics hubs, and multifamily properties.
• As part of a broader portfolio, they can help reduce correlation to public equities and bonds, serving as a ballast in uncertain markets.

Opportunities to Introduce DSTs in Wealth Conversations

While DSTs often appear late in the planning process, they’re more powerful when introduced early, especially in these scenarios:

• Before a liquidity event: DSTs can be part of pre-sale planning for business owners or property sellers seeking to manage tax exposure.
• During portfolio rebalancing: Clients with overexposure to equities or concentrated property holdings can benefit from DST diversification.
• As part of multi-generational planning: DSTs offer a streamlined way to align estate planning goals with real asset exposure.

Position DSTs not as a one-time solution, but as a recurring option during annual portfolio reviews, a flexible tool to meet evolving needs.

Risk and Suitability Reminders

As with any private real estate investment, DSTs are not without risk. Advisors should assess:

• Liquidity constraints – DSTs are illiquid and have multi-year hold periods.
• Market and tenant risk – Especially in single-tenant or sector-specific offerings.
• Client suitability – DSTs are not appropriate for every investor. A thorough evaluation of risk tolerance, income needs, and estate goals is critical.

A New Planning Mindset

Advisors who expand their DST conversations beyond the exchange window position themselves to deliver greater client value and open the door to more meaningful, long-term planning engagements.

Are you interested in integrating DSTs into your clients’ broader wealth strategy?
Explore CAI’s DST Resource Library or schedule a consultation with our team to learn how DSTs can complement your planning process.