what is a DST (Deleware Statuory Trust)?
⭐ DST Overview — Fully Supported by IRS Authority
Delaware Statutory Trusts (DSTs)
A Delaware Statutory Trust (DST) is one of several IRS-recognized structures that may be used as replacement property in a §1031 exchange. In a DST, multiple investors hold beneficial interests in a trust that owns income-producing real estate. DSTs are often considered by exchangers seeking passive ownership, diversification, or access to institutional-grade assets.
Below are general, educational characteristics associated with DST structures.
General DST Characteristics
- Diversification
DSTs may offer exposure across various property types or geographic regions based on sponsor offerings.
- Lower Minimum Investment
Minimum entry amounts are often around $100,000, making institutional real estate accessible to more exchange investors.
- No Need for Investor-Level LLCs
Because investors hold beneficial interests rather than direct title, they typically do not need to form separate LLCs for each DST investment.
- Access to Institutional Assets
DSTs are commonly used to acquire large, professionally managed commercial properties that individual investors may not be able to purchase alone.
- Non-Recourse Debt at Sponsor Level
When financing is used, it is typically non-recourse to the individual investor and underwritten at the sponsor/trust level.
- Pre-Structured Financing for 1031 Needs
Some DST offerings include debt that may help exchangers meet their debt-replacement requirements for §1031 purposes.
⭐ IRS Authority Supporting DSTs as §1031 Replacement Property
The IRS formally recognized that beneficial interests in a properly structured Delaware Statutory Trust (DST) qualify as “interests in real property” for §1031 exchange purposes in:
• Revenue Ruling 2004-86 (Rev. Rul. 2004-86, 2004-2 C.B. 191)
Holds that a taxpayer’s beneficial interest in a DST owning real estate constitutes a direct interest in real property for purposes of §1031.
• Internal Revenue Code §1031(a)(1)
Permits the exchange of real property held for productive use or investment for other real property of like kind.
• Treasury Regulation §1.1031(a)-1(b), (c)
Defines “like kind” real property and supports the treatment of beneficial interests in certain trusts as interests in real estate.
• Treasury Regulation §301.7701-4(c)
Recognizes certain passive investment trusts (such as appropriately structured DSTs) as “trusts” rather than business entities.
• Private Letter Rulings (illustrative, not precedent):
PLR 200521002, PLR 201029014, PLR 201716001 — addressing trust structures, real-property classification, and non-corporate treatment relevant to DST qualification.
These authorities collectively establish the regulatory framework that allows DST beneficial interests to be treated as replacement property in a §1031 exchange when structured in accordance with IRS guidance.
Important Regulatory Note
DST offerings are securities, and any evaluation or acquisition must be done through properly licensed securities professionals.
ICE does not sponsor DSTs, sell securities, or provide investment advice. These points are for informational purposes only and are not investment, tax, or legal advice. Investors should consult licensed financial advisors, CPAs, and legal counsel before considering DSTs as a replacement property option.
⭐
What is a Delaware Statutory Trust (DST)?
A DST is a legal trust structure that allows multiple investors to hold beneficial interests in income-producing real estate. Properly structured DSTs are recognized by the IRS as eligible “real property” for use as replacement property in a 1031 exchange.
Are DSTs approved by the IRS for 1031 Exchanges?
Yes. The IRS formally addressed DSTs in Revenue Ruling 2004-86, confirming that beneficial interests in a properly structured DST may qualify as an interest in real property for §1031 purposes.
What types of properties can be held in a DST?
DSTs commonly hold institutional-grade real estate, such as:
- Multifamily apartment communities
- Industrial distribution centers
- Medical offices
- Retail and net-leased properties
- Self-storage facilities
- Portfolio or multi-asset holdings
Specific offerings depend on the sponsor and market conditions.
How does a DST fit into a 1031 exchange?
A DST may serve as one of the taxpayer’s identified replacement properties in a 1031 exchange. Investors who prefer passive ownership or need to meet tight timelines often consider DSTs as an option to complete an exchange.
Do investors own real estate through a DST?
Investors own beneficial interests in the trust, not direct title to the property. The trust itself — not the individual investors — holds legal title to the real estate.
Do I need to form an LLC to invest in a DST?
No.
One benefit of DST investing is that individual investors typically do not need to create a separate LLC. The DST is the holding structure for all investors.
Who manages the property inside a DST?
A professional DST sponsor and property manager handle all operations, leasing, financing, and administration. Investors do not participate in day-to-day management.
Can a DST help meet the debt-replacement rules of 1031?
Potentially.
Some DST offerings include pre-structured non-recourse financing at the sponsor level, which may help exchangers satisfy IRS debt-matching requirements.
Investors should consult their CPA or tax advisor for specifics.
Are DSTs considered passive investments?
Yes. DST investors generally have no operational responsibilities and do not participate in active management or decision-making.
Who can help me evaluate whether a DST is appropriate for my situation?
DSTs are securities offerings.
Only properly licensed financial professionals—such as broker-dealers, registered representatives, or investment advisors.
Can DST investments lose value?
Yes.
Like any real-estate investment, DST property values, rental income, and projected returns can fluctuate based on market conditions.
These risks must be evaluated with licensed investment professionals.
How do DSTs compare to Tenants-in-Common (TIC) structures?
Both can qualify as replacement property in a §1031 exchange, but:
DSTs:
- Fully passive
- No voting rights / no group decision-making
- Held through trust beneficial interests
- Operated and controlled by the sponsor
TICs:
- Investors hold direct fractional title
- Often require unanimous consent for major decisions
- Can involve operational responsibility
A more detailed DST vs. TIC table can be created if you want one.
Are DSTs liquid?
Generally, no.
DST interests are intended to be long-term holdings and are not easily sold or redeemed.
Investors should discuss liquidity considerations with licensed securities professionals.
What is the minimum investment for a DST?
Many DST offerings have a minimum investment of $100,000, but this varies by sponsor.
Can I split my exchange funds among multiple DSTs?
Yes.
Many exchangers diversify by allocating funds across multiple DST offerings, depending on availability and sponsor requirements.
Where do I go if I want more information about DSTs?
You should speak with your:
- securities advisor, CPA, attorney
**ICE can help explain how DSTs fit into the 1031 process, but we do not provide evaluations or recommendations on specific offerings.
⭐ When DSTs Are Commonly Used
Delaware Statutory Trusts (DSTs) are often considered by 1031 exchangers when timing, management preferences, or financing considerations make traditional property acquisitions more difficult. Suitability must always be evaluated by licensed financial professionals.
1️⃣ When an Exchanger Runs Out of Time (45-Day Deadline Pressure)
If a taxpayer cannot identify or secure a replacement property within the strict 45-day identification window, DST offerings may provide a ready option because they are often pre-acquired and institutionally managed.
2️⃣ When Investors Prefer Passive, Hands-Free Ownership
Many exchangers—especially those retiring from active management—look to DSTs for:
- completely passive ownership
- professional sponsor-level management
- no landlord duties or operational decisions
3️⃣ When Replacement Property Needs to Be “Ready Now”
DSTs are often fully structured in advance, making them accessible for exchangers who need:
- immediate identification
- pre-arranged financing
- stabilized assets
- the ability to meet both the 45-day and 180-day deadlines
4️⃣ When Investors Want to Minimize Management Risk
DSTs centralize all operations with the sponsor entity, which handles:
- leasing
- capital improvements
- financing decisions
- property-level management
This appeals to exchangers seeking the benefits of real-estate ownership without operational responsibility.
5️⃣ When Matching Debt Is Difficult
Some exchangers must replace equal or greater debt to satisfy IRS 1031 requirements.
DSTs with pre-structured non-recourse loans may help meet this requirement.
(Debt analysis must be performed by a CPA or tax advisor.)
6️⃣ When Diversification Is a Goal
DSTs can allow investors to diversify by:
- asset class
- geographic region
- property sponsor
Minimum investment levels are often lower than whole-property acquisitions, enabling more flexible allocation.
(Any diversification strategy must be guided by licensed securities professionals.)
7️⃣ When Institutional-Grade Property Access Is Desired
DST structures often hold large, high-quality assets such as:
- Class A multifamily communities
- medical office facilities
- industrial warehouses
- net-leased retail portfolios
These are assets many individual investors could not acquire independently.
8️⃣ When Predictable Financing Is Preferred
DSTs often include financing that is:
- pre-arranged
- non-recourse
- free of personal guarantees
This can simplify compliance for exchangers who must match debt.
9️⃣ When Avoiding an LLC Is Preferred
DSTs do not require investors to form their own LLCs, reducing:
- administrative filings
- annual maintenance
- operational overhead
🔟 When TIC Structures Are Not Practical
DSTs avoid the unanimous-consent voting requirement common in TIC structures, reducing investor gridlock and streamlining decision-making.