🏢 What Is a Delaware Statutory Trust (DST) — and Why 1031 Investors Use It to Defer Taxes & Scale Wealth 💼

💰 Delaware Statutory Trust Explained: The Passive 1031 Strategy Smart Real Estate Investors Use 📈

What Is a Delaware Statutory Trust (DST) — and How Is It Used by Real Estate Investors?

A Delaware Statutory Trust (DST) is a legal ownership structure that allows multiple investors to hold beneficial interests in institutional-grade real estate—while still qualifying as like-kind property under Section 1031 of the IRS tax code.

For real estate investors who want to defer capital gains taxes, reduce active management responsibilities, and maintain exposure to stabilized assets, DSTs have become one of the most powerful—and misunderstood—tools in the 1031 exchange landscape.

As mortgage brokers and capital advisors, we frequently help investors evaluate when a DST makes sense versus traditional direct ownership, especially during tight timelines or market transitions.

How a DST Works

A DST owns one or more income-producing properties—such as:

• Multifamily communities

• Industrial and logistics facilities

• Medical office buildings

• Net-leased retail

• Institutional mixed-use assets

Instead of owning the real estate directly, investors purchase beneficial interests in the trust. These interests are treated as real property for 1031 purposes, allowing investors to:

• Sell a relinquished property

• Defer capital gains and depreciation recapture

• Reinvest proceeds into a DST within IRS timelines

Each DST is professionally managed and structured with non-recourse financing already in place.

Why Real Estate Investors Use DSTs

DSTs are commonly used by investors who want:

✔ 1031 Exchange Compliance
DST interests qualify as like-kind replacement property under IRS guidance.

✔ Passive Ownership
No tenants, toilets, or midnight calls. Asset management is handled by institutional sponsors.

✔ Fractional Ownership
Invest in large properties with smaller allocations—often starting around $100,000.

✔ Portfolio Diversification
Spread exchange proceeds across multiple asset types, markets, or sponsors.

✔ Predictable Cash Flow
Many DSTs offer stable, monthly or quarterly income distributions.

DSTs and Financing: What Investors Need to Know

One of the most important advantages of DSTs is pre-structured financing.

• Loans are non-recourse

• Interest rates and terms are locked in

• Investors are not personally liable

• No underwriting of individual investors is required

From a mortgage advisory standpoint, this is critical for investors who:

• Want to avoid new loan qualification

• Are retiring or reducing active involvement

• Are exiting highly leveraged properties

• Need certainty during a 1031 timeline

DSTs remove financing risk from the exchange process.

When a DST Makes Sense

DSTs are particularly effective when:

• A 1031 exchange deadline is approaching

• The investor wants passive income

• Replacement properties are overpriced or scarce

• The investor is downsizing management responsibilities

• Estate planning and succession are priorities

They are also commonly used as a temporary or permanent solution—some investors later exchange out of DSTs into direct ownership when markets shift.

Potential Trade-Offs to Understand

DSTs are not for everyone. Key considerations include:

• Limited control over operations

• Illiquidity during the holding period

• Fixed business plans set by the sponsor

• Suitability requirements for investors

This is why DSTs should be evaluated as part of a broader capital strategy, not as a standalone product.

How Medallion Funds Helps Investors Use DSTs Strategically

At Medallion Funds, we don’t sell products—we structure outcomes.

We help investors:

• Coordinate DSTs within 1031 exchanges

• Compare DSTs vs. direct acquisitions

• Evaluate sponsor quality and debt terms

• Align passive strategies with long-term goals

• Integrate DSTs into broader real estate and lending plans

The right DST can protect equity, preserve income, and buy time—when used intentionally.

Final Thought

A Delaware Statutory Trust is not about giving up control—it’s about strategic flexibility.

For investors navigating tax exposure, market volatility, or life transitions, DSTs remain one of the most effective tools available when paired with the right capital advisor.

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© 2023-2024 Bill Rapp, Medallion Funds LLC, Director of Capital Advisory