Delaware Statutory Trusts

Delaware Statutory Trusts (DSTs): how they work, what they cost, and who they’re wrong for

A DST is one way to complete a 1031 exchange without hunting down, financing, and closing a replacement property in 180 days. It is also illiquid, fee-layered, and completely outside your control.

This page covers both sides. We don’t sell DSTs, we don’t publish offerings, and no sponsor pays for placement here.

Educational only · No cost, no obligation · We are not a broker-dealer

Why this page exists

The 180-day problem

Most people don’t come to Delaware Statutory Trusts because they love the structure. They come because a clock started the day their property closed, and buying a whole replacement building inside that clock turned out to be harder than it looked.

Day 1

Your sale closes

A Qualified Intermediary must already hold the proceeds. If the money touches your hands, the exchange is over.

Day 45

Identify in writing

You formally identify replacement property with your QI. Only what you identify in this window is eligible. No extensions for a deal that fell apart.

Day 180

Close, or the exchange fails

Purchase complete by day 180, or by your tax-return due date including extensions, whichever comes first.

Both clocks start on the same day and run together. Miss either one and the exchange is disqualified, which means the gain you were deferring becomes taxable in that year. In practice, four separate taxes can apply to the sale of an appreciated investment property:

0–20%

Federal long-term capital gains, depending on income

3.8%

Net investment income tax for many higher-income investors

25%

Federal rate on depreciation recapture

0–13.3%

State income tax. Nine states charge none; California is highest

This is the whole appeal of a DST. DST interests are already acquired, already financed, and already assembled, so an investment can often be completed in days rather than months. That’s why they’re so commonly used as backup identifications and as the primary replacement when a deal falls through at day 30. Estimate what a failed exchange would cost you →

The plain-English version

What is a Delaware Statutory Trust?

A Delaware Statutory Trust is a trust formed under Delaware law that holds title to one or more income-producing properties: an apartment community, a medical office building, an industrial warehouse, a net-lease retail property. Investors buy beneficial interests in the trust. A professional sponsor acquires, finances, and manages the asset, and investors receive their pro-rata share of any income and of any eventual sale proceeds.

The part that matters for a 1031 exchange: because the IRS treats a beneficial interest in a properly structured DST as direct ownership of real estate, a DST interest can serve as like-kind replacement property. A DST 1031 exchange uses the same Qualified Intermediary and the same 45/180-day rules you’d follow buying a building outright. The difference is what you end up holding at the other end.

What you actually own

You own a passive beneficial interest, not shares of a company and not a deed to a specific unit. You cannot manage the property, choose tenants, approve a refinance, or force a sale. In exchange for giving up all of that control, you get an investment that can be acquired quickly enough to meet exchange deadlines and requires nothing of you afterward.

That trade is the entire product. Everything below is detail on both halves of it.

The mechanics

How a DST is put together

1

The sponsor acquires and forms the trust

A sponsor identifies and buys the property, then creates the trust that holds title. All of the underwriting, negotiation, and closing happens before any investor is involved.

2

Debt is set at the trust level, or there isn’t any

Some DSTs use financing, in which case investors inherit a fixed loan-to-value with no personal loan qualification and no personal liability for the debt. Others are all-cash, debt-free trusts, which can suit investors who want to avoid mortgage risk or who have no debt to replace.

3

Investors buy beneficial interests

Minimums commonly run from about $25,000 to $100,000 depending on the offering. That is well below the cost of an entire building, which is what makes splitting one property’s equity across several DSTs possible.

4

A trustee holds title; the sponsor operates

Day-to-day management sits with the sponsor or its affiliates. Investors have no operational role and no vote.

Matching debt matters. To defer the full gain, your replacement generally has to match the value, the equity, and the debt of what you sold. A leveraged DST is one way to replace debt without personally qualifying for a new loan. See the full value/equity/debt rules →

Both sides of the trade

What you’re buying, and what you’re giving up

What investors are actually buying

  • Time. A pre-assembled investment can close in days, not the months a building purchase takes
  • Effort removed. No tenants, no toilets, no trash, no leasing, no capital projects, no 2am calls
  • No loan qualification. Debt, where used, is arranged at the trust level and is non-recourse to investors
  • Access. Institutional-quality assets and institutional financing at individual-investor scale
  • Divisibility. One property’s equity can be spread across several DSTs, property types, and markets
  • Simple reporting. Straightforward tax reporting and flexibility for estate planning

What you’re giving up to get it

  • Liquidity. Plan to hold until the sponsor sells, commonly 5 to 10 years, with no public secondary market
  • Control. No say on management, leasing, refinancing, or the timing of the sale
  • Cost. Layered fees that reduce the capital actually going into real estate
  • Flexibility. The IRS rules that keep a DST 1031-eligible also strip the sponsor’s ability to react
  • Certainty. Income and appreciation are not guaranteed, and principal is at risk

If you read only the left column, you’re reading a sales page. If you read only the right, you’ll never understand why an experienced investor would ever choose this. The honest version is that a DST converts a control problem into a liquidity problem, and that trade is right for some people and wrong for others.

The legal basis

Revenue Ruling 2004-86, and the rigidity that comes with it

The reason a DST interest works in a 1031 exchange at all is IRS Revenue Ruling 2004-86. It holds that a properly structured DST is classified as an investment trust for federal tax purposes, and that a taxpayer may exchange real property for an interest in the DST without recognizing gain or loss, provided the other Section 1031 requirements are met. DSTs have been used this way for more than twenty years, across multifamily, industrial, self-storage, medical, and retail.

To keep that treatment, the trust has to be deliberately hands-off. Once formed, a DST may not:

  • Exchange its property for other property
  • Invest idle cash between distribution dates in anything beyond short-term securities
  • Accept additional capital (no capital calls, ever)
  • Renegotiate its debt or take on new financing
  • Renegotiate existing leases*
  • Enter into new leases*
  • Make more than minor, non-structural repairs, meaning no development and no heavy value-add

*A master lease structure is often used so the property can still be operated with shorter-term tenant leases underneath.

Read that list as a risk, not just as trivia. These restrictions, often called the “seven deadly sins,” are what keep the structure 1031-eligible. They are also why, if the property runs into trouble mid-hold, the toolbox is nearly empty: the trust can’t raise money to cover a shortfall, can’t restructure a loan that’s maturing into a bad rate market, and can’t reposition the asset. Direct owners almost never face this constraint. It is the single most underdiscussed risk in the category.

How it compares

DST vs. sole ownership, TIC, NNN, and REITs

Four things get compared to DSTs constantly, and only three of them are actually alternatives for a 1031 exchange.

DSTSole ownershipTICREIT shares
Works as 1031 replacement propertyYesYesYesNo
ControlNoneFullShared; co-owners must agree on major decisionsNone
Management burdenNone; sponsor-managedAll of it, or you hire it outLow, but co-owner coordination requiredNone
Personal liability for debtNone; non-recourse to investorsYes, typicallyTypically yes, personallyNone
Speed to closeDays; pre-packagedMonths; find, finance, closeSlower; lenders underwrite each ownerImmediate, but doesn’t qualify
DiversificationCan split equity across several trustsOne propertyOne propertyBroad portfolio
LiquidityNone until the sponsor sellsSell when you chooseDifficult; needs co-owner cooperationOften daily, if publicly traded

A note on NNN. Triple-net lease is an asset type, not an ownership structure. A single NNN property, say a standalone pharmacy or a fast-food building, is a relatively hands-off 1031 option, but you’re still the sole owner, ultimately responsible, with the risk concentrated in one tenant at one location. A DST is a structure that can itself hold NNN assets, spreading capital across several properties and tenants, at the cost of a sponsor and a fee layer.

And REITs. A REIT is a company that owns many properties, and its shares are often publicly traded and liquid, but REIT shares are not like-kind property and cannot receive a 1031 exchange. The path from real estate into a REIT runs through a 721 exchange, usually after holding a DST first. How the 721/UPREIT route works →

Different “DST” entirely. Delaware Statutory Trust and Deferred Sales Trust share an acronym and almost nothing else. Different mechanism, different tax authority, different risk profile. If someone has pitched you a “DST,” confirm which one they mean before anything else. Deferred Sales Trust vs. Delaware Statutory Trust →

The part sponsors underexplain

What a DST actually costs

DST offerings carry layered costs, and they come out of the capital that would otherwise be working in real estate. There is no single industry number. The load varies meaningfully between sponsors and offerings, which is exactly why the fee schedule is something you read rather than assume.

Acquisition / sponsor fee
Paid to the sponsor for sourcing, underwriting, and closing the property.
Selling commissions & dealer-manager fees
Paid to the broker-dealer and registered representatives distributing the offering.
Offering & organizational costs
Legal, accounting, and formation expenses for the trust and its documents.
Asset management fee
Ongoing, charged during the hold period for managing the trust and the asset.
Property management fee
Ongoing, and often paid to a sponsor affiliate. Worth checking whether it is one.
Reserves
Capital held back for repairs and shortfalls. Because a DST can’t ever call for more capital, reserves are load-bearing. Thin reserves are a genuine red flag.
Disposition fee
Charged when the property is eventually sold.
The document that answers this is the PPM. Every offering has a Private Placement Memorandum, and the fee table is in it. Ask for a full fee breakdown in writing, and ask specifically which fees go to affiliates of the sponsor. A licensed professional who does this work daily should be able to walk you through it line by line. If they can’t, that tells you something.

Be clear-eyed

The risks, stated plainly

Illiquidity

DSTs are long-term holds, typically until the sponsor sells the underlying property, often 5 to 10 years. There is no public secondary market, and selling early, if it’s possible at all, may mean a steep discount. Only commit capital you will not need during the hold.

No control

Investors are completely passive. You cannot influence management, leasing, refinancing, or the timing of a sale. The sponsor decides when the property sells, and that decision may not line up with your tax year, your retirement date, or your view of the market.

Fees reduce what’s invested

The load described above comes off the top and weighs on outcomes. A DST needs to work hard enough to overcome its own cost structure before it does anything for you.

Ordinary real-estate and market risk

A DST is still real estate. Vacancies, falling rents, rising interest rates, oversupply, or a downturn can all reduce income or principal. Where leverage is used, it amplifies losses as well as gains. DSTs are not guaranteed and you can lose money, including your entire investment.

Structural rigidity

No capital calls, no refinancing, no repositioning. If the asset needs a rescue, the DST structure largely prevents one. See Revenue Ruling 2004-86 above.

Sponsor and concentration risk

You are underwriting a sponsor’s judgment and operating capability as much as a building. Many DSTs hold a single asset in a single market with a small tenant roster.

Nothing on this page is a performance projection or a guarantee of income. Past performance is not indicative of future results.

Disqualify yourself early

Who a DST is wrong for

This is the section most sites in this category leave out. It’s also the fastest way for you to decide whether to keep reading.

A DST is probably the wrong tool if…

  • You may need this capital back within the next 5 to 10 years
  • You want to keep making decisions about the property
  • You aren’t an accredited investor, which means DSTs generally aren’t available to you
  • Your gain is small enough that the fee load outweighs the tax you’d defer
  • You enjoy operating real estate and want to keep buying, improving, and trading up
  • You want a single guaranteed income figure you can budget around, because nobody can honestly give you one
  • Your real goal is to exit real estate entirely; deferring into another illiquid real-estate position may just postpone the decision

It’s worth a serious look if…

  • You’re mid-exchange and the clock is genuinely threatening the deferral
  • You’re done being a landlord but not done owning real estate
  • You have debt to replace and don’t want to personally qualify for a new loan
  • You want one property’s equity spread across several assets and markets
  • You’re planning around a step-up in basis for heirs and want the deferral to continue
  • You need a credible backup identification alongside the property you actually want

Eligibility

Who can actually buy one

DST interests are private securities. They’re generally limited to accredited investors and sold through registered representatives at licensed broker-dealers. You can’t buy one on the open market. An individual typically qualifies by income over $200,000 ($300,000 with a spouse) in each of the last two years with the same expected this year, by net worth over $1,000,000 excluding a primary residence, or by holding certain professional licenses.

In practice, verification is simpler than it sounds: the broker-dealer handling the transaction typically confirms status with a personal financial statement. Full eligibility rules and minimums →

The endgame

What happens when the property sells

When the sponsor sells the underlying asset, on the sponsor’s timeline rather than yours, investors receive their share of proceeds and generally have three paths:

1

Exchange again

Roll the proceeds into another 1031 exchange, into another DST or into property you own directly, and keep deferring.

2

Take a 721 / UPREIT exit

Where the sponsor offers it, contribute into a REIT’s operating partnership for OP units. This can open a path to staged liquidity, but it generally ends your ability to do future 1031 exchanges with that capital.

3

Cash out

Take the proceeds and recognize the deferred gain. Deferral is not forgiveness. This is where the postponed tax arrives.

The 721 route is a one-way door. OP units are not like-kind real estate, and converting them to REIT shares is typically a taxable event. It trades future exchange flexibility for diversification and potential liquidity. Read how 721 exits actually work before you need one →

If you want a second opinion

What talking to us actually involves

1

Tell us where you are

Planning a sale, already mid-exchange with a clock running, or just weighing options. It takes a couple of minutes and there’s nothing to prepare.

2

We explain the landscape

We review your questions ourselves and lay out what your options are, including the ones that aren’t DSTs. We typically reply within one business day.

3

We connect you if it fits

If a licensed professional is the right next step, we introduce you to one who handles this work daily. If it isn’t, we’ll tell you that instead.

Common questions

Delaware Statutory Trust FAQ

Is a DST really “like-kind” for a 1031 exchange?

Yes. Under IRS Revenue Ruling 2004-86, a beneficial interest in a properly structured DST is treated as like-kind real property eligible for 1031 exchange treatment. The usual Section 1031 requirements still apply: Qualified Intermediary, 45-day identification, 180-day closing, and matching value, equity, and debt. Confirm your specific facts with your own tax advisor.

Is a DST the same as a REIT?

No. A REIT is a company that owns many properties, and its shares are often publicly traded and liquid. A DST is a trust holding specific property, is illiquid, and unlike a REIT it qualifies as 1031 like-kind replacement property. You cannot 1031 into REIT shares directly.

What is the minimum investment in a DST?

Minimums commonly range from about $25,000 to $100,000 depending on the offering, which is well below the cost of buying an entire replacement building. That lower threshold is what allows one property’s equity to be divided across several trusts.

How long is a DST held?

Typically 5 to 10 years, until the sponsor sells the underlying property. There is no fixed term you can rely on and no public secondary market. The sponsor controls the timing, not you. Treat the capital as committed for the full hold.

Can I lose money in a DST?

Yes. DSTs carry ordinary real-estate and market risk, are illiquid, and are not guaranteed. Vacancies, rent declines, interest rates, and market downturns can all reduce income or principal, and leverage amplifies losses. Loss of your entire investment is possible.

What should I scrutinize most before investing?

Start with the underlying asset itself, then the sponsor’s track record and stated exit strategy, the property’s debt structure and break-even occupancy, the reserve levels, and the full fee schedule in the PPM.

Just as important: know the firm and the advisor you’re working with: what criteria they use to vet sponsors and offerings, and how they surface risks rather than bury them. Review the PPM with a licensed professional who evaluates these regularly.

Are DSTs “safe”?

No real-estate investment is safe in the sense of being risk-free. DSTs aim to be stable, income-oriented holdings, but they carry meaningful risks that have to be weighed against the tax deferral they enable. Anyone who describes a DST as safe is telling you more about themselves than about the investment.

Can I combine a DST with other replacement property?

Yes. Investors sometimes place part of their proceeds in one or more DSTs and part in a property they own directly, subject to the identification rules. DSTs are also frequently used as a backup identification alongside the property someone actually wants, so the exchange survives if that deal collapses.

What is the difference between a Delaware Statutory Trust and a Deferred Sales Trust?

They share the “DST” acronym and nothing else. A Delaware Statutory Trust is 1031 replacement property recognized under Revenue Ruling 2004-86. A Deferred Sales Trust is an installment-sale strategy with an entirely different mechanism, different authority, and a different risk profile. If someone pitches you a “DST,” establish which one they mean first.

Do you sell DSTs?

No. We are an educational resource. We do not sell securities, we do not publish offerings, sponsors, or performance figures, and we do not recommend specific investments. When it’s useful, we connect people with licensed professionals who do this work.

No cost, no obligation

Bring the question you’re actually stuck on

Whether that’s “my replacement property just fell through and I’m on day 31,” or “I’m tired of being a landlord and I don’t know what my options are,” or “someone pitched me a DST and I want a second read on it.”

  • We review every question ourselves, so you’re not landing in a call queue
  • We typically reply within one business day
  • We don’t sell DSTs, and we’re not a broker-dealer
  • If a DST is wrong for your situation, we’ll say so

Tell us where you are

Planning a sale, already mid-exchange with a clock running, or just weighing options. It takes a couple of minutes.

Submitting an inquiry does not create any advisory, brokerage, or attorney-client relationship. 1031InvestorGuide is an educational resource and does not provide tax, legal, or investment advice or sell securities.

Who we are & what this costs you

1031InvestorGuide is an educational publisher. We are not a broker-dealer, registered investment adviser, law firm, accounting firm, or Qualified Intermediary.

What we charge you: nothing. This site is free to use, all educational materials and calculators are provided at no cost, and there is no fee of any kind for submitting an inquiry or for being connected with a licensed professional.

What we don’t do: We do not sell securities, present or recommend specific offerings or sponsors, publish performance or yield figures, verify accredited-investor status, or provide personalized tax, legal, or investment advice.

Educational use only. This page is provided for general education. It is not tax, legal, or investment advice, and it is not an offer to sell or a solicitation of an offer to buy any security. 1031 exchanges must satisfy IRC Section 1031 requirements, and investors may incur tax liabilities if a transaction fails to comply. Real estate and real estate securities, including DST interests and REIT OP units, are illiquid, speculative, and involve material risks including complete loss of principal, declining property values, and reduction or interruption of income. Delaware Statutory Trusts are available only to accredited investors through licensed broker-dealers. Past performance is not indicative of future results. Tax treatment depends on your individual circumstances and may change. Always consult your own CPA, tax attorney, and licensed financial professional before acting.
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