What Happens to My DST Investment When I Pass Away?

If you’ve invested in a Delaware Statutory Trust (DST) as part of your 1031 Exchange strategy, you're likely familiar with its tax-deferred benefits and passive income potential. But what happens to your DST investment when you pass away?
Here’s the good news: it may become one of the most powerful estate planning tools in your financial portfolio—if structured correctly.

Understanding the DST Estate Planning Advantage

When an investor passes away while holding an interest in a DST, their heirs typically receive a full step-up in cost basis. This means that:

• All deferred capital gains taxes are eliminated

• Depreciation recapture is completely wiped out

• Your heirs inherit the asset at its current market value, tax-free

In simple terms? Your family can receive your DST investment without facing the massive tax bills you deferred during your lifetime.

Real-Life Example: How the Step-Up in Basis Works

Let’s say you originally invested in a DST using a 1031 Exchange to defer $300,000 in capital gains. Over time, your DST appreciated in value, and your investment is now worth $600,000.

When you pass away, your heirs inherit the DST at its stepped-up basis of $600,000—not your original $300,000 basis. If they decide to sell their share immediately, they won’t owe any capital gains tax on the $300,000 growth.

That’s zero taxes on decades of appreciation.

Why This Matters: Wealth Preservation at Its Best

This tax structure allows you to:

• Pass more wealth to your heirs, tax-free

• Avoid triggering large capital gains or depreciation recapture

• Create a smoother, more efficient estate transition

• Support your family’s financial goals long after you're gone

Unlike other real estate investments that may require complicated probate or liquidation, DSTs are designed to transfer seamlessly to your beneficiaries.

What Your Heirs Need to Know

Upon your passing, your DST sponsor or trustee will typically require the following:

• A certified copy of the death certificate

• Estate documentation (such as a will or trust)

• Contact information for the executor or estate attorney

• Instructions on whether the heirs want to hold, sell, or 1031-exchange the asset again

Your heirs will often be given options for liquidation or reinvestment based on the trust’s terms and the market at the time.

Planning Ahead: The Importance of Professional Guidance

While DSTs offer compelling estate benefits, they must be properly structured within your overall financial plan. That’s why The Lynch Group, in partnership with Bangerter Financial Group, offers tailored DST and estate planning services for high-net-worth individuals and families.

We work together to help you:

• Select DSTs that align with your risk tolerance, income goals, and legacy plans

• Coordinate 1031 Exchanges and estate transitions seamlessly

• Maximize wealth transfer with tax-efficient strategies

A DST doesn’t just help you defer taxes during your lifetime—it can eliminate them for your heirs entirely. This makes it a powerful estate planning tool, not just a real estate investment. If you’re thinking long-term about how to preserve your legacy, understanding how your DST investment behaves after death is essential.

Ready to Discuss Your Legacy Plan?

Let’s talk about how we can help you structure your investments to benefit your family for generations.

👉 Schedule a complimentary DST consultation today
📞 Contact The Lynch Group | 🤝 In collaboration with Bangerter Financial Group