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Estate Planning Strategies

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Permanently Defer Tax on Real Estate

Step Up In Cost Basis

Sale Price

Capital Gains



Purchase price (cost basis)

Business Woman with Laptop

Upon the passing of her parents, Jane would receive a "stepped-up cost basis" reflecting the then-current market value of the property.  If she sold the property at the time of inheritance no capital gains would be recognized.

Happy Couple

Arthur and Linda would like to minimize their family tax exposure on the sale of real estate.

A 1031 exchange can defer taxes and ultimately provide a stepped-up cost basis for their daughter Jane.

Fractional Ownership for Beneficiaries

Step Up In Cost Basis

To remedy the situation, they sold their industrial property...

...and completed a 1031, purchasing shares of a Delaware Statutory Trust

Fractional Shares

for Multiple Beneficiaries

Dancing Couple

Marty and Sally owned an industrial warehouse that had appreciated in value.  They were concerned that their two children might have differing opinions on what to do with the property upon their passing and wanted to simplify their options.  

Young Business Colleagues

Each sibling was assigned DST shares as beneficiaries.  Upon the passing of their parents, they will continue to own their proportionate shares until the dissolution of the DST.  At that time, they could each go their separate ways with their cash proceeds.

Empty Factory


UPREIT options have become more prevelent in DSTs over the past few decades.  An UPREIT provides the DST investor with a potential opportunity to trade DST shares for Operating Partnership Units in a Real Estate Investment Trust after a period of 2-5 years of DST ownership.  There are several potential benefits to this type of transaaction, including:

  • Greater Diversification - Real Estate Investment Trusts provide the potential for greater diversification as their objectives are typically to provide opportunities for diversification amongst many properties, geographies and tenants.

  • Stable Yield - The more diversified and larger the portfolio often means a more stabilized yield as any one property or tenant would not have as great of an impact on the REIT as a whole.


  • Liquidity Options - Most Operating Partnership Units offer the potential for quarterly liquidity after the shareholder has been in the REIT for greater than 12 months.  Tax remains deferred until shares are converted to REIT shares.  This can be used as a tool to stagger dispositions and control taxation over many years.  We also refer to this as a "real estate checkbook" where owners have access to their real estate capital as needed.

  • No More 1031 - One negative aspect of OP Units is that they can only be converted into REIT shares in order to sell which is a taxable event.  There is no ability to do a future 1031.

Step Up In Cost Basis

UPREIT Options Using DSTs

Man with Beard

John has a portfolio of 7 multifamily properties.  He is concerned that his daughter will have a hard time managing these assets if something were to happen to him.  He wants to simplify his holdings so she could more easily inherit his assets.

Pink Skirt

Sarah no longer has to worry about dads properties when he passes.  She will inherit Operating Partnership Units in a diversified REIT which can be liquidated with a set up in cost basis.  If she chooses, Jane can also continue to hold the shares as an investment and income. 

To remedy the situation, John sold multifamily properties...

...and acquired DSTs that offered an UPREIT opportunity


DST | UPREIT 2 Step Transaction

Cash to Qualified Intermediary or Investor

DST owners have a cash out option to pursue future 1031s


721 Exchange Option

Cash Out Option

Investor sells relinquished property and acquires DST shares with UPREIT feature


DST Shares may be exchanged for REIT Operating Partnership Units

UPREIT for Liquidity, Legacy and Tax Planning

DST shares and OP units can be passed to beneficiaries with a stepped-up cost basis to permanently defer taxes

A taxable event does not occur until OP units are converted to REIT shares; REIT shares are anticipated to provide quarterly liquidity options








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