Structuring DST Holdings to Hold for Life and Pass to Heirs
Investors who plan to hold real estate for life often describe the approach as continuing to exchange until death, when heirs may receive an adjustment in basis under current law. The concept is well known. How a portfolio is actually built to support it gets far less attention.
This case study looks at a structural question that tends to surface late: what happens if every holding in a portfolio reaches the end of its hold period at the same time.
Investor Snapshot
- Investor profile
- Walter and Joan S., in their early 80s.
- Current position
- Several DST interests acquired within a short window of one another.
- Structural issue
- The offerings carried broadly similar projected hold periods.
- Concern
- Their children could face several exchange decisions at once, with no experience of the process.
- Goal
- Spread out future decision points rather than concentrate them.
The Challenge: A Portfolio Built All at Once Can Mature All at Once
The original exchange had been executed carefully. The proceeds were diversified across sponsors, markets, and property types, and the investors had been satisfied with the outcome.
What had not been considered was timing. Because the entire portfolio was assembled from a single exchange, the offerings had been selected from the inventory available in one 45-day window — and their projected hold periods clustered accordingly. If several properties sold in the same year, whoever held the portfolio at that point would face multiple identification deadlines simultaneously.
Staggering Hold Periods Across the Portfolio
Projected hold periods typically range from roughly five to ten years and vary by sponsor, asset type, and business plan. A stabilized net-lease property and a value-add multifamily asset are working toward different exit horizons by design.
That variation can be used deliberately:
- When an exchange is allocated, offerings can be selected in part on projected hold horizon, not only on income and property type.
- As individual offerings sell, replacement selections can be weighted toward horizons that fill gaps rather than adding to an existing cluster.
- Over successive exchanges, a portfolio can move from concentrated maturity dates toward a spread of them, so decisions arrive one at a time.
The limitation is fundamental: a projected hold period is an estimate in an offering document, not a commitment. Sponsors sell earlier when the market allows and hold longer when it does not. Staggering reduces the odds of everything landing at once; it cannot guarantee the spacing.
What Happens at Death
DST interests are generally inheritable, and under current law property included in a decedent’s estate may receive an adjustment in basis to fair market value at the date of death. Heirs would typically be able to take their share of proceeds when a DST sells, or complete another exchange, depending on their circumstances at that time.
Tax law changes. A strategy that depends on the basis rules remaining as they are today carries that risk, and the family’s tax professional should revisit it periodically rather than treating it as settled.
Why This Approach Could Fit
- Heirs face one decision at a time rather than several in the same year.
- Spreading maturity dates also spreads exposure to the market conditions at any single exit point.
- Gives the investor recurring opportunities to adjust the portfolio during their lifetime, rather than one large decision every decade.
- Creates natural review points at which the plan can be reassessed with the family’s tax and legal professionals.
What Cannot Be Controlled
Projected hold periods are estimates and are not guaranteed. A sponsor may sell well before or well after the projection, or extend a hold in a difficult market. A property may underperform, and distributions may be reduced or suspended regardless of the timeline.
A DST that sells during the investor’s lifetime puts the exchange decision back in front of them, which is the situation the plan was meant to reduce. And any strategy built around the treatment of assets at death depends on tax law that can change. This is a way of improving the odds of an orderly transition, not a mechanism that produces one.
The Outcome
The investors begin rebalancing toward a spread of projected hold dates as existing offerings reach their exits. The portfolio’s composition does not change dramatically. What changes is that the decisions it will eventually generate are spaced out rather than stacked.
Investor Takeaway
If you intend to hold passive real estate for the rest of your life, look at when your holdings are projected to mature, not just what they own. A portfolio assembled in a single 45-day window tends to come due in a single window as well — and the people who inherit it are the ones who will deal with that.
This is a hypothetical case study — the investor described is not an actual client.
Case Study Disclosure
Illustrative example only. This case study does not represent an actual client and is not a guarantee of future results. It is a hypothetical composite informed by situations commonly encountered by real estate investors; the individuals described are not actual clients and the scenario is not an account of an actual transaction. Charts and diagrams are schematic illustrations of structure and do not depict actual amounts, offerings, or results. Photographs are stock imagery and do not depict actual clients, advisors, or properties. The appropriate 1031 exchange or DST strategy depends on an investor’s individual facts, objectives, tax situation, liquidity needs, and risk tolerance. DST and other private placement investments involve material risks, including illiquidity and the potential loss of principal. Nothing on this page is tax or legal advice. Investors should review the applicable offering documents and consult their tax and legal professionals before making an investment decision.