Can a Delaware Statutory Trust (DST) Be Gifted to Someone Else?

Delaware Statutory Trusts (DSTs) have gained traction among investors for their potential benefits, like passive income and access to institutional real estate. When paired with 1031 exchanges, DSTs may also offer deferral of capital gains taxes which has made them a consideration in certain estate planning and wealth transfer strategies.

Given the restrictions put in place by 1031 exchange rules (particularly those outlined by Revenue Ruling 2004-86), DST fractional interests cannot be directly transferred without proper planning. Still, can a Delaware Statutory Trust be gifted to someone else? Yes, under the right circumstances, gifting a DST interest is permissible and may be structured to align with IRS guidelines.

Below, Realized 1031 has shared an article detailing the nuances of this transfer to help you prepare and anticipate what comes next.

So, Can a DST Be Gifted to Someone Else?

In estate or tax planning, gifting refers to the transfer of an asset from one individual to another without compensation. This practice requires additional nuance because such transfers may be subject to tax if the amount exceeds IRS limitations. In a DST, you own fractional interests of the trust, which then owns an underlying property. And yes, under the right circumstances, you are allowed to gift these interests to a loved one, friend, or any entity of your choosing.

Key Tax Considerations for Gifting DST Interest

As we mentioned, gifting can come with certain tax complications. Here are some relevant considerations to keep in mind before gifting fractional interests of a DST.

Gift Tax and Annual Exclusion

• The IRS allows you to gift up to $19,000 to a recipient per year (as of 2025) without using any portion of their lifetime gift and estate tax exemption.
• You can also provide larger gifts up to $13.99 million — the lifetime exclusion limit as of 2025. DST shares are more likely to follow this category since they are typically worth more than $19,000.
• If your cumulative lifetime gifts exceed the federal exemption limit (currently $13.99 million per individual in 2025), the excess may be subject to gift tax at rates ranging from 18% to 40%, depending on the amount. Until that threshold is reached, gifts above the annual exclusion generally reduce your available exemption but do not result in an immediate tax liability.

Carryover Basis Versus Step-Up

• Gifts during life: The recipient typically takes your carryover basis, which means any deferred gain from a prior 1031 exchange now shifts to the donee or beneficiary, along with depreciation schedules. Upon the dissolution of the DST, your beneficiary will need to pay capital gains taxes unless they enter another 1031 exchange.
• Transfers at death: If the DST interest passes through your estate, heirs generally receive a step-up in basis to FMV. This step-up may eliminate much or all of the previously deferred gain for income tax purposes. However, estate tax considerations may apply depending on the size of the estate. Does Gifting Break 1031 Exchange Compliance?

This question showcases a common concern for 1031 exchange investors. DST gifting may seem like you’re triggering a taxable event or doing something with the asset before the traditional holding period is over. Thankfully, gifting is still compliant with 1031 exchange rules.

No Claw-back

The IRS respects the original 1031 treatment once the exchange is complete. Subsequent 1031 exchange gifting does not trigger recognition of deferred gain for you.

Beneficiary’s Future Sales

When the recipient eventually disposes of the interest through a sale or other means, any built-in gain becomes taxable to them unless they complete their own 1031.

Wrapping Up: Delaware Statutory Trust Gifting Basics

Gifting your DST interests is allowed, and typically will not trigger a taxable event unless you go over the annual and lifetime limits created by the IRS. Keep in mind, though, that recipients take on the carryover basis of the interests, making them liable for capital gains taxes if a 1031 exchange was used to enter the DST. Given the complexity of gift tax rules and the nuances of DST ownership, individuals should consult with tax professionals and 1031 exchange experts before proceeding.

The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

Article written by: Story Amplify. Story Amplify is a marketing agency that offers services such as copywriting across industries, including financial services, real estate investment services, and miscellaneous small businesses.

Sources:

https://www.empower.com/the-currency/money/gift-tax-explained

https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025

https://www.investopedia.com/terms/g/gift.asp