Estate planning has long focused on preserving wealth, minimizing tax burdens, and facilitating the transfer of assets to beneficiaries.. While trusts, wills, and insurance remain foundational tools, advisors increasingly recognize the potential role of passive real estate in supporting these objectives.
For clients who own investment properties or those transitioning out of active ownership, vehicles like Delaware Statutory Trusts (DSTs) may offer a tax-deferred and estate-aligned approach to maintaining real estate exposure without the responsibilities of direct ownership.
Structuring Complex Real Estate Assets
Directly owned real estate can be one of the most challenging assets to manage or divide in an estate. Properties often have varying debt structures, and management demands or joint ownership arrangements that can introduce complications during the transfer process. Passive real estate strategies, such as DSTs or other fractionalized ownership vehicles, may offer a more manageable framework.
By converting individually held real estate into structured, professionally managed holdings, advisors can help clients reduce administrative complexity and support more predictable outcomes for beneficiaries—such as continued income potential or simplified title coordination.
Supporting Multi-Beneficiary Planning
Advisors often face challenges when clients want to divide a single property among multiple beneficiaries. This can lead to operational conflict or forced sales. Passive real estate structures—such as Delaware Statutory Trusts (DSTs)—allow clients to hold fractional interests in real estate portfolios across sectors and geographies. These interests may be proportionally allocated to beneficiaries or distributed through various estate planning vehicles, such as trusts.
Because DST shares are considered personal property, they can be allocated similarly to securities. This may provide greater flexibility in estate distribution and help address potential complexities in multi-heir planning.
Considering Tax Treatment and Deferral Strategies
Passive real estate investments may support long-term tax and estate planning goals. For example, DSTs acquired via 1031 exchanges can defer capital gains during the investor’s lifetime. Upon death, these interests may receive a step-up in basis under current tax law, potentially eliminating the deferred gain for heirs.
This combination of lifetime deferral and basis adjustment may offer planning advantages for clients seeking to transfer appreciated real estate assets without triggering immediate tax consequences. Investors should consult with qualified tax advisors to assess how these rules apply to their specific situation.
Considering Client Life Stage Preferences
Over time, some clients express less interest in managing the day-to-day responsibilities of real estate ownership—such as tenant coordination, maintenance, or administrative work.
This also positions advisors as proactive planners, helping clients shift from direct to passive ownership for financial optimization, lifestyle alignment, and legacy readiness.
Integrating with Broader Planning Tools
Advisors can incorporate DSTs or similar passive structures into trusts, family limited partnerships, or charitable remainder trusts (CRTs). Because these interests are typically structured as personal property with defined valuations, they may be well suited for inclusion in long-term planning vehicles—particularly where income continuity or estate distribution modeling is a factor.
Final Thoughts
Real estate has long played a central role in wealth accumulation. As passive structures become more widely accessible, they may also serve as tools for long-term wealth transfer and estate planning. For advisors focused on multi-generational strategies, passive real estate can be a valuable component of a comprehensive planning discussion.
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.
https://www.investopedia.com/terms/f/fractional-ownership.asp
