Thoughtful estate planning can ease future tax and administrative burdens, ensuring that heirs can continue to benefit from investments long after they have been inherited.

Estate planning may be one of the most important financial tasks for individuals with significant assets. Thoughtful planning can ease future tax and administrative burdens, ensuring that heirs can continue to benefit from investments long after they have been inherited. Working with qualified tax and legal professionals is essential to building a plan that aligns with goals and protects heirs from unwanted downfalls and liabilities.

When it comes to estate planning, the Delaware Statutory Trust (DST) is an option worth considering. By exchanging via a 1031 exchange or investing in a DST, heir(s) may benefit from any distributions generated by the investments. Upon the sale of the DST, each heir has the freedom to decide how to handle their share:

• One heir may choose to continue the investment through another 1031 exchange.

• Another may prefer to sell and receive cash proceeds.

This flexibility makes DSTs a unique estate planning tool, giving heir(s) the ability to pursue strategies that align with their individual financial goals.

Additionally, if a DST investor passes away, current tax laws allow heir(s) to receive a “step-up” in tax basis. This means the inherited investment is adjusted to its fair market value at the time of inheritance, potentially deferring capital gains taxes on both the original and subsequent properties.

Timing Matters

Timing of when a beneficiary inherits property is critical as it can have a substantial impact on the financial outcome for heir(s).

• Property transferred before death → receives a carryover basis. Heir(s) inherit the original cost basis and requires heir(s) to pay capital gains taxes on the appreciation of the property’s value that occurred during the original investor’s lifetime if they sell.

• Property transferred at death → receives a step-up in basis to fair market value. The asset receives a step-up in basis, meaning capital gains tax excludes the property’s prior appreciation. For heir(s), this can be a significant tax benefit and a simpler process, since tracking the original cost basis of long-term assets is often complex and costly.

Illustrative Estate Planning Hypothetical Example*

Imagine a dad who has saved well and does not need to liquidate his real estate assets for retirement. He plans to pass his assets on to his two children equally. The graphic below provides an illustrative example of two potential scenarios. Note this is a simplified example intended to solely illustrate impact on basis and capital gains taxes.

 *The illustration above does not constitute tax or legal advice for any investor. Investors should consult competent tax and/or legal counsel with respect to their specific situation  Nothing herein may be construed as a method or means to avoid estate or property taxes. Please see SEC.gov, Rule 501 of Regulation D for a full definition of an accredited investor.

Estate planning with real estate requires careful consideration of family goals and tax implications. Leveraging strategies such as the DST, paired with the step-up in basis provisions under current law, may help heirs manage inherited assets with greater flexibility, reduce potential tax burdens, and ensure a more seamless transfer of wealth across generations.