One of the most powerful — and least understood — benefits of holding a Delaware Statutory Trust (DST) is what can happen at the end of your life. Investors often use DSTs to defer capital-gains tax through 1031 exchanges, chaining exchanges over years or decades. But the deferred gain doesn't have to be paid eventually: if you hold the DST until death, the step-up in basis under Section 1014 can reset your heirs' basis to fair market value, erasing the deferred capital gain entirely. Beyond that headline benefit, DSTs offer practical estate advantages — fractional beneficial interests are far easier to divide among multiple heirs than a single indivisible building, and the passive, professionally managed structure simplifies administration during a difficult time. This guide explains the step-up advantage, how it erases deferred gains, how fractional interests divide among heirs, how DSTs simplify estate administration, and how to coordinate with your estate plan. Note that this is a tax and estate topic — educational information, not advice. Baker 1031 does not provide tax or legal advice; coordinate with your CPA and estate attorney, and verify the current rules.
The Step-Up in Basis Advantage
The step-up in basis is the cornerstone estate benefit of a DST held until death. Under Section 1014 of the tax code, when an owner dies, the basis of their assets is generally reset — stepped up — to fair market value as of the date of death. For most appreciated assets, this means the gain that accumulated during the owner's life is never taxed: heirs inherit at the current value, and if they sell, their gain is measured from that stepped-up value, not the original cost. For a DST, this interacts powerfully with the 1031 deferral that may have been building for years.
Recall that a 1031 exchange into a DST defers, but doesn't eliminate, capital-gains tax — the deferred gain rides along through carryover basis, growing as you chain exchanges and as depreciation reduces basis. Ordinarily that deferred gain (and depreciation recapture) would come due at a taxable sale. But if you hold the DST until death, the step-up resets your heirs' basis to fair market value, so the entire deferred gain that you carried can be erased. The strategy is sometimes summarized as 'swap till you drop': exchange and defer through life, then let the step-up wipe the slate clean for your heirs.
So the step-up in basis lets a DST held until death pass to heirs at fair market value, potentially erasing a lifetime of deferred 1031 gain. The step-up in basis advantage — Section 1014 resetting an heir's basis to fair market value at death, which for a DST can eliminate the capital gain that 1031 exchanges deferred over years (the 'swap till you drop' idea) — is the cornerstone estate benefit of the structure. Deferred gain that would otherwise come due at a taxable sale can instead be erased for heirs. This interaction of 1031 deferral and the step-up is uniquely powerful. Understanding it frames the rest of DST estate planning. The step-up in basis under Section 1014 resets heirs' basis to fair market value at death, so a DST held until death can pass to heirs with its lifetime of deferred 1031 gain erased.
Erasing Deferred Capital Gains
To see how the erasure works, follow the basis. Suppose an investor sold a long-held rental property with a large built-in gain and a low basis, completed a 1031 exchange into a DST, and continued deferring. Over the years, the carryover basis stays low (and depreciation reduces it further), so a substantial deferred gain and depreciation recapture remain embedded in the interest. If the investor sold during life, that whole amount would be taxable unless deferred yet again. The deferred tax is real — it has simply been postponed.
Now suppose the investor instead holds the DST until death. Under Section 1014, the heirs' basis is stepped up to the interest's fair market value at the date of death. The low carryover basis — and with it the entire embedded gain and depreciation recapture — disappears for income-tax purposes. The heirs inherit at full current value, and if they sell shortly after, there's little or no taxable gain because their basis equals (or is close to) the sale price. So the capital-gains tax that was deferred across the investor's lifetime is effectively erased, not merely postponed once more.
So holding a DST until death can convert a lifetime of deferred gain into no income tax for heirs, because the step-up erases the embedded gain. Erasing deferred capital gains — the step-up resetting basis to fair market value at death, which eliminates the embedded deferred gain and depreciation recapture that low carryover basis preserved, so heirs inherit at current value and can sell with little or no taxable gain — is the practical payoff of holding a DST until death. What would have been a large taxable event during life becomes tax-free for heirs. This is why DSTs are so often discussed in long-term estate strategies. Understanding the erasure clarifies the planning value. Holding a DST until death can erase the deferred capital gain and depreciation recapture, because the Section 1014 step-up resets heirs' basis to fair market value, leaving little or no taxable gain.
The 1031 exchange defers the tax; the step-up at death can erase it — together they let a lifetime of deferred gain pass to heirs without income tax.
Dividing Fractional Interests Among Heirs
A practical estate advantage of DSTs is how easily fractional interests divide among multiple heirs. A single piece of real estate — an apartment building, an office, a ranch — is essentially indivisible: you can't neatly split a building three ways among children, and forcing the issue often means selling the property (triggering tax) or saddling heirs with shared, contentious co-ownership. DSTs sidestep this problem because you own beneficial interests in a trust, which are inherently divisible into shares.
Because a DST interest is fractional, it can be allocated cleanly among heirs in whatever proportions your estate plan specifies — equal thirds, weighted shares, or distributions to trusts for different beneficiaries. Heirs can each receive their portion, and they're not forced into joint management of a single property or into selling it to divide the proceeds. If one heir wants income and another prefers to exit, the structure gives flexibility: interests can be held, and at the next full-cycle event each heir can make their own choice. This divisibility removes a frequent source of estate friction.
So fractional DST interests divide cleanly among heirs, avoiding the indivisibility problem and the forced sales or co-ownership disputes that direct real estate often causes. Dividing fractional interests among heirs — DST beneficial interests being inherently divisible into shares that can be allocated cleanly in any proportion an estate plan specifies, sparing heirs the indivisibility of a single building and the forced sales or contentious co-ownership it can cause — is a meaningful practical benefit. Heirs receive their portions without being locked into joint management. The structure adds flexibility for heirs with different goals. Understanding divisibility shows why DSTs ease inheritance. Fractional DST interests divide cleanly among multiple heirs in any proportion, avoiding the forced sales and co-ownership disputes that an indivisible building often forces.
Simplifying Estate Administration
DSTs can simplify estate administration in ways that matter during an already difficult time. Because a DST is passive and professionally managed, heirs don't suddenly inherit the responsibilities of being a landlord — there are no tenants to manage, repairs to coordinate, or properties to maintain at the moment they're grieving. The sponsor and trustee continue running the property, and the distributions simply continue, giving heirs breathing room rather than an operational burden they may be unprepared for.
Administration is also cleaner because a DST interest is a defined, valued holding rather than a property that must be appraised, maintained, insured, and potentially sold under time pressure. Valuation for step-up purposes is generally more straightforward than managing and disposing of a physical building, and because the interest is divisible, the executor can distribute it according to the estate plan without forcing a sale. Heirs who don't want to continue the investment can wait for the next full-cycle event rather than scrambling to liquidate. None of this replaces proper estate documents, but it reduces the operational friction heirs face.
So a DST eases estate administration by sparing heirs landlord duties, offering cleaner valuation and divisibility, and avoiding forced sales — practical relief during a hard time. Simplifying estate administration — the passive, professionally managed DST sparing heirs landlord responsibilities, offering a defined and more easily valued holding, and allowing divisible distribution per the estate plan without a forced sale of a physical building — is a real, practical benefit beyond the tax advantages. Heirs inherit continuing income rather than an operational burden. This administrative ease complements the step-up and divisibility benefits. Understanding it rounds out the DST estate case. A DST simplifies estate administration by sparing heirs landlord duties, providing cleaner valuation and divisibility, and avoiding the forced sale of an indivisible property during a difficult time.
- The Section 1014 step-up resets heirs' basis to fair market value at death, potentially erasing deferred 1031 gain.
- Holding a DST until death can convert a lifetime of deferred capital gain into little or no income tax for heirs.
- Fractional DST interests divide cleanly among multiple heirs, avoiding the indivisibility of a single building.
- DSTs simplify estate administration by sparing heirs landlord duties and avoiding forced sales of physical property.
Coordinating With Your Estate Plan
The estate benefits of a DST are realized only when the investment is properly integrated into your overall estate plan, which makes coordinating with your estate attorney and CPA essential. How you hold the DST interest — individually, jointly, through a revocable living trust, or another entity — affects how it passes at death, whether it avoids probate, and how the step-up applies. Titling and beneficiary designations should align with your will or trust so the interest flows to the intended heirs in the intended proportions.
There are nuances to map with professionals. Community-property rules can affect the extent of the step-up for married couples; how interests are titled affects probate and creditor exposure; and large estates must consider estate-tax thresholds, which are separate from the income-tax step-up and can change with legislation. The interaction of the 1031 deferral, the step-up, your other assets, and your beneficiaries' goals is exactly the kind of planning that belongs with a qualified estate attorney and CPA. Baker 1031 does not provide tax or legal advice; we help you understand the structure so you can have an informed conversation with your advisors.
So capturing a DST's estate benefits requires deliberate coordination — proper titling, aligned beneficiary designations, and professional guidance on the tax and estate rules. Coordinating with your estate plan — aligning how the DST is titled (individually, jointly, or through a trust) with your will or trust, mapping community-property and probate nuances, and considering estate-tax thresholds separate from the income-tax step-up, all with a qualified estate attorney and CPA — is what turns the DST's potential estate benefits into realized ones. The rules are technical and can change. Baker 1031 supports the conversation but does not give advice. Understanding the coordination completes responsible DST estate planning. Capturing a DST's estate benefits requires coordinating titling, beneficiary designations, and the tax and estate rules with your attorney and CPA — Baker 1031 helps you understand the structure but does not provide advice.
The step-up is powerful, but it only works as intended when the DST is titled and integrated correctly — which is why estate planning belongs with your attorney and CPA, not left to chance.
The 'Swap Till You Drop' Strategy in Context
The estate benefits of DSTs come together in a long-term strategy informally called 'swap till you drop.' The idea is to keep deferring capital-gains tax through successive 1031 exchanges over a lifetime — out of directly owned property and into DSTs, then from one full-cycle DST into the next — never recognizing the gain during life. Then, at death, the step-up in basis erases the accumulated deferred gain for heirs. DSTs are well suited to the later stages of this strategy because they're passive, so an aging investor can keep deferring without the burden of active management.
The strategy isn't right for everyone, and it carries real considerations. It assumes you can hold illiquid DST interests for the long term and don't need to cash out (which would trigger the deferred tax). It depends on tax rules — the 1031 deferral and the Section 1014 step-up — remaining available, and those rules can change with legislation, which is why you should verify the current rules. It also requires that the estate benefits actually serve your family's goals, rather than locking heirs into investments they don't want. For the right investor with a long horizon and an estate-planning focus, though, the combination is compelling.
So 'swap till you drop' ties the pieces together — defer through life via DST exchanges, then erase the gain at death via the step-up — for suitable, long-horizon investors. The 'swap till you drop' strategy in context — deferring gain through successive 1031 exchanges into passive DSTs over a lifetime, then relying on the Section 1014 step-up to erase the accumulated deferred gain for heirs at death — unifies the DST estate benefits, but it depends on long-term illiquidity tolerance, on tax rules remaining as they are (verify current rules), and on the plan genuinely fitting your family's goals. It suits long-horizon, estate-focused investors. Understanding the strategy in context shows where DST estate planning leads. 'Swap till you drop' defers gain through lifetime DST exchanges and then erases it via the step-up at death — powerful for suitable long-horizon investors, but dependent on illiquidity tolerance and unchanged tax rules.
How Baker 1031 Helps With DST Estate Planning
Baker 1031 Investments helps investors understand the estate-planning benefits of DSTs — the step-up in basis at death, how it can erase deferred capital gains for heirs, how fractional interests divide cleanly among heirs, how DSTs simplify estate administration, and how to coordinate with your estate plan — so you can have an informed conversation with your estate attorney and CPA about whether DSTs fit your long-term goals.
DST interests are securities offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors after a suitability review. We help you understand how the 1031 deferral and the Section 1014 step-up interact, how passive DST interests can fit a long-horizon, estate-focused strategy, and how divisibility and professional management can ease inheritance for your heirs. Baker 1031 does not provide tax or legal advice — estate planning and the step-up in basis are tax and estate topics that belong with your estate attorney and CPA, who handle your specific situation, including titling, beneficiary designations, community-property rules, and estate-tax thresholds; the rules are technical and can change, so verify the current rules. We're candid that DSTs are illiquid, that distributions and returns aren't guaranteed, and that the estate benefits depend on holding the interest and on the rules remaining available. Our role is educational: we help you understand how DSTs can serve estate goals and coordinate with the professionals who provide the advice.
Frequently Asked Questions
What is the step-up in basis for a DST?
The step-up in basis is a tax provision under Section 1014 that resets the basis of your assets to fair market value as of your date of death. For a DST, this is especially powerful: a 1031 exchange into a DST defers capital-gains tax through carryover basis, and the deferred gain rides along — growing as you chain exchanges and as depreciation reduces basis. Ordinarily that deferred gain would come due at a taxable sale. But if you hold the DST until death, the step-up resets your heirs' basis to the interest's fair market value, so the entire deferred gain you carried can be erased. Heirs inherit at current value, and if they sell, their gain is measured from that stepped-up value rather than your low carryover basis. The strategy is sometimes summarized as 'swap till you drop.' This is a tax and estate topic, and the rules can change, so coordinate with your CPA and estate attorney and verify the current rules. Baker 1031 does not provide tax or legal advice.
How does a DST erase deferred capital gains at death?
A DST erases deferred capital gains at death through the Section 1014 step-up in basis. During your life, a 1031 exchange into a DST keeps your basis low (carryover from the relinquished property, further reduced by depreciation), so a substantial deferred gain and depreciation recapture stay embedded in the interest. If you sold during life, that whole amount would be taxable unless deferred again. But if you hold the DST until death, your heirs' basis is stepped up to the interest's fair market value at your date of death. The low carryover basis — and with it the embedded gain and depreciation recapture — disappears for income-tax purposes. Your heirs inherit at full current value, and if they sell shortly after, there's little or no taxable gain because their basis equals or approaches the sale price. So the capital-gains tax deferred across your lifetime is effectively erased, not merely postponed once more. This interaction of 1031 deferral and the step-up is uniquely powerful, but verify current rules with your advisors.
Can DST interests be divided among multiple heirs?
Yes — and this is one of the practical estate advantages of DSTs. A single piece of real estate is essentially indivisible: you can't neatly split a building among several children, and forcing the issue often means selling the property (triggering tax) or saddling heirs with shared, contentious co-ownership. A DST sidesteps this because you own beneficial interests in a trust, which are inherently divisible into shares. Because the interest is fractional, it can be allocated cleanly among heirs in whatever proportions your estate plan specifies — equal shares, weighted portions, or distributions to trusts for different beneficiaries. Heirs each receive their portion without being forced into joint management of a single property or into selling it to divide the proceeds. If one heir wants income and another prefers to exit, the structure offers flexibility at the next full-cycle event. This divisibility removes a frequent source of estate friction. So fractional DST interests divide cleanly among multiple heirs, which is a meaningful benefit over indivisible direct real estate.
How do DSTs simplify estate administration?
DSTs simplify estate administration in several ways that matter during a difficult time. Because a DST is passive and professionally managed, heirs don't suddenly inherit the responsibilities of being a landlord — there are no tenants to manage, repairs to coordinate, or properties to maintain while they're grieving. The sponsor and trustee continue running the property, and distributions continue, giving heirs breathing room rather than an operational burden. Administration is also cleaner because a DST interest is a defined, valued holding rather than a physical building that must be appraised, maintained, insured, and potentially sold under time pressure. Valuation for step-up purposes is generally more straightforward, and because the interest is divisible, the executor can distribute it per the estate plan without forcing a sale. Heirs who don't want to continue can wait for the next full-cycle event rather than scrambling to liquidate. None of this replaces proper estate documents, but it reduces operational friction. So a DST eases administration by sparing heirs landlord duties, easing valuation, and avoiding forced sales.
What is 'swap till you drop'?
'Swap till you drop' is an informal name for a long-term tax strategy that DSTs are well suited to. The idea is to keep deferring capital-gains tax through successive 1031 exchanges over a lifetime — out of directly owned property and into DSTs, then from one full-cycle DST into the next — never recognizing the gain during life. Then, at death, the step-up in basis under Section 1014 erases the accumulated deferred gain for heirs. DSTs fit the later stages of this strategy because they're passive, so an aging investor can keep deferring without the burden of active management. The strategy isn't right for everyone: it assumes you can hold illiquid DST interests long term and don't need to cash out (which would trigger the deferred tax), and it depends on the 1031 deferral and the step-up remaining available, which can change with legislation. So 'swap till you drop' unifies the DST estate benefits for suitable, long-horizon investors, but verify the current rules and confirm the strategy fits your family's goals with your CPA and estate attorney.
Does the step-up apply to depreciation recapture too?
Generally, yes — when a step-up in basis applies at death under Section 1014, it resets basis to fair market value, which can eliminate both the deferred capital gain and the depreciation recapture that had built up. During the hold, depreciation passes through a DST and shelters part of your income, but it also reduces your basis, so a future sale during life would recognize that depreciation as recapture (taxed at its own rate) along with the appreciation. At death, however, the basis is stepped up to fair market value, so the low basis that preserved both the gain and the recapture is reset — and heirs generally don't inherit that embedded recapture liability. This is part of why holding a DST until death is so powerful: the depreciation you benefited from during the hold isn't recaptured if the step-up applies. The mechanics interact with community-property rules and your overall situation, and the rules can change, so this is exactly a question for your CPA and estate attorney. Baker 1031 does not provide tax advice; verify the current rules for your circumstances.
Do I need to hold a DST until death to get the step-up?
Yes — the step-up in basis applies at death, so realizing it for a DST requires holding the interest until you pass away. If you sell the DST interest (or take cash at a full-cycle sale) during your life, the deferred gain and depreciation recapture are recognized then, unless you defer again through another 1031 exchange or a 721 UPREIT. The step-up only resets basis at death, so the estate benefit is specifically for investments held through the end of life. This is why DSTs are often discussed in the context of long-term, estate-focused strategies for investors who don't need to liquidate — the plan is to keep deferring through life and let the step-up erase the gain for heirs. If your goals or circumstances require accessing the capital during your lifetime, the step-up benefit won't apply to that portion, and you'd face the deferred tax (absent another deferral). So the step-up is a death-time benefit; coordinate with your CPA and estate attorney to weigh it against your liquidity needs and overall plan, and verify the current rules.
How should I title a DST interest for estate planning?
How you title a DST interest — individually, jointly, through a revocable living trust, or another entity — meaningfully affects how it passes at death, whether it avoids probate, how the step-up applies, and creditor exposure, so titling should be coordinated with your estate attorney. For example, holding the interest in a revocable living trust can help it avoid probate and pass according to your trust terms, while joint titling and community-property rules can affect the extent of the step-up for married couples. Beneficiary designations and the titling should align with your will or trust so the interest flows to the intended heirs in the intended proportions. These choices interact with your broader estate plan, state law, and tax considerations, and getting them right is what turns the DST's potential estate benefits into realized ones. This is a legal and tax matter, not something to set up casually. Baker 1031 does not provide tax or legal advice. So work with your estate attorney and CPA to title the interest correctly and align it with your overall plan, and verify the current rules.
Are DST estate benefits guaranteed?
No — the estate benefits of DSTs depend on the tax rules remaining as they are and on the investment being held and structured properly, so they aren't guaranteed. The step-up in basis under Section 1014 and the 1031 deferral are features of current tax law, and tax law can change with legislation — a future change could alter or limit the step-up or the deferral, which is why you should verify the current rules. The benefits also depend on actually holding the DST until death (selling during life recognizes the deferred gain) and on proper titling and estate-plan integration. Beyond the tax side, DSTs themselves carry investment risk: they're illiquid, distributions and returns aren't guaranteed, and the underlying real estate can lose value. So while the combination of 1031 deferral and the step-up can be powerful, it isn't a guarantee — it's a strategy whose benefits depend on the rules, your holding period, and proper planning. Coordinate with your CPA and estate attorney, verify the current rules, and treat the estate benefits as planning opportunities rather than certainties. Baker 1031 does not provide tax or legal advice.
Can heirs continue holding the DST or must they sell?
Heirs generally don't have to sell immediately — they can typically continue holding the inherited DST interest until the next full-cycle event, when the sponsor sells the underlying property. Because the interest passes with a stepped-up basis at death, heirs inherit at fair market value, and they can keep receiving distributions while the DST continues, rather than being forced to liquidate during a difficult time. At the eventual full-cycle sale, each heir can then make their own choice with their share of the proceeds — complete another 1031 exchange to keep deferring, pursue a 721 UPREIT, or take the cash (which, given the stepped-up basis, would generally involve little gain measured from that stepped-up value). The divisibility of DST interests means heirs with different goals aren't locked together: one can plan to exit while another continues. This flexibility is part of what makes DSTs convenient in estate planning. So heirs usually have time and choices rather than a forced sale, but the specifics depend on the DST and their situation — they should consult their own tax and legal advisors.
How does the step-up interact with estate taxes?
The income-tax step-up in basis and the federal estate tax are two separate things, and it's important not to confuse them. The Section 1014 step-up resets the income-tax basis of assets to fair market value at death, which can erase deferred capital gains for heirs — this is an income-tax benefit. The federal estate tax, by contrast, is a separate tax on the value of a large estate above an exemption threshold, and it can apply to the value of the DST interest (and your other assets) regardless of the basis step-up. For most estates below the exemption, estate tax isn't a concern, but larger estates must plan for it, and the exemption amount can change with legislation. The step-up doesn't shield an estate from estate tax; it addresses income tax on gains. These interactions are technical and depend on your total estate, state law, and current thresholds, so they belong with your estate attorney and CPA. Baker 1031 does not provide tax or legal advice. So treat the step-up and estate tax as distinct, and plan for both with professionals; verify the current rules.
Why are DSTs good for estate planning specifically?
DSTs suit estate planning for several reinforcing reasons. First, the tax synergy: a 1031 exchange into a DST defers capital-gains tax during life, and the Section 1014 step-up at death can erase that deferred gain for heirs — a combination sometimes called 'swap till you drop.' Second, passivity: because DSTs are professionally managed, an aging investor can keep deferring without the burden of active landlord duties, and heirs inherit income rather than an operational job. Third, divisibility: fractional beneficial interests split cleanly among multiple heirs, avoiding the indivisibility of a single building and the forced sales or co-ownership disputes it can cause. Fourth, administrative ease: a defined, more easily valued interest simplifies estate administration during a hard time. Together, these features make DSTs a natural fit for long-horizon, estate-focused investors who can tolerate illiquidity. That said, the benefits depend on holding the interest, on proper planning, and on the rules remaining available. So DSTs combine tax, practical, and administrative advantages for estate planning — coordinate with your CPA and estate attorney, and verify current rules.
Does Baker 1031 provide estate planning advice?
No — Baker 1031 does not provide tax or legal advice, and that includes estate planning. Estate planning, the step-up in basis, titling, beneficiary designations, community-property rules, and estate-tax considerations are tax and legal matters that belong with your estate attorney and CPA, who handle your specific situation. What we do is educational: we help you understand how DSTs work and how their features — the 1031 deferral, the potential Section 1014 step-up at death, the divisibility of fractional interests, and the administrative ease of passive management — can fit a long-term estate strategy, so you can have an informed conversation with your own advisors. DST interests are securities offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors after a suitability review focused on investment suitability, not tax or legal advice. The rules are technical and can change, so verify the current rules with your professionals. So we help you understand the structure and coordinate with the advisors who provide the actual tax and estate advice — we don't replace them.
Can a DST be held in a trust for estate planning?
Yes — DST interests can generally be held in a trust, such as a revocable living trust, and doing so is a common estate-planning approach that should be coordinated with your estate attorney. Holding the interest in a revocable living trust can help it avoid probate and pass according to your trust terms, which can simplify administration for your heirs and keep the transfer private. The step-up in basis at death under Section 1014 generally still applies to assets held in a revocable living trust, so the estate benefit of erasing deferred gain can be preserved. More complex arrangements — irrevocable trusts, trusts for specific beneficiaries, or marital and credit-shelter planning — can also hold DST interests, but they have different tax and control consequences that must be designed carefully by your attorney and CPA. How the interest is titled in the trust, and how it aligns with your overall plan, determines whether the intended benefits are realized. These are legal and tax matters specific to your situation, and the rules can change. Baker 1031 does not provide tax or legal advice. So a DST can be held in a trust, but design the structure with your professionals and verify the current rules.
How does Baker 1031 help with DST estate planning?
We help investors understand the estate-planning benefits of DSTs — the step-up in basis at death, how it can erase deferred capital gains for heirs, how fractional interests divide cleanly among heirs, how DSTs simplify estate administration, and how to coordinate with your estate plan — so you can have an informed conversation with your estate attorney and CPA about whether DSTs fit your goals. DST interests are securities offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors after a suitability review. We help you understand how the 1031 deferral and the Section 1014 step-up interact, how passive DST interests fit a long-horizon, estate-focused strategy, and how divisibility and professional management ease inheritance. Baker 1031 does not provide tax or legal advice — estate planning and the step-up are tax and estate topics for your attorney and CPA, who handle titling, beneficiary designations, community-property rules, and estate-tax thresholds; the rules are technical and can change, so verify the current rules. We're candid that DSTs are illiquid and that distributions and returns aren't guaranteed. Our role is educational — we coordinate with the professionals who advise you.
Glossary
- Step-Up in Basis
- A §1014 reset of basis to fair market value at death.
- Section 1014
- The code section providing the step-up at death.
- Fair Market Value
- The value used to step up basis at the date of death.
- Carryover Basis
- Low basis carried from a relinquished property into a DST.
- Deferred Gain
- Capital gain postponed through 1031 exchanges.
- Depreciation Recapture
- Gain from prior depreciation, potentially erased at death.
- Swap Till You Drop
- Deferring via exchanges through life, then the step-up.
- Beneficial Interest
- A divisible fractional ownership share in a DST.
- Heirs
- Those who inherit the DST interest at death.
- Estate Administration
- Settling and distributing a deceased person's assets.
- Revocable Living Trust
- A trust that can help a DST interest avoid probate.
- Probate
- The court process of administering an estate.
- Estate Tax
- A separate tax on large estates, distinct from the step-up.
- Community Property
- A regime that can affect the extent of the step-up.
- Full Cycle
- The eventual sale of the DST's property.
- 1031 Exchange
- A like-kind exchange deferring capital-gains tax.
Sources & References
- Cornell Legal Information Institute. 26 U.S. Code § 1014 — Basis of property acquired from a decedent
- Cornell Legal Information Institute. 26 U.S. Code § 1031 — Exchange of real property held for productive use or investment
- IRS. Revenue Ruling 2004-86
- FINRA. Real Estate Investments
Disclosures
This article is published by Baker 1031 Investments, LLC for general educational purposes for accredited investors and is not an offer to sell or a solicitation of an offer to buy any security, nor is it tax, legal, accounting, or investment advice or a recommendation. Any securities offering is made solely through a sponsor’s private placement memorandum (PPM) following a suitability determination. Securities offered through Aurora Securities, Inc. (ASI), member FINRA / SIPC; Baker 1031 Investments is independent of ASI.
Oil & gas mineral and royalty interests and DST programs are speculative, illiquid securities sold only to verified accredited investors and involve substantial risk, including possible loss of principal, commodity-price and production-decline risk, lack of control, and the risk that an intended 1031 exchange fails to qualify for tax deferral. Whether a particular interest qualifies as like-kind real property is a fact-specific legal determination that varies by state and by the terms of the instrument. Tax results depend on your individual circumstances. Consult your own CPA and attorney before acting. Past performance does not guarantee future results.
