Why the Delaware Statutory Trust can potentially be a good solution when your heirs are not interested in inheriting your rental property - by Dwight Kay

After years of acquiring properties, managing tenants, and navigating the operational maze of rental real estate, there comes a time when most investors eventually face a new set of questions. Should they step away from active management? What legacy will they leave behind? And how will they pass their hard-earned wealth to the next generation?

Interestingly, this is a conversation that most families rarely have — yet from which every single one could potentially benefit. The Kay Properties team has heard from countless investors who wish they’d addressed these issues years earlier. Because once they finally did, they were met with a response that caught them completely off guard. It’s not an uncommon reaction, but that doesn’t make it any easier to hear.

“My heirs aren’t actually interested in my rental properties.”

The conversation few have — but everyone should
As of October 2026, Kay Properties has helped more than 4,000 investors complete more than 10,000 1031 exchanges, DSTs and 721 UPEIT investments, so we know first-hand that discussing asset management, legacy and estate planning with heirs is difficult. After all, change is never easy, and most people don’t want to address the potential for life changes until they have no choice. Instead, they wait — often until a health event or a sudden passing, which can leave families scrambling to manage assets, taxes, and timelines with little preparation or guidance. Unfortunately, by then the options are limited, and the tax consequences can be severe. 

Every day, our team of Delaware Statutory Trust experts hear stories of investors who were forced to make decisions under pressure when they wish they had addressed these issues sooner.

That conversation can be worth hundreds of thousands of dollars or even millions to a family, and even more importantly, this conversation is far easier to have when there are no immediate deadlines, no health crises, and no pressure to make hasty decisions.

Why heirs say “no” to inherited real estate
Now, one of the realities when addressing this topic is that it is not uncommon for heirs to have a very different perspective of investment real estate than those of their elders. In fact, it is not uncommon to hear that many adult children, upon hearing the potential for inheriting rental real estate, do not perceive it as a gift, but rather a burden. There are many reasons for this reaction, including:

• They have their own careers and families and do not want the added responsibility of managing tenants, toilets, and trash

• They live in different states, making local property management impractical

• They lack real estate expertise and feel unequipped to make informed decisions about operations or capital improvements

• They have different financial goals — one sibling may want to keep the property for sentimental reasons, another may want to sell immediately

• They simply do not want the headaches

Not surprisingly, the situation can become even more complicated when there are multiple heirs involved with competing priorities. Maybe one sibling wants to sell, another wants to hold, and a third wants to exchange. 

Preserving wealth across multiple generations requires strategic planning, foresight, and the right investment vehicles. Without a plan, these important decisions can strain family relationships for years — and potentially lead to costly legal actions. 

Kay Properties & Investments can help in several ways. Our team of 1031 exchange DST experts offer an extensive library of educational resources designed specifically for investment real estate owners, along with a diverse range of investment offerings from our industry leading online marketplace so families can make informed decisions about their investments and future legacy.

Enter the Delaware Statutory Trust
For families committed to preserving their financial legacy, Delaware Statutory Trusts (DSTs) can potentially provide a powerful estate-planning vehicle. This structure enables real estate investors to build a flexible, durable framework for potentially transferring property wealth seamlessly to the next generation.

Let’s explore exactly how DSTs can possibly anchor your multi-generational real estate strategy — with the goal of potentially ensuring your assets are structured to endure, while unlocking continued growth potential for your heirs.

A Delaware Statutory Trust (DST) is a legal trust structure that allows multiple investors to own a beneficial interest in institutional-quality commercial real estate. The IRS approved this structure for 1031 exchanges in Revenue Ruling 2004-86, treating DST interests as real property for tax purposes.

How DSTs can Anchor Your Multi-Generational Real Estate Strategy 
Here’s how investors can utilize a Delaware Statutory Trust to help with their wealth planning. 

First, an investor can relinquish their rental property and enter a Delaware Statutory Trust as part of their 1031 exchange.

By entering a Delaware Statutory Trust property or portfolio, the 1031 deferral is preserved, and the investor moves from an active management position to a purely passive one while also collecting potential monthly income distributions.

When the investor passes, their heirs inherit their interest in the DST at a stepped-up fair market value. This stepped-up basis resets the taxable gains to the current fair market value of the property on the date of death. As a result, any gain the investor spent decades rolling forward through the 1031 exchange is eliminated permanently.

Like the principal investor, the heirs do not have to manage anything. They do not have to drive to the property. They do not have to keep the DST interest if they do not want it — they can liquidate it with a dramatically reduced tax burden thanks to the step-up basis.

That is not a loophole. That is current tax law, working exactly as written — for exactly the kind of family wealth transfer it was designed to support.

Why investors should involve their children in the conversation — now
DSTs also solve the challenge of dividing assets among multiple heirs with different goals, arguably one of the most difficult scenarios in estate planning.

DSTs are structured so that each investor owns a fractional interest in the trust, which can be split among heirs. By using a DST, proceeds from the sale of real estate can be divided into different trusts and distributed to individual beneficiaries, giving each beneficiary more control over their individual assets.

As a result, one heir can choose to keep their DST interest and receive the potential for passive income distributions. Another heir can exchange their portion into a new DST (if their was a capital gain from the time the initial owner passed and the time the DST sold). A third can liquidate and cash out. Each heir makes their own decision — no family conflict, no forced sales, no partition actions.

The real key here is that heirs do not need to understand 1031 exchanges or owning and operating investment real estate at a technical level. They just need to know that a plan exists and that the plan was built with this outcome in mind.

Ideally, this strategy should be part of a bigger conversation that occurs before a deadline, a health crisis, or an unexpected event forces the decision. Too many families scramble to make choices during grief or under time pressure, but those who plan enjoy the luxury of thoughtful deliberation

Bring your kids to the appointment
When 1031 exchanges and estate planning work together, they create a powerful strategy for preserving wealth. Yet too many investors own appreciated real estate and have never had this conversation — not with their families, and not with a family attorney or CPA who truly understands how DSTs fit into the bigger picture.

The step-up in basis doesn’t care how organized your will is. It cares only whether the right structure is in place when the time comes. Waiting too long can force a family into a decision they never wanted to make — and a tax bill they never should have paid.

Children do not need to inherit management headaches. They do not need to become landlords. They just need a plan that works.

Bring your family attorney and CPA into the conversation. Bring your children to the meeting. Have the conversation. Let them ask questions. And help them understand the strategy that could protect their inheritance from being eroded by taxes.

We are amid a great wealth transfer. Over the next two decades, $124 trillion will be passed to a new generation, and real estate is at the center of it. 

Families who plan thoughtfully will preserve their legacy and avoid handing their heirs a tangled mess of disputes, delays, and potential legal fees.

The choice is yours. But make sure your heirs are part of the decision, and don’t wait until it’s too late. At Kay Properties we have helped over 4,000 investors and their families with this exact situation. Visit us at www.kpi1031.com to learn more.

This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed.

Nothing contained on this website constitutes tax, legal, insurance or investment advice, nor does it constitute a solicitation or an offer to buy or sell any security or other financial instrument. Securities offered through FNEX Capital, member FINRA, SIPC.

Dwight Kay, CEO and founder of Kay Properties and the Kay Properties Team, New York, N.Y.