The short answer
Your heirs can sell the interest privately if they find an accredited buyer and the trust agreement's conditions are met, but nobody is obliged to buy it: the trust cannot redeem it, there is no exchange to list it on, and a private sale usually closes at a discount. Death does not end the trust or your position, which passes to the heirs under the sponsor's transfer procedure. Because section 1014 resets their basis to date-of-death value, waiting for the trust's own sale costs them nothing in deferred tax.
At a glance
| Death and the trust | The trust does not terminate on the death of an owner; the interest passes to the estate or heirs |
|---|---|
| Redemption | None; the trustee may not accept new money, so it cannot buy an interest back |
| Resale status | Restricted security under Regulation D; resold only with an exemption and the trust agreement's consents |
| Rule 144 clock for heirs | No holding period if neither the estate nor the selling heir is an affiliate of the issuer |
| Heirs' basis | Fair market value at the date of death, or the alternate valuation date |
| Holding period | Automatically long-term, even if sold within a year of death |
| Ordinary exit | The trust's sale of the property, on the sponsor's timetable |
| Each heir's choice | Hold to the sale, sell privately, exchange again or accept a 721 offer, independently of the others |
Your death moves the interest to your heirs; it does not end the trust or cash anyone out
The trust described in Rev. Rul. 2004-86 'will not terminate on the bankruptcy, death, or incapacity of any owner', and sponsors copy that term. The same facts bar the trustee from accepting 'additional contributions of assets (including money)', which is why no DST can buy an interest back from an estate. What your heirs receive is your undivided share of the trust's real estate, with the same lack of liquidity you accepted when you subscribed and the same exposure to a fall in the property's value.
Under 12 Del. C. 3805(d) a beneficial interest 'is freely transferable except to the extent otherwise provided in the governing instrument', and every governing instrument does: sponsor consent, an accredited transferee, lender approval while a loan is outstanding. A transfer at death clears those conditions with a death certificate, letters or a trustee's certificate, and a W-9 for each new owner. Transferring DST interests to heirs and trusts covers that paperwork.
A private resale is legal, but there is no market, so the price is whatever one buyer offers
DST interests are sold under Regulation D, and Rule 502(d) says they 'cannot be resold without registration under the Act or an exemption therefrom'. The usual exemption is Rule 144, which for an issuer that files no SEC reports normally demands a one-year holding period, but Rule 144(d)(3)(v) says 'no holding period is required if the estate is not an affiliate of the issuer or if the securities are sold by a beneficiary of the estate who is not such an affiliate'. For an ordinary family, the securities-law clock is not the obstacle.
The obstacle is finding a buyer. There is no exchange, no quoted price and no obligation on the sponsor or the other owners to bid. A buyer must be accredited and approved by the sponsor and often the lender, and knows the seller has few alternatives, so private trades happen at a discount to the sponsor's own valuation. DST illiquidity and exits explains why the structure resists early sales for every owner, living or dead.
Some trust agreements give the sponsor a fair-market-value purchase option after a set period. It is the sponsor's choice, not the heir's right, and it is not in every trust, so read the transfer article of the trust agreement while you can still pick a different offering.
The step-up removes the tax reason to hurry or to wait, so the decision turns on price and time
Section 1014(a)(1) gives property acquired from a decedent a basis of 'the fair market value of the property at the date of the decedent's death'. Because a DST owner is treated as owning the real estate itself, the heir's basis in the interest is its date-of-death value, and the gain you deferred through every exchange is gone. How the step-up works on 1031 property has the rule in full.
A sale soon after death is also long-term by statute: section 1223(9) treats a person whose basis comes from section 1014 and who sells within one year as having 'held such property for more than 1 year'. An heir who sells at appraised value has little or no gain; one who sells at a discount has a long-term capital loss, which is the tax face of the liquidity cost.
That is why the question is about money and patience. Selling privately converts the interest to cash now at a haircut; holding to the trust's sale collects full value on the sponsor's schedule, with distributions that may be cut and a property that may be worth less by then. DST interests as estate liquidity weighs the two when the estate needs cash.
The ordinary exit is the trust's own sale, and each heir then decides alone
When the sponsor sells the property, each owner receives their share of the net proceeds. An heir can take the cash, taxed only on appreciation since death, or route the share through a qualified intermediary into new real estate or new trusts, as exchanging out of an inherited DST explains. An heir offered a section 721 roll-up can accept partnership units instead, which ends future exchanges for that money.
Because the interest is a percentage, the sponsor can split it among several heirs, and each then acts on their own slice without a partition suit or a buy-out. Using DSTs for a simple inheritance shows how to title the positions so the split is arithmetic.
The trust's loan maturity and the sponsor's projected hold set the sale window, and both can slip; an heir counting on a sale in year seven may be holding in year ten. What happens when a DST loan matures covers the refinance, sale or extension outcomes.
Worked example: three heirs, one interest, three different answers
A hypothetical with round figures, to be re-run with the estate's CPA. You bought a $900,000 DST interest with exchange proceeds and a $300,000 basis; at your death the sponsor's valuation supports $900,000, so each of three children takes a $300,000 interest with a $300,000 basis.
The first child needs cash and finds an accredited buyer at $270,000: a long-term sale under section 1223(9) and a $30,000 capital loss. The second holds; the trust sells two years later and returns $320,000, a $20,000 long-term gain, plus two years of distributions. The third exchanges her $320,000 share into a new trust and defers the $20,000.
None of the three pays any of the $600,000 you deferred. The first child's speed cost $50,000 against the second child's price, before the distributions given up.
- Private sale at a discount: cash now, a long-term loss, no deferred gain owed.
- Hold to the trust's sale: full value, on the sponsor's timetable, gain only on post-death appreciation.
- Exchange again: continued deferral, a new hold, a new set of fees.
Related questions
Will the sponsor or the other investors buy my heirs out?
The trust itself cannot, because the ruling it relies on bars new contributions. Some trust agreements give the sponsor an option to buy at appraised value after a set period, but that is the sponsor's choice, not the heir's right.
Can the executor sell the interest before it is distributed to the heirs?
Yes, if the will or the court gives that authority and the sponsor approves the transfer. The estate also takes a date-of-death basis under section 1014; what an executor can still do mid-exchange covers the estate's own exchange options.
Do my heirs owe the gain I deferred if they sell right away?
No. Their basis is the value at your death, so only appreciation after that date is taxed, and a sale within a year still counts as long-term.
Does a sale by an heir trigger the one-year Rule 144 holding period?
Not for an ordinary heir. Rule 144(d)(3)(v) waives the holding period where the estate and the selling beneficiary are not affiliates of the issuer; the trust agreement's consent requirements still apply.
What if the trust's loan matures just after I die?
The sponsor refinances, sells or extends on its own schedule, and the heirs ride along. If a sale follows, each heir receives proceeds at a basis already reset, and can take cash or exchange again.
Sources
Checked against these publications on October 8, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- Rev. Rul. 2004-86, Delaware statutory trusts and section 1031
- 12 Del. C. chapter 38, subchapter I, Delaware Statutory Trust Act, section 3805
- 17 CFR 230.502, Regulation D general conditions, limitations on resale (Cornell LII)
- 17 CFR 230.144, persons deemed not to be engaged in a distribution, holding period (Cornell LII)
- 26 U.S.C. 1014, basis of property acquired from a decedent (Cornell LII)
- 26 U.S.C. 1223, holding period of property (Cornell LII)