DSTs for Owners Over 70: Step-Up, Simplicity and Income in Your 70s and 80s

The step-up rewards holding real estate until death, and a DST lets you keep holding it without managing it

Section 1014(a)(1) gives a person who acquires property from a decedent a basis equal to its fair market value at the date of death. Every dollar of gain deferred through earlier exchanges, and the depreciation that would have been recaptured, drops out of the heirs' computation. Selling and paying tax at 80 trades that reset for cash today.

A DST interest qualifies for the same treatment because Rev. Rul. 2004-86 treats each investor as owning an undivided interest in the trust's real estate. How the interest is valued and reported for the estate is covered at DSTs in estate planning, and the trade-off between exchanging now and holding for the reset at step-up versus a 1031 now.

Estate tax is a separate question that touches few families: Rev. Proc. 2025-32 sets the 2026 basic exclusion amount at $15,000,000. Hypothetical: a widow of 84 holds a rental worth $1,500,000 with a $300,000 adjusted basis. A taxable sale recognizes $1,200,000 of gain; an exchange into DSTs defers it, and if she still holds the interests at death her heirs start at the date-of-death value. Run your own numbers with your CPA, including state tax and any depreciation recapture.

Simplicity is real: the building runs without you, but so does every decision about it

In a filed DST trust agreement, the trust's affairs are managed exclusively by the manager, the master tenant operates the property, and investors have only the right to receive distributions. They may not direct the trust or the manager, contribute more money, take part in management, or cause a refinancing or sale. The manager sends annual reports of rent received, expenses, reserves and distributions.

For an owner who is tired of repairs and tenants, that is the point. The cost is that you cannot decide to sell when you need money or when you think prices are high, and you still file your own return reporting each trust's income, possibly in more than one state, because each trust's rent is treated as yours.

Plan your spending from other money, because DST income can be cut and the hold is not yours to set

The filed trust agreements distribute available cash after paying the manager's fees and expenses and keeping reserves the manager decides are needed: one quarterly, another monthly. If the master tenant stops paying rent or files for bankruptcy, the first agreement lets the manager move the property into a newly formed limited partnership, and a lender's DST memo lists the trust's inability to refinance at the end of the loan term as a structural risk.

The hold runs on the sponsor's timetable. The first agreement says the manager will use commercially reasonable efforts not to sell within two years and otherwise sells when it decides a sale is appropriate. For an owner in their eighties, a hold that outlasts you is often fine for the step-up, but it means cash for care or living costs should come from savings or other assets, not from the hope of an early sale; see DST illiquidity and exits and DST distribution reliability.

Powers of attorney, trustees and the broker-dealer's senior safeguards decide who can sign

State law controls what an agent may do. Under Delaware's Durable Personal Powers of Attorney Act, section 49A-201 requires an express grant before an agent may create or amend a trust, make a gift or change survivorship or beneficiary designations; general authority over real property covers selling and exchanging it, and general authority over trusts and beneficial interests covers buying, selling or assigning a share in a trust. Other states use their own versions, so have counsel confirm your document covers both the sale and a DST purchase.

Broker-dealers add their own steps. FINRA Rule 4512 requires the firm to make reasonable efforts to obtain a trusted contact person age 18 or older. FINRA Rule 2165 treats anyone 65 or older as a specified adult and lets a firm place a temporary hold of up to 15 business days, extendable, when it reasonably believes exploitation, including through a power of attorney, is occurring. Regulation Best Interest makes your age, time horizon and liquidity needs part of the profile any recommendation must fit.

If title sits in your revocable living trust, the trustee signs; how titling works is at selling in your name and buying in a revocable trust.

Your heirs inherit percentages, and each can choose cash, a new exchange or a roll-up

Delaware's Statutory Trust Act, section 3805, makes a beneficial interest personal property and gives each owner an undivided share in proportion to its percentage, and the filed agreement says an owner's death does not dissolve the trust. Heirs therefore split percentages instead of a deed, after the sponsor processes the paperwork described at transferring DST interests to heirs and trusts.

When the trust later sells, each heir decides alone: take cash on a gain that the step-up has mostly erased, or exchange again, as explained at inheriting a DST and exchanging out. Telling your children now which sponsors and trusts you hold, and where the statements arrive, saves months later.