Can You Hold a 1031 DST in a Trust? Yes — Good News for Your Estate Plan

A plain-language guide to why DST investors use a revocable living trust, and what it actually does for them

Sam’s Question

Sam sold a rental property he owned for twenty years and moved the proceeds into a 1031 DST. He also has a revocable living trust, set up years ago so his house and accounts would skip probate. His question for his advisor was simple: should the DST go in the trust, too? And would putting it there mess up the exchange he just completed?

It’s one of the most common questions DST investors ask — and the short answer is that a revocable living trust and a 1031 DST generally work together without conflict. The trust doesn’t interfere with the exchange, and the DST doesn’t interfere with what the trust is there to do.

Why the Two Don’t Conflict

A revocable living trust is what’s called a “disregarded entity” for tax purposes. The IRS treats the grantor — typically the person who created the trust — as the owner of whatever’s inside it, not the trust itself. That’s true whether the trust holds a house, a brokerage account, or a beneficial interest in a DST.

That matters for a 1031 exchange because the same taxpayer has to be on both ends of the transaction — the person selling the relinquished property has to be the same person acquiring the replacement property. Because a revocable trust is disregarded, the grantor is considered that same taxpayer whether the property is titled in their own name or in the trust’s name. So an investor can sell a property held in their revocable trust and acquire DST interests individually, or the reverse, without disrupting the exchange.

It’s worth noting that irrevocable trusts are a different story. Once a trust can no longer be changed or revoked, it may be treated as its own taxpayer, which changes how an exchange has to be structured. That distinction is exactly why this is a conversation to have with an estate attorney before assuming any trust will work the same way.

What Putting the DST in a Trust Actually Buys You

If the trust doesn’t change the tax treatment, why bother? Because a revocable living trust’s value isn’t about taxes during your lifetime — it’s about what happens afterward.

Assets titled in a revocable living trust typically avoid probate, the court process that otherwise governs how a person’s assets are distributed after death. Probate can be slow, public, and, depending on the state, costly. A DST interest held in a properly funded trust generally passes to beneficiaries according to the trust’s terms, without a probate court involved.

There’s also a practical, day-to-day reason some investors prefer it: a revocable trust can simplify things if the investor becomes incapacitated, since a successor trustee can step in to manage trust assets without a separate court proceeding.

The Bigger Estate-Planning Piece: Step-Up in Basis

This is the part that tends to matter most to investors thinking about their eventual estate. When someone dies still holding a 1031 DST interest — rather than selling it — their heirs generally receive that interest at its fair market value on the date of death, rather than the original, lower basis carried forward from years of exchanges.

In practice, that means the capital gains that were deferred through one exchange after another may not become due at all for the heirs who inherit the interest. Some investors and advisors refer to this approach informally as “swap till you drop.” Whether and how this applies depends on the specific estate and should be reviewed with a tax advisor — but it’s the reason many investors treat the DST as a long-term hold rather than something to sell and reinvest repeatedly.

A Practical Note for Heirs

Dividing a single piece of real estate among multiple heirs can be difficult — someone has to buy out the others, sell the property and split the proceeds, or become reluctant co-owners. A DST interest tends to be more straightforward to divide, since it’s a defined fractional interest rather than a physical asset multiple people now jointly control. That doesn’t eliminate every complication of an inheritance, but it can make the mechanics simpler for a family working through one.

The Bottom Line

For an investor like Sam, using a revocable living trust alongside a 1031 DST isn’t about changing the tax outcome today — it’s about what happens to that investment later, for the people who inherit it. The exchange works the same either way. What the trust adds is a smoother path afterward, and what holding the DST long-term can add is a meaningfully different tax picture for your heirs.

This is estate planning territory as much as it is investment planning, which is exactly why it’s worth a conversation with your estate attorney and CPA alongside your investment advisor — not a decision to make from an article alone.

This article is provided for general educational purposes only and does not constitute tax, legal, or estate planning advice. The tax treatment of trusts, 1031 exchanges, and inherited property depends on individual facts and circumstances and is subject to change. DST investments involve risk, including illiquidity and potential loss of principal, and are suitable only for accredited investors. Consult your estate attorney and tax advisor regarding your individual situation before making any decisions.