Delaware Statutory Trusts offer a tax strategy that traditional wills cannot match, particularly for families with significant real estate or investment portfolios. When you die, assets passed through a DST receive a "step-up in basis," meaning your children inherit property at its current market value rather than your original purchase price. This eliminates capital gains taxes on appreciation that occurred during your lifetime.
Here's the practical difference. Suppose you bought rental property for $200,000 and it's now worth $500,000. Under a will, your child inherits it at $500,000 but owes capital gains tax on the $300,000 gain if they sell quickly. With a properly structured DST, your child's basis resets to $500,000, erasing that tax burden entirely.
DSTs also offer privacy and probate avoidance. Assets held in a DST bypass the public probate process, keeping your estate details private and avoiding court delays and fees. This matters when property values are high or family situations are complex.
The structure works best for real estate, especially commercial or investment properties. Delaware allows flexible DST arrangements that other states don't permit, giving you control over how and when your children access the property. You can dictate whether they must hold it, can sell it, or must distribute proceeds to multiple heirs.
However, DSTs demand careful setup. You need an experienced estate attorney familiar with Delaware law, not your general local lawyer. The initial cost runs $1,500 to $5,000 or more, depending on complexity. Ongoing administration also carries annual fees.
One critical catch: DSTs don't eliminate all taxes. If your estate exceeds federal exemption limits (currently $13.61 million per person in 2024), you still face estate taxes on the full value. A DST doesn't reduce the taxable estate.
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