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1031 Exchanges for Estate Planning? Absolutely!

1031 Exchanges are popular among real estate investors for a variety of reasons. Number one, of course, is the ability they provide investors to defer taxes on the appreciated gains of investment property. Other considerations can include the ability to consolidate or diversify property holdings, or to acquire a more valuable property.

One important, but lesser known advantage to a 1031 Exchange is the ability to step up the basis upon the death of the property owner. Of course, as a property owner, the idea that you may not be around forever, might not inspire you to use a 1031 Exchange, but the benefits for your heirs are significant.

A step-up in basis is described as: “the readjustment of the value of an appreciated asset for tax purposes upon inheritance, determined to be the higher market value of the asset at the time of inheritance.”*  So, in effect, when you die, the property your heirs inherit will be valued at current market price and they’ll have no tax obligations related to any appreciated gains associated with that property.

Not only does the 1031 Exchange help eliminate one of the tax-headaches that can be troublesome in estate transfers, but it allows you to pass along an asset at the highest current value. If your heirs elect to sell the property immediately, they can do so with no tax obligation.

On the other hand, they may have inherited a very nice income-producing property and want to receive an income stream. But, what if there are several heirs and there is disagreement among them about what to do with the property? This is not an uncommon situation. That’s where a DST can provide even more estate planning punch.

The DST structure allows investors to own a beneficial fractional interest in the property, along with other investors. When an owner of a DST dies, his investment can be divided up and allocated to heirs any way he has previously defined. Also, since DSTs generally own institutional quality properties that are professionally managed, heirs don’t inherit the worries and headaches that go along with managing properties that are directly owned.

Even more, if certain heirs prefer to retain ownership of their DST interests for income purposes, they may do so, while others may elect to sell their interests, which they can do, although they’ll want to consult with a tax advisor to be certain there are no holding-period requirements that apply.

So, the next time you’re considering a 1031 Exchange, don’t forget the benefits that can help on the tail of ownership!

For more information, reach out to our team here.


Paul Getty

Paul Getty is a licensed real estate broker in the state of California and Texas and has been directly involved in commercial transactions totaling over $3 billion on assets throughout the United States. His experience spans all major asset classes including retail, office, multifamily, and student, and senior housing. Paul’s transaction experience includes buy and sell side representation, sourcing and structuring of debt and equity, workouts, and asset and property management. He has worked closely with nationally prominent real estate brokerage and investment organizations including Marcus Millichap, CB Richard Ellis, JP Morgan, and Morgan Stanley among others on the firm’s numerous transactions. Paul also maintains a broad network of active buyers and sellers of commercial real estate including lenders, institutions, family office managers, and high net worth individuals. Prior to founding First Guardian Group/FGG1031, Paul was a founder and CEO of Venture Navigation, a boutique investment banking firm specializing in structuring equity investments made by institutions and high net worth individuals. He possesses over 35 years of comprehensive worldwide business management experience in environments ranging from early phase start-ups to multi-billion-dollar corporations. His track record includes participation in IPOs and successful M&A activity that has resulted in investor returns of over $700M. Paul holds an MBA in Finance from the University of Michigan, graduating with honors, and a Bachelor’s Degree in Chemistry from Wayne State University. Paul Getty holds Series 22, 62, and 63 securities licenses and is a registered financial representative with LightPath Capital Inc, member FINRA /SIPC. Paul is a noted speaker, author, and actively lectures on investments, sales, and management related topics. He is author of The 12 Magic Slides, Regulation A+: How the JOBS Act Creates Opportunities for Entrepreneurs and Investors, and Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST), available on Amazon and other retail outlets.

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