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Fiduciary 1031 <br/>Exchange Process

Fiduciary 1031
Exchange Process

Fiduciary1031 Exchange Solutions is a subsidiary of Clark Wealth Strategies, Inc. providing clients with methodical, fiduciary guidance throughout the entire 1031 exchange. We’ve established a unique fiduciary process to help facilitate exchanges for clients all across the country, saving them thousands of dollars in unnecessary commissions.


Because of our independence, we are not beholden to any parent company or broker/dealer. No one is giving us a menu of investments that are to be sold to our clients. Instead, we have the freedom to use any solutions and strategies we choose, as long as it is in the best interest of our clients.

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Utilizing Delaware Statutory Trusts (DSTs) and other strategies, we are able to create broadly diverse replacement real estate portfolios. DSTs allow for fractional ownership of commercial real estate and easy diversification across asset class and geography.


Any sales commissions or broker/dealer fees normally associated with DSTs are credited back to our clients in the form of additional DST equity. The end result is a very diverse replacement real estate portfolio, additional equity and a higher tax-sheltered monthly income.



Delaware Statutory Trusts (DSTs) as
Replacement Properties

Delaware Statutory Trusts (DSTs) as Replacement Properties


A Delaware Statutory Trust (DST) is a legally recognized trust, used in a variety of transactions and structures. Its flexibility of operation and management, plus the limited liability granted to beneficial owners, have made the DST a popular vehicle for a wide array of business purposes.

In accordance with I.R.S. Revenue Ruling 2004- 86, beneficial interests in a Delaware Statutory Trust may be considered “like-kind” replacement property in a Section 1031 exchange. Title to property is held by the trust as a separate legal entity for the benefit of a beneficial owner, rather than directly, affording liability protection to the owners. Interests in the DST are considered securities under federal securities law, however, they retain treatment as ownership in real estate.

For exchange purposes, DSTs are 100% passive, turn-key investments offered by nationally recognized real estate management companies, referred to as “sponsors.” Sponsors perform the initial due diligence, structure the property acquisition, maintain and lease the property, collect rent, service the mortgage and eventually sell the property.

A DST may own one or more properties across diverse asset classes: multifamily residential real estate; net leased retail; medical office portfolios; industrial property, among others.

Benefits of Delaware Statutory Trusts (DSTs)

No Management Responsibilities

No Management Responsibilities

DSTs are managed by professional, third-party firms. For investors transitioning from actively managing properties to passive ownership, this alleviates the burden of day-to-day management and replaces it with the freedom of time for travel and leisure.

Tax-Sheltered Monthly Income

Tax-Sheltered Monthly Income

Distributions from cash flow are paid monthly. Because DST investors are deemed to have direct ownership of real estate, the benefits of direct ownership, such as mortgage interest deductions and depreciation, flow through to investors on a pro-rata basis. Because of this, income from DSTs is often tax-sheltered, making for a greater tax-equivalent yield.

Diversification

Diversification

Because of the fractional-ownership and low minimum investment of DSTs, clients are able to replace their investment with a portfolio of commercial real estate that provides diversification of asset class, geography and even DST sponsor. This helps to mitigate investment risk.

Ease of Ownership

Ease of Ownership

The rules and deadlines of a 1031 exchange, such as the “45-day identification period,” can be difficult to maneuver. DSTs are pre-vetted and already acquired, ready for an investor’s exchange. The closing process into a DST can take as little as two business days. For investors at the end of their 45-day ID period who have not yet found a suitable replacement property, DSTs can offer an immediate and simple solution. For this same reason, DSTs also make for great back-up properties, in case there are complications with a sole-property acquisition.

Higher-Value Real Estate

Higher-Value Real Estate

A DST is a pooled-equity investment which allows investors to collectively purchase a property of higher value by aggregating their equity together. This allows DST investors to purchase properties that would otherwise be out of a single investor’s reach. As an example, a DST investor could go from owning 100% of a local apartment to owning 1.20% of a $50 million class A apartment complex in Denver, CO.

Estate Planning

Estate Planning

DSTs, like traditional real estate upon an owner’s passing, provide heirs with a step-up in cost basis. This means that heirs do not receive the owner’s original cost basis, but a “stepped-up” basis as of the date of death. This is true even if the owner has performed multiple 1031 exchanges. DSTs can also relieve the anxiety and problems that can occur when real estate is transferred to heirs.


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    When an investor exchanges property into a DST, they are obtaining a beneficial interest along with other investors in an institutional quality property that is managed by a trustee. So, the typical burdens associated with property management and loan responsibilities are effectively shifted from the investor (or heir) to the trustee. Heirs who may be otherwise averse to owning real estate due to added responsibilities may be relieved to learn that they can own income-producing real estate in a DST property structure and have very little additional work to perform other than some added tax reporting responsibilities at year end.

Partial List of Current and Fully Subscribed Offerings

For a Full List, Contact Us

Texas Multifamily, DST

Madison Farms, DST

Location(s): NC
Loan-to-Value: 0%
Offering Size: $81,173,184
Suitability: Accredited Investors Only

NC Student Housing, DST

Industrial Portfolio, DST

Location(s): FL, KS
Loan-to-Value: 0%
Offering Size: $275,859,119
Suitability: Accredited Investors Only

Self-Storage Portfolio VII, DST

Storage IV, DST

Location(s): AZ, FL
Loan-to-Value: 0%
Offering Size: $70,344,106
Suitability: Accredited Investors Only

2000 West Creek Apartments, DST

One Riverside, DST

Location(s): TN
Loan-to-Value: 51.72%
Offering Size: $45,550,000
Suitability: Accredited Investors Only

MOB Texas V, DST

Senior Living of Largo, DST

Location(s): FL
Loan-to-Value: 0%
Offering Size: $25,581,544
Suitability: Accredited Investors Only

SE Multifamily Portfolio I, DST

Village View, DST

Location(s): NV
Loan-to-Value: 46.89%
Offering Size: $29,425,000
Suitability: Accredited Investors Only

The offerings shown above are representative of investments available in the Clark Wealth Strategies DST inventory. This is neither an offer to sell nor a solicitation of an offer to buy a DST interest. There is no guarantee that these objectives will be met.

Additional Alternative Real Estate Tax Strategies

721 UPREIT - IRC Section 721

Qualified Opportunity Zone Program (QOZ)

721 UPREIT - IRC Section 721 and the Two-Step Transaction

Section 721 of the Internal Revenue Code allows real estate owners to convert, tax-deferred, their physical property into interests in the operating partnership of a real estate investment trust (“REIT”) using an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) structure. This is commonly known as "the 721 UPREIT."

The 721 exchange is an alternative solution to a traditional 1031 exchange.

A 721 exchange tends to appeal to a property owner seeking the potential benefits of a larger real estate portfolio including diversification, professional management, economies of scale, access to capital, increased liquidity, and additional estate planning benefits, all while deferring the recognition of a capital gain on their original property.

The Two-Step Transaction Using a DST

A 721 exchange is typically accomplished when investors acquire interests in a DST through a 1031 exchange and hold that DST for at least two years. The DST asset is then acquired by the REIT, and the owner converts from DSTs interests into operational partnership units of the REIT.

Qualified Opportunity Zone Program (QOZ)

The QOZ Program was created by the federal government as part of the Tax Cuts and Jobs Act of 2017.

The QOZ Program is intended to encourage investment in lower-income communities across the U.S., principally by providing certain tax incentives in return for committing long-term capital to these communities through investment vehicles called QOFs. 

What are Qualified Opportunity Zones?

What are Qualified Opportunity Zones?

A QOZ is a designated census tract in the United States selected by a state governor and certified by the U.S. Department of Treasury for inclusion in the QOZ Program.

Each state governor was permitted to nominate up to 25% of the state’s qualifying census tracts for inclusion in the QOZ Program.

In order to qualify for inclusion, a census tract must satisfy one of the following low-income community (“LIC”) tests based on the 2010 census:

  • have a poverty rate of at least 20%,
  • if the LIC is in a metropolitan area, have a median household income not exceeding 80% of the metropolitan median household income (or the statewide median household income, whichever is greater) or
  • if the LIC is not located in a metropolitan area, have a median household income not exceeding 80%of the statewide median household income.

What are QOFs?

A QOF is an investment vehicle that holds at least 90% of its assets in “qualified opportunity zone property’. QOFs can make investments in a wide variety of real estate and new or existing businesses. QOFs can hold single or multiple assets. Qualified opportunity zone property includes interests held by the QOF in a “Qualified Opportunity Zone Business’

POTENTIAL TAX BENEFITS OF OPPORTUNITY ZONES

Substantial potential tax benefits may be available to investors who realize short-term or long-term capital gains from the sale of an investment and reinvest those gains into a QOF within 180 days. Gains from stocks, bonds, real estate, companies, among other assets, are eligible.

Proud Affiliate Members of the Federation of Exchange Accommodators

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