DST Fees Explained: 7 Key Costs For Deferred Sales Trusts

When considering a Deferred Sales Trust (DST) as a tax deferral strategy, understanding the complete DST fees structure is essential for making an informed decision. While the potential tax benefits can be substantial, investors should enter this arrangement with clear knowledge of all costs involved. This comprehensive breakdown examines the various DST fees you can expect throughout the life of your trust.

The complete DST fees picture includes not only initial setup costs but also ongoing expenses that affect your long-term returns. By understanding these expenses upfront, you can better evaluate whether a DST makes financial sense for your specific situation.

Table of Contents

• Initial Setup DST Fees
• Trustee and Administration Costs
• Investment Management Expenses
• Legal and Compliance Fees
• Transaction-Specific Costs
• Termination and Modification Expenses
• DST Fees Compared to Alternatives
• Negotiating and Minimizing DST Costs
• Evaluating Value: When Are DST Fees Worth It?
• FAQs About DST Fees

Initial Setup DST Fees

The first category of DST fees involves establishing the trust structure:

Legal Documentation Costs

Creating a properly structured DST requires specialized legal expertise:

• Trust agreement drafting: $5,000-$15,000
• Sale documentation: $3,000-$8,000
• Investment policy statement: $1,500-$3,000
• Specialized provisions (if needed): $1,000-$5,000

These DST fees vary based on the complexity of your situation, asset values, and the law firm’s experience with DST structures. Higher-value transactions often command higher fees, reflecting the increased liability and complexity.

Initial Trustee Setup Fees

The independent trustee typically charges for establishing the trust relationship:

• Trustee acceptance fee: $2,500-$10,000
• Trust account setup: $1,000-$3,000
• Initial compliance verification: $500-$2,500

These DST fees are often based on a combination of fixed charges and a percentage of the trust assets, particularly for larger transactions.

Tax Planning and Structuring

Proper tax guidance is essential for DST implementation:

• Tax structuring consultation: $3,000-$10,000
• Installment sale calculation and planning: $1,500-$5,000
• Basis allocation planning: $1,000-$3,000

These DST fees reflect the specialized expertise required to maximize tax benefits while ensuring compliance with IRS regulations.

“While initial DST fees may seem substantial, they represent a small percentage of the potential tax savings for larger transactions. For a $5 million capital gain at 30% tax rates, deferring $1.5 million in taxes often justifies the setup costs.” – Journal of Tax Planning

Trustee and Administration Costs

Ongoing DST fees include regular expenses for trust administration:

Annual Trustee Fees

Independent trustees charge for their fiduciary responsibilities:

• Percentage-based fees: Typically 0.5%-1.5% of trust assets annually
• Minimum annual fee: Often $5,000-$15,000 regardless of asset size
• Activity-based charges: Additional fees for high-activity trusts

These DST fees compensate the trustee for maintaining independence, ensuring compliance, and fulfilling fiduciary duties. The percentage typically decreases as trust assets increase, creating some economies of scale.

Administrative Expenses

Regular trust administration involves several operational costs:

• Account maintenance: $1,000-$3,000 annually
• Transaction processing: $50-$250 per transaction
• Distribution administration: $200-$500 per distribution
• Record-keeping and reporting: $1,200-$5,000 annually

These DST fees cover the day-to-day operation of the trust and ensure proper documentation of all activities.

Annual Tax Preparation

DSTs require specialized tax filings:

• Trust tax return preparation: $1,500-$5,000 annually
• Beneficiary tax reporting: $500-$1,500 annually
• Tax planning consultations: $1,000-$3,000 annually

The complexity of trust investments and distribution structures significantly impacts these DST fees, with more complex situations commanding higher costs.

Investment Management Expenses

A key category of ongoing DST fees relates to managing trust investments:

Investment Advisory Fees

Professional investment management typically involves:

• Percentage-based management fees: 0.5%-1.5% of managed assets annually
• Performance-based fees: Sometimes additional fees for exceeding benchmarks
• Investment planning services: Often included in percentage fee or $1,000-$5,000

These DST fees compensate investment professionals for selecting, monitoring, and adjusting trust investments to meet distribution obligations and growth objectives.

Investment Platform Costs

The investment vehicles used within the trust carry their own expenses:

• Mutual fund expense ratios: 0.1%-1.5% annually (varies by fund type)
• ETF expenses: 0.03%-0.75% annually
• Separately managed account fees: 0.3%-1% annually
• Private investment access fees: Varies widely based on investment type

These DST fees are often deducted directly from investment returns rather than billed separately, making them less visible but equally important to monitor.

Trading and Transaction Costs

Investment changes incur various expenses:

• Trading commissions: $0-$50 per trade (varies by platform)
• Bid-ask spreads: Implicit costs when buying/selling securities
• Custody fees: 0.05%-0.2% annually
• Wire transfer fees: $15-$50 per transfer

While individual DST fees in this category may seem small, they can accumulate significantly with active management styles.

Legal and Compliance Fees

Maintaining proper DST structure involves ongoing legal expenses:

Compliance Reviews

Periodic legal oversight helps ensure continued qualification:

• Annual compliance review: $1,500-$5,000
• Regulatory updates implementation: $500-$2,500 as needed
• Documentation maintenance: $1,000-$3,000 annually

These DST fees help protect the tax-advantaged status of the trust by ensuring ongoing adherence to IRS requirements.

Legal Consultations

Ongoing legal guidance is often necessary:

• General counsel availability: $2,000-$10,000 annual retainer
• Specific issue consultations: $350-$800 per hour
• Document reviews and updates: $1,000-$3,000 as needed

These DST fees provide access to specialized legal expertise throughout the trust’s existence.

Transaction-Specific Costs

Certain DST fees apply only when specific events occur:

Investment Change Expenses

Major portfolio adjustments may trigger costs:

• Investment policy modifications: $1,000-$3,000
• Large asset liquidation fees: Often negotiable based on transaction size
• Alternative investment due diligence: $2,500-$15,000 (for private investments)

These situational DST fees apply only when significant changes to the investment approach occur.

Distribution Modification Costs

Changes to the payment structure involve additional expenses:

• Payment schedule amendments: $1,500-$5,000
• Distribution recalculation: $1,000-$3,000
• Legal review of modifications: $2,000-$7,500

These DST fees reflect the legal and administrative work required to properly document and implement changes to the original distribution plan.

Termination and Modification Expenses

Eventually, all DSTs come to an end, triggering final DST fees:

Early Termination Costs

If you decide to end the DST before its planned conclusion:

• Early termination legal review: $3,000-$10,000
• Final tax calculation and planning: $2,500-$7,500
• Asset distribution coordination: $1,500-$5,000

These DST fees tend to be higher for early terminations due to the additional complexity and potential tax implications.

Standard Termination Expenses

Even planned terminations involve closing costs:

• Final accounting: $2,000-$7,500
• Terminal tax return preparation: $1,500-$5,000
• Asset distribution documentation: $1,000-$3,000

These DST fees represent the final administrative expenses to properly close out the trust relationship.

DST Fees Compared to Alternatives

To properly evaluate DST fees, consider them in comparison to alternative tax strategies:

1031 Exchange Cost Comparison

When compared to a 1031 exchange:

• 1031 Exchange Costs: Typically 1%-3% of transaction value (qualified intermediary fees, due diligence, legal review)
• DST Advantage: More flexibility in asset selection and location
• DST Disadvantage: Generally higher ongoing fees than direct property ownership

Qualified Opportunity Zone Comparison

Relative to QOZ investments:

• QOZ Costs: Fund management fees (1.5%-3.5% annually), development risk
• DST Advantage: No geographic restrictions, lower risk profile options
• DST Disadvantage: Lacks partial tax forgiveness feature of QOZ

Charitable Remainder Trust Comparison

Compared to CRT structures:

• CRT Costs: Similar setup costs, comparable ongoing fees
• DST Advantage: No charitable remainder requirement, greater flexibility
• DST Disadvantage: No immediate partial tax deduction

This comparative perspective helps place DST fees in the proper context of overall value.

Negotiating and Minimizing DST Costs

Several strategies can help optimize the DST fees structure:

Size-Based Negotiations

Larger transactions have leverage:

• Asset-based fee tiers: Negotiate declining percentage rates for larger amounts
• Minimum fee waivers: Request removal of minimums for substantial assets
• Bundle services: Seek package pricing for combined services

Service Provider Selection

Choose providers carefully:

• Trustee comparison: Compare fee structures across multiple trustees
• Investment advisor selection: Evaluate both cost and performance track record
• Legal fee structure: Consider flat-fee versus hourly arrangements

Ongoing Management

Active management of DST fees can yield savings:

• Passive investment options: Reduce management fees with index-based approaches
• Consolidated reporting: Simplify administration with unified platforms
• Regular fee audits: Review all expenses annually for potential savings

These approaches can significantly reduce the lifetime cost of DST fees without compromising quality or compliance.

Evaluating Value: When Are DST Fees Worth It?

The true question isn’t just the amount of DST fees, but whether they provide sufficient value:

Tax Deferral Benefit Calculation

A simple calculation helps evaluate the math:

1. Calculate potential immediate tax: (Asset Value − Basis) × Tax Rate
2. Calculate present value of future tax payments based on DST schedule
3. Subtract total estimated DST fees (present value)
4. Compare net benefit to alternatives

For example, on a $10 million property with $7 million gain at 30% tax rate:

• Immediate tax without DST: $2.1 million
• Present value of future tax with DST: $1.4 million
• Estimated present value of lifetime DST fees: $400,000
• Net benefit: $300,000 plus investment flexibility advantages

Intangible Benefits

Beyond pure numbers, consider:

• Investment diversification opportunities
• Professional management advantages
• Reduced property management responsibilities
• Flexible income structuring
• Estate planning benefits

These factors may justify higher DST fees for many investors, particularly those transitioning from active to passive investment approaches.

FAQs About DST Fees

Are DST fees tax-deductible?

Most DST fees related to investment management and trust administration are deductible by the trust as expenses of maintaining income-producing property. However, initial setup costs are typically capitalized rather than immediately deducted. The tax treatment can vary based on specific circumstances and current tax law.

How are DST fees typically paid?

DST fees are generally paid directly from trust assets, reducing the need for out-of-pocket payments. Setup costs are sometimes paid personally by the grantor before trust funding, while ongoing fees are deducted from trust assets.

Do larger trusts qualify for fee discounts?

Yes, most DST fees based on percentages of assets feature tiered structures with lower rates for larger asset amounts. For example, trustee fees might be 1% on the first $1 million, 0.75% on the next $4 million, and 0.5% on amounts above $5 million.

Can I use my existing financial advisor with a DST?

Often yes, though this depends on the trustee’s policies. Some trustees require using their affiliated investment management services, while others allow outside advisors subject to oversight and approval. When using existing advisors, evaluate whether their fee structure is competitive with trust-specific options.

How do DST fees compare for different asset types?

DST fees can vary significantly based on the assets being sold and the investments held within the trust. Real estate transactions often have higher initial setup costs due to more complex documentation, while business sales may involve higher valuation and structuring expenses. Investment DST fees are typically highest for alternative investments and private equity, and lowest for passive index strategies.

Understanding the complete picture of DST fees is essential for making an informed decision about whether a Deferred Sales Trust makes financial sense for your situation. While the costs are significant, they must be evaluated in the context of potential tax savings, investment flexibility, and simplified asset management. For many investors with substantial capital gains, the benefits outweigh the costs, particularly when fee structures are carefully negotiated and monitored.

Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or investment advice. Always consult with qualified professionals regarding your specific circumstances.

Additional Resources

• Internal Revenue Code Section 453: Installment Sales
• American College of Trust and Estate Counsel: Trust Fee Guidelines
• Financial Planning Association: Investment Advisory Fee Benchmarks
• American Bar Association: Trust Administration Standards
• Investment Company Institute: Fund Fee Studies