How to Interview and Select the Right Deferred Sales Trustee for Your Retirement Plan

Choosing the right trustee for your Deferred Sales Trust (DST) might be the most critical decision in your retirement income planning process. This professional will manage millions of dollars of your hard-earned wealth, ensure tax compliance, and ultimately determine whether your retirement income flows as planned for decades to come. Yet many investors spend more time researching a new car purchase than vetting potential DST trustees.

Selecting the right DST trustee requires thorough vetting to ensure your retirement income security

Why Your DST Trustee Selection Can Make or Break Your Retirement Plan

The trustee you select will have significant influence over your financial future:

• Investment decision-making authority that directly impacts your income sustainability
• Tax compliance responsibility with potential IRS scrutiny of DST structures
• Distribution management control affecting when and how you receive payments
• Long-term relationship necessity as your trustee may serve for 20+ years
• Limited replacement options once your DST is established

Real-world impact: Thomas and Margaret established a $3.2 million DST with a trustee they selected after minimal due diligence. Three years later, poor investment decisions and administrative errors had reduced their trust value by 18% and triggered an IRS review, significantly threatening their retirement security.

The 7 Essential Criteria for Evaluating DST Trustees

1. Specialized DST Experience and Expertise

Unlike standard trusts, DSTs operate under specific IRC §453 installment sale provisions requiring specialized knowledge.

Questions to ask potential trustees:

• How many DSTs have you personally structured and managed?
• What percentage of your practice focuses specifically on DSTs?
• How long have you been working with this particular DST strategy?
• Can you explain recent IRS developments affecting DST structures?
• What specific training or credentials do you have related to DSTs?

Red flags to watch for:

• Vague answers about “extensive experience” without specifics
• Focus on related but different experience (1031 exchanges, standard trusts)
• Recent entry into DST space without mentor relationships
• Inability to discuss specific IRS private letter rulings relevant to DSTs

Experience benchmark: Look for trustees who have structured at least 20+ DSTs and have a minimum of 5 years focused experience in this specific area.

2. Investment Management Philosophy and Performance

Your trustee’s investment approach directly impacts your income sustainability and principal preservation.

Questions to ask potential trustees:

• What is your investment philosophy for DST assets?
• How do you balance income generation vs. growth vs. principal preservation?
• What has been your average annual return for DST clients over 1, 3, and 5 years?
• How do you customize investment strategies for different client situations?
• What happens if investment performance doesn’t meet expectations?

Red flags to watch for:

• Promises of unusually high returns (10%+) or guarantees
• One-size-fits-all investment approaches
• Unwillingness to share performance history
• Overemphasis on proprietary investment products
• Extreme approaches (either ultra-conservative or aggressive)

Performance benchmark: Seek trustees demonstrating consistent 5-7% average annual returns for DST clients with transparent reporting methodology.

3. Fee Structure Transparency and Reasonableness

DST costs can significantly impact your net returns, making fee transparency essential.

Questions to ask potential trustees:

• What is your complete fee structure for DST services?
• Are there separate fees for trustee services vs. investment management?
• What additional costs might I incur beyond your stated fees?
• How are investment product costs handled within the trust?
• Do you receive any third-party compensation related to my DST?

Red flags to watch for:

• Reluctance to provide clear, written fee schedules
• “Bundled” fees without detailed breakdown
• Fees significantly higher than industry norms
• Compensation arrangements with product providers or referral sources
• Hidden fees discovered only in fine print

Fee benchmark: Typical DST administration fees range from 0.8-1.5% annually, with setup costs between $10,000-$25,000 depending on complexity.

4. Compliance and Risk Management Protocols

Proper DST structuring and ongoing compliance are essential for preserving tax benefits and preventing IRS challenges.

Questions to ask potential trustees:

• What specific compliance procedures do you follow for DSTs?
• How do you ensure ongoing adherence to IRS requirements?
• What happens if the IRS questions our DST structure?
• What insurance coverage do you maintain for errors and omissions?
• How do you stay current with regulatory changes affecting DSTs?

Red flags to watch for:

• Dismissive attitude toward IRS scrutiny possibilities
• Lack of specific compliance procedures
• Inadequate insurance coverage
• Overconfidence about “bulletproof” structures
• No regular compliance review process

Compliance benchmark: Seek trustees with documented annual compliance reviews, substantial E&O insurance ($2M+), and ongoing legal counsel relationships.

5. Communication Style and Accessibility

Your relationship with your DST trustee may span decades, making communication compatibility crucial.

Questions to ask potential trustees:

• How frequently will we communicate about my DST?
• What regular reporting will I receive about trust performance?
• Who specifically will be my main point of contact?
• How quickly do you typically respond to client inquiries?
• How do you prefer to communicate (phone, email, in-person)?

Red flags to watch for:

• Vague communication commitments
• Excessive delegation to junior staff
• Reluctance to commit to regular reviews
• Limited accessibility or responsiveness during initial interactions
• Communication style mismatched with your preferences

Communication benchmark: Monthly written performance reports, quarterly comprehensive reviews, and response to inquiries within 24-48 hours represent industry best practices.

6. Succession and Continuity Planning

Given the long-term nature of DSTs, trustee succession planning is essential for your financial security.

Questions to ask potential trustees:

• What happens to my DST if you retire, become disabled, or pass away?
• Do you have documented succession plans for client transitions?
• Who are the specific professionals designated as your successors?
• What is the average tenure of professionals in your organization?
• How are client records and knowledge transferred in succession events?

Red flags to watch for:

• Solo practitioners without clear succession arrangements
• Vague references to unnamed colleagues
• Absence of written continuity procedures
• Significant age of trustee without transition planning
• High staff turnover within the organization

Succession benchmark: Look for trustees with written succession plans, identified successor professionals with DST experience, and demonstrated successful transitions.

7. Client References and Reputation

Direct feedback from existing clients provides invaluable insight into trustee performance.

Questions to ask potential trustees:

• Can you provide references from DST clients in situations similar to mine?
• Are there clients who have been with you for 5+ years I could speak with?
• Have any clients terminated their relationship with you, and why?
• What professional organizations or networks validate your DST expertise?
• How do you measure client satisfaction?

Red flags to watch for:

• Reluctance to provide specific references
• Providing only very recent clients as references
• Inability to connect you with clients in similar situations
• Negative reviews or disciplinary actions
• Absence from recognized professional organizations

Reference benchmark: Request at least 3-5 current client references, including at least 2 clients who have worked with the trustee for 5+ years.

The Essential Interview Process: A Step-by-Step Approach

A systematic interview process helps ensure thorough vetting of potential DST trustees

Phase 1: Initial Screening and Background Verification

Before in-depth interviews, complete these preliminary steps:

1. Credential verification:
   • Confirm professional licenses and registrations
   • Verify educational credentials
   • Check relevant certifications
2. Regulatory background check:
   • Review FINRA BrokerCheck for advisors
   • Check SEC Investment Adviser Public Disclosure
   • Review state bar association status for attorneys
   • Examine Better Business Bureau ratings
3. Public reputation assessment:
   • Search for published articles or presentations on DSTs
   • Review client testimonials and online reviews
   • Examine professional organization participation
   • Check for any negative news or litigation history

Implementation tip: “I create a simple spreadsheet to compare potential trustees across these preliminary criteria before investing time in face-to-face interviews,” shares Robert, who established a $4.2 million DST in 2021.

Phase 2: Structured In-Depth Interviews

Conduct comprehensive interviews using a consistent framework:

1. Initial trustee presentation:
   • Allow candidate to present their DST approach
   • Listen for clear explanation of their process
   • Note areas of emphasis or unique perspectives
2. Structured question session:
   • Use prepared questions from the 7 criteria areas
   • Ask identical core questions to all candidates
   • Document answers for later comparison
3. Specific scenario discussion:
   • Present your specific situation and objectives
   • Ask how they would structure your particular DST
   • Request sample documentation for similar cases
4. Fee transparency discussion:
   • Request detailed written fee disclosure
   • Discuss all potential costs and expenses
   • Compare with other candidates’ fee structures

Process insight: “We interviewed five potential trustees, asking each the same 15 core questions and scoring their responses from 1-5. This systematic approach made the differences much clearer,” explains Margaret, who established her DST in 2020.

Phase 3: Client Reference Verification

Speak directly with existing clients for real-world insights:

1. Similar situation references:
   • Talk with clients whose asset type and value mirror yours
   • Discuss their experience during setup and ongoing management
   • Ask about any challenges or issues encountered
2. Long-term client perspective:
   • Speak with clients who have worked with the trustee for 5+ years
   • Focus on communication consistency and problem resolution
   • Discuss how the relationship has evolved over time
3. Professional reference checks:
   • Speak with other professionals who work with the trustee
   • Gather perspective from attorneys or CPAs familiar with their work
   • Understand their professional reputation among peers

Reference question example: “If you could go back in time, would you select this trustee again? What, if anything, would you do differently in your selection process?”

Phase 4: Final Comparative Analysis

Create a structured framework for final decision-making:

1. Weighted criteria assessment:
   • Assign importance weights to different criteria
   • Score each candidate across all criteria
   • Calculate weighted overall scores
2. Compatibility evaluation:
   • Assess personal compatibility and communication style
   • Consider geographic proximity if important to you
   • Evaluate cultural fit with your values and approach
3. Formal proposal comparison:
   • Request detailed written proposals from finalists
   • Compare specific DST structures and terms
   • Analyze fee structures and total cost projections

Decision framework example: James created a decision matrix with criteria weighted as follows: Experience (25%), Investment Approach (20%), Communication (15%), Fees (15%), Compliance (10%), Succession (10%), and References (5%).

Real-World Differences Between Strong and Weak DST Trustees

Investment Management Approach

Superior trustee approach:

• Customized asset allocation based on your specific income needs
• Regular rebalancing with detailed performance reporting
• Transparent investment selection process
• Proactive risk management strategies
• Performance benchmarking against relevant indices

Problematic trustee approach:

• Cookie-cutter portfolios across all clients
• Excessive use of proprietary or high-commission products
• Infrequent or opaque performance reporting
• Reactive rather than proactive management
• Unrealistic return projections

Impact example: Two clients with similar $3M DSTs had dramatically different outcomes over 5 years: one experienced consistent 6.2% average returns with minimal volatility, while the other averaged just 3.8% with significant value fluctuations—directly attributable to investment management differences.

Communication and Responsiveness

Superior trustee pattern:

• Proactive monthly updates even when nothing significant changes
• Comprehensive quarterly reviews with performance analysis
• Rapid response to inquiries (typically same-day)
• Clear explanations without excessive jargon
• Transparency about both positive and negative developments

Problematic trustee pattern:

• Communication only when absolutely necessary
• Delayed responses to inquiries (days or weeks)
• Vague or overly technical explanations
• Defensive responses to questions
• Reluctance to acknowledge challenges

Client experience contrast: “My first trustee would take 3-4 days to return calls and seemed annoyed by questions. My current trustee responds same-day and has quarterly video calls to review everything in detail,” reports Elizabeth, who changed trustees after two frustrating years.

Fee Structure Transparency

Superior trustee approach:

• Clear, comprehensive fee disclosure in writing
• Unbundled fees showing exactly what you’re paying for
• Transparency about any third-party compensation
• Regular fee reviews and justification
• Fee structures aligned with your best interests

Problematic trustee approach:

• Vague “all-in” fee descriptions without breakdown
• Hidden fees discovered only in fine print
• Undisclosed revenue sharing with product providers
• Resistance to fee discussions
• Fee structures creating potential conflicts of interest

Cost impact example: Analysis of two seemingly similar “1% fee” arrangements revealed that one client was actually paying nearly 2.3% when all embedded costs were uncovered, representing almost $39,000 in additional annual expenses on a $3M DST.

Common Questions When Selecting a DST Trustee

“Should I use the trustee recommended by my financial advisor?”

While advisor recommendations provide a starting point, independent vetting remains essential:

• Understand the relationship: Ask your advisor about any referral arrangements or compensation
• Expand your search: Consider multiple candidates, not just the recommended trustee
• Apply the same standards: Put recommended trustees through the same rigorous evaluation
• Consider potential conflicts: Be aware of potential business relationships between the parties

Balanced approach: Use advisor recommendations as one input in your broader search and evaluation process.

“Is a larger institution better than a boutique DST firm?”

Each offers distinct advantages and considerations:

Large institution advantages:

• Established succession planning and continuity
• Substantial resources and infrastructure
• Typically strong compliance departments
• Brand reputation and longevity

Boutique firm advantages:

• Often more specialized DST expertise
• Typically more personalized service
• Frequently more responsive to client needs
• Often more flexible in customizing structures

Selection perspective: “After interviewing both large banks and specialized firms, we selected a boutique trustee with deeper DST expertise who provided much more personalized attention,” shares Thomas, who established a $5.7M DST in 2019.

“How important is geographic proximity to my trustee?”

While technology enables remote relationships, consider:

• Meeting preference: How important are face-to-face meetings to you personally?
• State law considerations: Some states have more favorable trust laws and protections
• Service approach: Some trustees maintain strong personal service regardless of location
• Travel capability: Consider your willingness to travel for periodic in-person reviews

Practical insight: “I selected a trustee three states away because their expertise far outweighed the convenience of local options. We have video meetings quarterly and in-person annually, which works perfectly,” explains Robert, who established his DST in 2022.

“Can I change trustees if I’m unsatisfied?”

While possible, trustee changes involve complexity:

• Structuring consideration: Well-designed DSTs include trustee succession provisions
• Timing importance: Changes are easier earlier in the DST term
• Cost awareness: Transitioning typically involves legal and administrative expenses
• Documentation requirements: Substantial paperwork and due diligence is necessary
• Practical limitation: Finding trustees willing to assume existing DSTs can be challenging

Planning perspective: “I insisted on including specific trustee replacement provisions in my original DST documentation, which proved invaluable when I needed to make a change three years later,” advises Margaret, who transitioned trustees in 2021.

The DST Trustee Selection Timeline: Planning Your Process

A thorough selection process typically requires 4-8 weeks:

Weeks 1-2: Initial Research and Identification

• Gather recommendations from advisors
• Research potential candidates online
• Create initial list of 5-7 potential trustees
• Conduct preliminary background checks

Weeks 3-4: Initial Interviews and Screening

• Schedule 60-90 minute initial interviews
• Provide candidates with overview of your situation
• Ask core questions from evaluation criteria
• Narrow field to 2-3 finalists

Weeks 5-6: Deep Dive Evaluation

• Request detailed proposals from finalists
• Speak with client references
• Review sample documentation
• Conduct follow-up interviews on specific questions

Weeks 7-8: Final Selection and Engagement

• Compare final proposals
• Conduct any additional due diligence
• Make final selection
• Begin engagement process

Planning note: Start this process well before your anticipated asset sale to ensure adequate time for thorough evaluation without rushing due to transaction timing pressure.

Conclusion: Your Trustee Decision Defines Your DST Experience

Selecting the right DST trustee represents one of the most consequential financial decisions you’ll make. This professional will influence your retirement income security, tax situation, and financial peace of mind for potentially decades to come.

By applying a structured evaluation process focused on expertise, investment approach, communication, compliance, fees, succession planning, and client experiences, you can significantly increase your probability of selecting a trustee who will serve your interests effectively throughout your retirement journey.

Remember that the time invested in thorough trustee due diligence pays dividends through enhanced retirement security, potentially higher returns, lower fees, and reduced stress throughout your DST experience. As with most significant financial decisions, careful front-end planning creates substantial long-term benefits.

Before making your final trustee selection, consider consulting with an independent attorney experienced in DST structures who can review proposed documentation and provide objective input on your selection from a legal perspective.