When You Die, Does Your Business Die Too?
Estate planning is something most owners know they should handle, yet it often gets pushed aside. A business or real estate portfolio may represent decades of effort, decisions, relationships, and risk-taking. But without a plan, what happens to all of that when the owner is no longer here to run it?
For many families, the transition does not go smoothly. Properties may be sold quickly at reduced values, heirs may disagree on how to manage the holdings, and the administrative burden can overwhelm those who never intended to inherit a business. Instead of becoming a source of security, an unprepared estate can create stress, confusion, and financial loss.
There is, however, a structure designed to help owners preserve what they built while avoiding many of these risks. By transitioning real estate holdings into a DST and eventually into an UPREIT, owners can convert a complex portfolio into an easier, tax-efficient asset that supports heirs rather than burdening them.
What Is an UPREIT?
An UPREIT, or Umbrella Partnership Real Estate Investment Trust, is a structure that allows property owners to exchange real estate interests for Operating Partnership units held within a REIT’s operating partnership. Many owners reach an UPREIT by first moving into a Delaware Statutory Trust, which removes management responsibilities and prepares the investment for a later 721 Exchange into OP Units.
This two-step approach allows an owner to stop managing properties directly, receive passive income during their lifetime, and create a more streamlined asset for inheritance.
How the UPREIT Exchange Works
Contributing Property
Owners exchange their DST interest or property interest for equity in the form of OP Units.
Tax Deferral
This exchange defers the taxes normally triggered by a sale, preserving more value inside the estate.
Ongoing Participation
OP Units represent a share of the REIT’s broader real estate portfolio and typically generate distributions similar to REIT dividends.
This process allows owners to move from hands-on management to a diversified, professionally managed structure without interrupting income or creating an immediate tax bill.
Why an UPREIT Strengthens Estate Planning
Simplified Inheritance
Passing individual properties to heirs can be complicated. Each asset must be valued, transferred, and managed. If heirs are not prepared to oversee real estate, or do not agree on how it should be divided, the process can quickly become contentious.
OP Units or later REIT shares are far simpler to inherit and divide. They eliminate the need for property management and reduce the risk of disputes. Heirs receive an asset they can hold, sell gradually, or convert according to their needs.
Meaningful Tax Advantages
Selling appreciated real estate generates capital gains taxes and depreciation recapture. A 721 Exchange defers these taxes, allowing more wealth to remain in the estate.
Heirs typically receive a step-up in basis when they inherit OP Units, which can reduce or eliminate the built-in tax burden. This creates a smoother and more efficient transfer of wealth compared to passing down individual properties that carry years of depreciation history.
Access to Liquidity
Real estate is not easy to convert into cash when a family needs it. Heirs may be forced to sell buildings quickly to pay taxes or resolve estate matters, often at prices below market value.
OP Units offer regular distributions, which help provide ongoing income. And if heirs eventually need a larger amount of liquidity, they can elect to convert OP Units into REIT shares after the required holding period. Shares can be sold more gradually and on better timing than real estate.
Income for the Next Generation
One of the advantages of an UPREIT is the ability to pass down passive income rather than a management responsibility. Your heirs continue to receive distributions tied to a diversified portfolio, without needing to negotiate leases, handle repairs, or oversee tenants. This structure turns the portfolio into a long-term financial resource rather than a complex set of obligations.
Turning a Complex Portfolio into a Lasting Legacy
Without a clear plan, even the strongest real estate portfolio can become difficult for a family to manage. Properties may sit vacant, require expensive repairs, or create disagreements among heirs. These challenges often lead to rushed sales, reducing the value of what the original owner worked to build.
By incorporating a DST and UPREIT strategy into an estate plan, owners convert a hands-on asset into a simplified investment structure with predictable income and long-term flexibility. Instead of burdening heirs, the portfolio becomes a source of stability.
Planning for the Future
Every owner eventually faces the question of what will happen to their business or real estate after they’re gone. Preparing for that transition does more than preserve financial value; it strengthens the legacy of the person who built it.
An UPREIT can be an effective tool for this purpose. It provides income, flexibility, and clarity for future generations. Owners who explore this path often find that it brings peace of mind both for themselves and for those who will inherit their estate.
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