A Delaware Statutory Trust and a tenant-in-common interest both satisfy Section 1031's replacement-property test, but the paperwork behind each one hands operating control to a different party. This guide walks through the specific clauses in a DST trust agreement and a TIC co-ownership agreement that decide who can refinance, lease, or sell after closing, and where each structure tends to run into friction in 2026 filings.
TL;DR
- A DST trustee holds legal title and exercises control; the investor holds a beneficial interest with no vote on refinancing or leasing.
- A TIC deeds title directly to each investor, capped at 35 co-owners under Revenue Procedure 2002-22.
- In a DST vs TIC 1031 exchange, control splits on consent: a DST needs no investor sign-off to refinance, a TIC usually needs every co-owner's signature.
- TIC co-owners can mortgage, sell, or, in many states, seek to partition their own fractional interest; DST investors cannot act on the underlying property at all.
Why this matters
An investor comparing DST and TIC replacement property is choosing more than an asset type. The choice sets who signs the next loan, who approves the next lease, and who decides when the property sells. Those answers rarely appear in a marketing brochure. They live in the trust agreement or the co-ownership agreement, which is why document review matters more than the property photos once you're inside the 45-day identification window.
Top1031's guide to DST vs TIC co-ownership investor limits covers the headcount side of this question: a TIC interest is capped at 35 co-owners under Revenue Procedure 2002-22, while a DST beneficial interest carries no equivalent cap. Headcount is only half the story. The other half is who gets a vote once the headcount is set, and that's where the two structures diverge in ways that outlast the closing table.
What you'll need
- The trust agreement (for a DST) or the tenancy-in-common agreement (for a TIC), not just the private placement memorandum summary
- The PPM section describing investor rights and the trustee's or manager's authority
- The loan documents, including the non-recourse carve-out signer page
- Revenue Ruling 2004-86, which sets the restrictions a DST trust agreement must follow
- Revenue Procedure 2002-22, which sets the co-ownership conditions a TIC agreement must follow
- If the structure is a TIC, a schedule of the other co-owners and the consent threshold written into the agreement
The steps
1. Identify who holds legal title
A DST holds legal title to the property inside the trust; the investor holds a beneficial interest, which is a contractual claim on trust distributions, not a deed. A TIC investor holds a direct, deeded fractional interest recorded in the property records under their own name. This single fact determines almost everything that follows: whether you can act on the property yourself, or whether someone else acts on your behalf. A common mistake is treating a beneficial interest and a deeded interest as functionally the same because both show up as "1031 replacement property" on a closing statement.
2. Locate the decision-maker clause
In a DST trust agreement, find the section naming the trustee, usually an affiliate of the sponsor, and the list of powers reserved to that trustee. In a TIC agreement, find the consent threshold: does a major decision require unanimous consent, majority consent, or something else. Read this clause before you read the cash-flow section. It tells you who can act without asking you, and who needs your signature before anything happens.
3. Check refinancing rights
Under the restrictions tied to Revenue Ruling 2004-86, a DST trustee generally holds sole authority over the existing loan, and the trust cannot refinance or place new debt on the property once the offering closes, with no investor vote built into the structure at all. A TIC agreement typically requires unanimous consent of every co-owner before a refinance closes, because each owner is a separate borrower on title. Reading the capital structure of a DST filing walks through where this trustee authority language sits inside a typical DST filing.
4. Confirm the co-owner cap and voting math
If the structure is a TIC, count the co-owners against the 35-person ceiling in Revenue Procedure 2002-22 and confirm the consent threshold applies to all of them, not a subset. A group of 20 co-owners with a unanimous-consent clause means 20 separate signatures stand between the group and a refinance or sale. A DST has no equivalent count to check, because the investor pool doesn't vote on operating decisions in the first place.
5. Review disposition and exit timing
A DST investor cannot force the trustee to sell the property; the trust agreement reserves that decision to the trustee, and the investor's exit is limited to selling their own beneficial interest if a transfer mechanism exists. A TIC co-owner has more direct standing over their own share and, depending on the state and the agreement, may have the right to file a partition action to force a sale of the whole property. That right is rarely exercised, and many co-ownership agreements restrict or waive it, but its existence changes the leverage every co-owner holds in a disagreement.
6. Check capital call and reserve provisions
DST trust agreements restrict additional capital contributions past a defined reserve, a limitation that comes directly out of the operating restrictions in Revenue Ruling 2004-86. A TIC agreement's capital call language is negotiated among the co-owners themselves, and a co-owner who won't fund a call can dilute or complicate the group's position depending on what the agreement says happens next. Neither answer is inherently better; the point of this step is knowing which one governs the interest you're buying.
7. Review the non-recourse carve-out signer
Lenders on a DST typically deal with one signatory, the trustee, for carve-out obligations. Lenders on a TIC deal work with multiple deeded owners and often require a single designated signer or guarantor to satisfy underwriting, even though every co-owner is on title. Ask specifically who signs the carve-out guaranty and what that means for individual liability exposure.
8. Confirm the successor mechanism
A DST trust agreement should name how a successor trustee is appointed if the original trustee steps back. A TIC agreement should specify what happens to voting and consent rights if a co-owner sells, dies, or transfers their interest to an heir. Skipping this step means finding out the answer only after a change in ownership forces the question.
Troubleshooting
The PPM doesn't disclose the number of TIC co-owners. Request the schedule of co-owners or the cap table directly. If it isn't disclosed before closing, treat that as an evidence gap rather than assuming a number.
The trust agreement is silent on refinancing. For a DST, silence on investor refinancing rights is typical, not an oversight. Look instead for the trustee authority clause and the Revenue Ruling 2004-86 restriction language rather than expecting an investor vote provision that isn't part of the structure.
The TIC agreement has no unanimous-consent clause. The absence of a clear consent mechanism can put the co-ownership's tax treatment at risk under the factors in Revenue Procedure 2002-22, since the IRS looks at how major decisions get made across the group. That's a question for a CPA or attorney reviewing the specific agreement, not something to infer from the marketing materials.
One TIC co-owner won't sign a refinance. If the agreement requires unanimity, that single holdout blocks the transaction for the entire group regardless of the other owners' positions. Review the agreement's dispute or buyout mechanism before this situation arises, not after.
The DST's successor trustee provision is vague. Ask the sponsor how a trustee transition would work and get the answer in writing rather than relying on a verbal explanation, since the trust agreement, not the sponsor's description of it, governs.
Tools and resources
- Reading the capital structure of a DST filing for the trust agreement clauses that define trustee authority
- Why investors choose DST over direct ownership for the tradeoffs on the direct-ownership side of this comparison
- Revenue Ruling 2004-86 and Revenue Procedure 2002-22, the two IRS documents that set the structural rules for each vehicle
- A CPA or real estate attorney to review the specific trust agreement or co-ownership agreement before you sign, since the document controls, not a general description of the structure
What to do next
Once you know which clauses to check, the next question is usually whether the passive-ownership category itself, DST, TIC, or NNN, fits the level of involvement you want in 2026 and beyond. That comparison sits one layer above ownership mechanics and is covered in the related guide below before you narrow to a specific structure.
FAQ
What's the main difference between a DST and a TIC in a 1031 exchange?
In a DST vs TIC 1031 exchange, a Delaware Statutory Trust assigns legal title and operating decisions to a trustee, while a tenant-in-common structure deeds title directly to each investor. That difference determines who signs the next refinance, lease, or sale, not just how the investment is reported.
Can TIC investors sell their share independently?
Generally yes. A TIC investor holds a direct, deeded fractional interest and can sell or finance that individual interest without the other co-owners' consent, though most TIC agreements still require unanimous consent for decisions affecting the whole property. A DST investor holds a beneficial interest in the trust, not a deed, and has no comparable individual disposition right.
How many investors can hold a TIC interest under Revenue Procedure 2002-22?
Revenue Procedure 2002-22 caps a tenant-in-common group at 35 co-owners for the IRS to consider treating the arrangement as direct co-ownership rather than a business entity. A DST beneficial interest carries no equivalent investor cap under that guidance.
Is a DST or a TIC easier for a lender to underwrite?
Lenders often work more readily with a DST because a single trustee signs the loan and the non-recourse carve-out obligations, compared with a TIC where multiple deeded owners can complicate a lender's single-borrower requirement. That difference shows up in loan terms and underwriting timelines and is separate from either structure's tax treatment.
Can a DST investor force the trustee to sell the property?
No. A DST investor cannot compel a sale; the trust agreement reserves that authority to the trustee, and the investor's exit is limited to their own beneficial interest. A TIC co-owner has more direct standing and, in some states, the right to file a partition action to force a sale of the property.
Do DST and TIC structures both qualify for a 1031 exchange?
Yes. A Delaware Statutory Trust structured under Revenue Ruling 2004-86 and a tenant-in-common interest structured under Revenue Procedure 2002-22 can both qualify as like-kind replacement property. Qualification depends on following the specific IRS guidance for each structure, not on the structure's name alone.
One last thing
The feature that makes a TIC feel closer to direct ownership, real title and a real vote, is often the same feature that can turn shared control into a bottleneck. Where an agreement requires unanimous consent, every co-owner holds a veto, so a group of 30 investors can be as slow to act as a group of two if even one holds out. A DST removes that particular deadlock by removing the investor vote entirely and handing every operating decision to the trustee, trading a voice for speed. Neither tradeoff is printed on the cover page of either offering, only inside the agreement itself.