Delaware Statutory Trust

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A Delaware Statutory Trust (DST) is a business trust created under Delaware law. DSTs can be used in a wide variety of business settings, and have become popular pass-through entities to hold commercial real estate assets for investors.

Upon the sale of a property in a DST, the investor will have the option to pay any capital gains tax or defer any capital gains tax by participating in a 1031 exchange.

Though DSTs differ from common law trusts in some important ways, they share a key feature of all trusts: investors in a DST hold equitable title to the properties held by the DST.

These trust arrangements are designed to protect certain assets or entities from being affected by creditors. Lenders to individual investors in a DST do not have the right to obtain possession of the DST’s property. So, although beneficial owners of a DST are each regarded as owning fractions of the DST’s property for income, appreciation, and tax purposes, the separate legal status of the statutory trust allows for provisions which protect investors from the liabilities of the other owners and of the DST itself.

Why Delaware?

Statutory trusts formed in accordance with the Delaware Statutory Trust Act (DSTA) are the only trusts that are explicitly recognized as 1031-compatible by the IRS.

Key Benefits of DST 1031 Exchanges

No Management Responsibilities

The DST is the single owner and agile decision maker on behalf of investors.

Estate Planning

All 1031 exchange investments receive a step-up in cost basis so your heirs will not inherit capital gain tax liabilities, and provides them with indirect ownership of professionally managed real estate.

Access to institutional-quality property

Most real estate investors can’t afford to own multi-million dollar properties. DSTs allow investors to acquire partial ownership in properties that otherwise would be out-of-reach.

1031 Exchange Insurance Policy

The DST provides a fallback option for investors when an intended exchange into specific real estate cannot be completed within 180 day exchange period.

Limited Personal Liability

Loans are nonrecourse to the investors. The DST is the sole borrower.

Eliminate Boot

Any remaining profit on the sale of your relinquished property is considered “boot”. This remaining money becomes taxable. The excess cash (boot) can be invested in a DST to avoid incurring tax.

Lower Minimum Investments

DSTs can accommodate much lower minimum investments than a typical exchange into a specific property.

Diversification

Investors can divide their investment among multiple DSTs, which may provide for a more diversified real estate portfolio across geography and property types.

Swap until you drop

The DST structure allows investor to continue to exchange real properties over and over again until the investor’s death, wherein the DST is stepped up to market price for beneficiaries

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Can offer an excellent investment opportunity. But, institutional grade properties are very expensive and likely out of reach for most individual investors.

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