Is it Possible to Transfer Public Stock to a Delaware Statutory Trust?

Posted by Robert Cobean on Jul 17, 2022

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A Delaware Statutory Trust (DST) may provide an alternative investment if you buy real estate properties to pursue passive income. Purchasing ownership in a DST can offer you income and the potential to bolster your investment portfolio.

Learn about ways to invest in a Delaware Statutory Trust (DST) and whether you can transfer public stock into a DST ownership.


What Is a DST?

A Delaware Statutory Trust (DST) is a pre-packaged trust that allows you to invest in commercial property that you may not have the means to acquire without partner investors. Typically, you must invest at least $100,000 in a DST.

You gain access to commercial properties through a DST that insurance companies or pension funds often own. This investment approach allows you to pursue a passive monthly income that properties like industrial buildings, commercial real estate, and large apartment complexes have the potential to offer.


Ways to Invest in a DST

If you are considering an investment in a DST, you have three options. Buy-in methods include purchasing interests from a DST sponsor or acquiring the DST interest through a 1031 exchange or a DST resale.

A DST Sponsor or their affiliate acts as the Trustee of a DST. They buy commercial real estate and structure it into a DST to offer interests to accredited investors. You can work with a broker-dealer to find a DST Sponsor and buy fractional interests in the DST.

If you own an investment property, you can perform a 1031 exchange, also called a like-exchange. Although you must follow specific IRS guidelines, you can invest in a DST property as a replacement in this type of exchange. Guidelines include the 200% rule, 95% rule, and three property rule.

  •       Three-property rule - you must identify three properties that can replace your existing investment.
  •       95% rule - you can choose more than three properties for the exchange, but you must obtain a minimum of 95% of the value of those properties.
  •       200% rule - the fair market value of the identified properties cannot exceed 200% of the value of your sold property.
  •       45-day identification - you must formally identify the DST or DSTs within 45 days.
  •       180-day exchange - you must close on the DST purchase within 180-days.


Can You Transfer Public Stock to a DST?

Unfortunately, there is no way to transfer public stock to a DST. You must sell your public stock to gather funds to purchase ownership in a DST. Selling your publicly traded stock positions can get you the liquid capital you need to purchase interests in a DST, but you’ll generally have to pay taxes on the sale of these assets.

However, a financial or tax advisor may be able to provide strategies that can help manage the taxes on the sale of these assets.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. All real estate investments have the potential to lose value during the life of the investment. All financed real estate investments have the potential for foreclosure. No public market currently exists and one may never exist. DST programs are speculative and suitable only for Accredited Investors who do not anticipate a need for liquidity or can afford to lose their entire investment. There is no guarantee that the investment objectives of any particular program will be achieved. The actual amount and timing of distributions paid by programs is not guaranteed and may vary. There is no guarantee that investors will receive distributions or a return of their capital. These programs can give no assurance that it will be able to pay or maintain distributions, or that distributions will increase over time. Costs associated with a 1031 transaction may impact investor’s returns and may outweigh the tax benefits. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities.

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