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What are the Laws Around Delaware Statutory Trusts?
The state of Delaware is a nationally recognized leader in statutory trusts due to legislation that overrides the principles of common law trusts. The popularity of Delaware Statutory Trusts, or DSTs, has grown in popularity since the state in 1988 adopted the Delaware Statutory Trust Act.
The Potential Pitfalls of Self-Sponsored Delaware Statutory Trusts
A Delaware Statutory Trust may be an option for those who are looking to 1031 exchange from direct real estate into a passive investment. DSTs don’t come with all of the management hassles that direct real estate has. The main reason for this difference is the DST sponsor, which also manages the properties. In this article, we’ll discuss why it’s important to know your sponsor and what to look for in a sponsor when investing in a DST.
What Property Can a Delaware Statutory Trust Hold?
We’ve written a great deal about how the Delaware Statutory Trust (DST) can be used to defer capital gain taxes. Furthermore, as the IRS regards DST interests as direct property ownership, they are eligible for use as 1031 exchange replacement properties.
How is a Delaware Statutory Trust Taxed?
Investing in commercial real estate through a Delaware Statutory Trust can provide many benefits. DST investors purchase fractional shares in a variety of institutional-grade commercial assets they likely wouldn’t be able to afford on their own, such as large multi-family apartment complexes, class A office buildings, or free standing retail buildings with large national franchise tenants. These assets can help diversify your real estate holdings, as well as potentially provide monthly income that can be sheltered from taxation through interest and capital depreciation deductions.
Delaware Statutory Trust Investment Property Offerings - How They Work and What You Need to Know
As a real estate investor seeking to maximize return and manage tax obligations, you may be interested in Delaware Statutory Trust offerings if you examine options for fractional participation. Like Tenant in Common investments, Delaware Statutory Trust participations are accepted by the IRS to reinvest the proceeds from the sale of a property and defer the realization of capital gains taxes. This status means that you can use a 1031 exchange to enter into or exit from a DST. Unlike a TIC structure, in a DST, the ownership of the properties is held by the trust, and the investors are beneficiaries of the trust. TICs are limited to 35 investors, while DST organizations do not restrict the number of participants.
How to Exchange Real Estate For a Delaware Statutory Trust Property
Many real estate investors are familiar with the tax benefits of a 1031 exchange. By exchanging one property into a “like-kind” replacement property, the investor is able to defer gains. However, 1031s come with some strict deadlines that can be difficult to meet. That’s where a Delaware Statutory Trust (DST) property comes in.
1031 Exchange Into Delaware Statutory Trust: What Terms Should I Know?
A Delaware Statutory Trust (DST) is one of the most common investment methods when considering a 1031 exchange. Although Delaware is in the name, you can complete a DST investment anywhere in the United States. Neither the investor nor the property needs to be in Delaware. A DST is a pre-packaged investment on a property put together by a sponsor. After the sponsor does due diligence, negotiates lease terms, and takes other steps to put the package together, then they offer equity to investors. The trustees pool their 1031 exchange funds for the investment and then receive cash distributions if the property is profitable.
How to Provide Individual Investment Options for Multiple Stakeholders in an LLC
Limited liability companies (LLCs) have been a preferred business entity among multiple stakeholders since the 1980s. Many legacy Limited Liability Corporations were formed by family members to pool funds to invest in commercial real estate. Perhaps the most famous example is Walton Enterprises LLC, the Limited Liability Company founded to serve the beneficiaries of Walmart founders Sam and Helen Walton. Most family trusts and business partnerships won’t reach those same lofty heights, but they still remain a useful tool for members to make larger capital investments than they could as solo investors.
Can A Delaware Statutory Trust Be A Custody For Securities?
When you open a brokerage account to trade stocks, the account must first be funded before any stock trades occur. The broker uses a separate entity called a custodian to hold your cash. As trades are opened and closed, cash moves in and out of the custodian account.
Sponsor Risk and Its Role in Delaware Statutory Trust Entities
When going into a Delaware Statutory Trust (DST) investment, your DST Sponsor is just as important to your success as the property. What seems like a great property in a top location managed by an inadequate Sponsor could mean potential risk in your DST investment.
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