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How do Delaware Statutory Trust Sponsors Make Money?
A Delaware Statutory Trust, or DST, is an investment option that allows investors to purchase fractional interests in a commercial property portfolio and seek to manage tax liability. Although none of the investors or the property needs to be in Delaware, a DST needs to have a Delaware resident as one of the trustees; however, the designated Delaware resident does not need to be an active decision-maker.
What is a Delaware Grantor Trust?
The state of Delaware offers potential income tax advantages and has trust-friendly laws for individuals. These benefits aren’t limited to the residents of the state. Non-residents can use the state’s laws to their advantage by creating a trust fund in Delaware. One type of trust to consider opening is a Delaware grantor trust.
Why Consider a Delaware Statutory Trust?
Real estate investors may be looking for ways to keep more money in their pockets at the end of the tax year. Obviously, there are some cases where taxes cannot be avoided, but there can be a legal way to write off some of your earnings or defer some of the taxes you owe until a later date. Obviously, it’s vital that any tax breaks you find are applied within the framework of the law, as failure to comply with state and federal tax laws can result in hefty fines and more serious penalties. However, knowing how to use tools, such as a Delaware Statutory Trust, can help you legally keep your money in your pocket.
How Does a Delaware Statutory Trust Work?
Some real estate investors have long understood the importance of taking advantage of legal tax breaks and tax deferral options. Capital gains taxes, which are owed any time an investor makes a profit from the sale of a property, can lead to a major tax liability that can greatly reduce the profits generated. That’s why we believe it's important that investors consider alternate investment opportunities that are still legal according to the Federal Tax Code. One such example of these legal tax deferral options is a Delaware Statutory Trust. Understanding what these trusts are and how they can provide tax relief is a tool for real estate investors.
The History of Delaware Statutory Trusts
Delaware statutory trusts (DSTs) are independent legal entities created through the Delaware Statutory Trust Act. These trusts hold title to one or more income-producing properties that can include multi-family, retail, office, industrial, and similar commercial real estate assets.
Who Can Invest in a Delaware Statutory Trust?
A Delaware Statutory Trust (DST) is a sophisticated investment option that offers individual investors access to fractional ownership of commercial properties they would not likely be able to own otherwise. The assets held by DSTs are typically similar to properties owned by large institutional investors, including REITs, insurance companies, and retirement funds. Individual investors may also appreciate the eligibility of DST offerings for 1031 exchange transactions, both for entry and exit.
What Are the Laws and Other Legal Considerations for DST Investments?
Plenty of information is available to investors interested in putting their monies into Delaware Statutory Trusts (DSTs). Such information includes what they are, how they operate, and their advantages and disadvantages.
Is a Delaware Statutory Trust (DST) a Grantor Trust?
A properly structured DST (a legal entity formed under Delaware law, although not necessarily physically in Delaware) will be a grantor trust for the purpose of federal income taxes. That means that participants in such a trust will have undivided fractional interests in the property held by the DST. A grantor trust is one in which the trust creator is considered the owner for income tax and estate taxes.
Who Can Be the Beneficiary for a DST, and Can There Be More Than One?
A DST, or Delaware Statutory Trust, is a financial investment that can provide individuals with undivided fractional ownership of commercial real estate properties, potential tax-advantaged income, and the ability to complete 1031 exchanges for entry and exit. That's a lot of potential in one investment option, and as a result, these instruments are complex. Like all investments, DSTs have risks.
What Are the Requirements to Form a Delaware Statutory Trust (DST)?
Delaware has long been known to offer a corporate-friendly environment, which offers benefits relating to tax liability, convenience, and legal protection in corporate affairs. Delaware Statutory Trusts were formed per the Delaware Statutory Trust Act, which was written to simplify the arrangement of a structured real estate transaction (or other assets).
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