The Delaware Statutory Trust (DST) is a passive investment structure that offers investors partial ownership of real estate properties. In some instances, this investment type can provide certain benefits to investors, including access to certain real estate investment types, potential portfolio diversification, and possible cash flow.
Generally, two parties are involved with a successful DST: Trustees and beneficiaries. Both roles carry specific requirements.
The trustee is the individual or entity that has oversight of the trust. The trustee is responsible for hiring a sponsor (or sponsors) to manage the DST. The DST sponsor is the person or entity responsible for the day-to-day business management and decisions including finding and holding real estate property assets. The sponsor also issues the DST’s beneficial interests to investors.
One requirement for the DST trustee is that it must be based in Delaware, though it can have a managing or signatory trustee somewhere else.
In addition to creating, maintaining, and overseeing the trust, the trustee must follow certain rules:
Trustees also have fiduciary responsibilities including:
“Beneficiary” means “investor.” In other words, the DST beneficiary is an investor in the trust. Though the beneficiary has no specific duties or responsibilities, each must be an accredited investor to legally participate.
DST beneficiaries should understand that they have no control over decisions made by the sponsors. Furthermore, DSTs tend to be long-term investments. This means capital will be tied up in the trust for several years.
While Delaware Statutory Trusts can be productive investments, trustees and beneficiaries must understand the requirements for launching, managing and investing in one. It’s also important to realize that DSTs are long-term investments. As such, investors should work with an advisor to understand the pros and cons of participating in a DST.