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What are the Responsibilities and Duties of DST Trustees and Beneficiaries

Written by The Realized Team | Aug 7, 2023

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 DST Trustee

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:

  • Income generated by DST operations can’t be used to purchase additional properties or to improve existing assets (other than essential repairs or maintenance).
  • New investors can’t be accepted when the trust closes.
  • Trustees can’t renegotiate loans or leases in hopes of generating better terms.

Trustees also have fiduciary responsibilities including:

  • Duty of care, encompassing informed, thoughtful decision-making based on currently accessible information
  • Duty of loyalty, which requires acting in good faith and with the idea that a particular action or decision is in the best interests of the trust and its beneficiaries

The DST Beneficiary

“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.

An accredited investor must:

  • Have a personal income of $200,000 ($300,000 for married people), with assurances of similar levels in the current year
  • Have a net worth of more than $1 million (excluding a primary residence)
  • Hold professional investment credentials
  • Be a “knowledgeable” employee of a private investment fund

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.

Understanding the Details

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.