What is a DST property Delaware statutory trust?
DSTs (Delaware Statutory Trusts) are legal entities created under Delaware law to hold title to income-producing commercial properties by using their capital.Apartments, retail space, offices, industrial parks, et al., could all qualify as DST.
What is a Delaware statutory trust for real estate investing?
What is a Delaware Statutory Trust? The Delaware Statutory Trust (DST) is a legal entity created and often used in real estate investing that allows for a number investors to pool money together and hold fractional interests in the holdings and assets of the trust.
When did the Delaware statutory trust begin?
The concept for business trusts, especially those that involve the holding of property, dates back to 16th century English Common Law. In Delaware, it was not until 1947 that Common Law began recognizing statutory trusts.
What is a DST 1031 property?
A DST 1031 property is an investment property that is used as a way to sell high-maintenance investment properties which have appreciated with a Delaware Statutory Trust, an investment property similar in nature but which will provide a passive income.
What is a trust agreement in Delaware?
What is the statute of trust?
What is a DST in Delaware?
Why do lawyers use common law trusts?
Is a Delaware trust a legal entity?
Is Delaware a common law state?
Is a trust agreement a private document?
See 2 more
What is the purpose of a statutory trust?
Statutory trusts involve real property that is held by a trustee with the intention of selling. Any profits from the real property including rent and sale profits go into the trust. These profits are then paid to the benefactors of the trust. This process is regulated by the Uniform Statutory Trust Entity Act (USTEA).
What are the benefits of a Delaware Statutory Trust?
Advantages of a Delaware Statutory TrustCapital Gains Tax Savings. ... Greater Income Potential. ... Institutional-Grade Properties. ... Passive Property Management. ... Risk Diversification. ... Tax Savings for Estate Beneficiaries. ... Low Risk of Exchange Failure. ... Ability to Close in 3 to 5 Days.
What are the disadvantages of a DST?
Some of the potential downsides of DSTs can include:Loss of Control. When you invest in a DST, the IRS does not allow you to have direct operational control of the property, so you have no decision-making power. ... Execution Risks. ... Economic Risks. ... Illiquidity. ... Accredited Investor Requirement. ... Regulatory Risks.
How does a DST make money?
Usually, the Sponsor engages a master tenant who leases and maintains the assets in the trust to subtenants directly or through a property manager. Sponsors earn compensation through fees and commissions that are included in the fees charged to investors.
What is the average return on a DST?
Delaware Statutory Trust Rate Of Return The rate of return is anywhere from 5-9% on your cash-on-cash monthly distributions.
Can you get out of a DST?
If you're looking for a clear and concise answer to this question, here it is: Yes, you can 1031 exchange out of a DST.
How do you get out of a statutory trust in Delaware?
An investor who wishes to exit a DST prior to the sale date determined by the trustee can offer and transfer his/her interests to any other accredited investor, e.g., net worth greater than $1M excluding personal residence or recent annual income greater than $200K.
Are Delaware Statutory Trusts Safe?
Risks Associated with a Delaware Statutory Trust Delaware Statutory Trusts carry many of the same risks as direct property investment since real estate is the underlying asset that drives the investment's performance. These risks include illiquidity, as well as macroeconomic risks such as rising interest rates.
What are DST fees?
It is a percentage of the click cost of ads purchased through Google Ads and YouTube placements purchased on a reservation basis shown in seven countries in Europe and Asia. Google describes these fees as either a Digital Service Tax (DST) or a Regulatory Operating Cost (ROC).
How is DST income taxed?
If any income is earned from a DST, it is entered on IRS form E at the end of the tax year. This income is generally taxed as ordinary income. There are also deductions and depreciation that might reduce income tax burdens for a DST property.
Can the DST reinvest the money from the sale of the property?
A DST cannot reinvest proceeds from the sale of its real estate. Unlike REITs, or real estate investment trusts, the IRS prohibits a sponsor from reinvesting proceeds from the sale of the DST into new investment property. Instead, the sale proceeds must be distributed to the DST's various beneficiaries.
What is a DST offering?
By David Wieland. published 22 May 2022. DSTs are unique real estate investment vehicles that allow a group of individual investors to purchase fractional interests in large commercial real estate assets that typically would be well beyond their financial reach as solo investors.
How safe are Delaware statutory trusts?
Risks Associated with a Delaware Statutory Trust Delaware Statutory Trusts carry many of the same risks as direct property investment since real estate is the underlying asset that drives the investment's performance. These risks include illiquidity, as well as macroeconomic risks such as rising interest rates.
What's the benefit of a Delaware Statutory Trust in a 1031 tax deferred exchange?
Delaware Statutory Trusts allow an investor to utilize a 1031 exchange to acquire a professionally managed, institutional grade asset, which potentially provides monthly income without the headaches of property management and asset management.
What makes a trust a Delaware trust?
Delaware Trust Advantage Delaware law holds that the creator of a trust has the legal right to control the investment, management and trust distribution decisions of trusts he or she creates. Trustors can define the rights of beneficiaries and determine the duties, powers and standards of a fiduciary.
Is a DST A security?
DSTs are considered securities under federal law and holding a fractional interest in a DST is treated like direct property ownership for tax purposes. The DST holds title to 100% of the property with two types of participants: trustees and beneficial owners.
Is a Delaware Statutory Trust (DST) a Legal Entity - DST Investment
The DSTA was recently amended to allow for DST to opt out of being recognized as an independent legal entity. Under the DSTA, as amended, a DST may opt out of this status if the certificate of trust and the governing documents explicitly provide that the DST will not be a separate legal entity.
Delaware Statutory Trusts: The Best Features of this New Form of Entity
Delaware's law on statutory trusts recently became the model for the entire country to follow. Practitioners and investors increasingly use the unique features of this newest form of entity for tax deferral, asset protection and other advantages.
DELAWARE STATUTORY TRUSTS
DELAWARE STATUTORY TRUSTS The Delaware Counsel Group, LLP Suite 200 300 Martin Luther King Blvd. Wilmington, DE 19801 www.delawarecounselgroup.com
What is a Delaware Statutory Trust?
A Delaware Statutory Trust (DST) is a legally recognized trust that is set up for the purpose of business. DST’s have become popular as 1031 Tax Deferred Exchange properties.
How long can a Delaware Statutory Trust be held?
Therefore, the longest these properties could be held as a Delaware Statutory Trust is 10 years.
What is a DST property?
Typically, DST properties are structured with an emphasis on cash flow for the investors and because Delaware Statutory Trusts acquire high-quality institutional property in cities with strong projected growth, DSTs can focus on preserving investment value and producing income potential for their owners.
What is the lack of control in Delaware Statutory Trust?
Lack of control: Owners of a beneficial interest in Delaware Statutory Trust have little control over management decisions and eventual sale of the underlying property. The real estate investment company managing the trust is responsible for all operating decisions.
How much tax do you pay on a Delaware trust?
In some states, the total amount of tax can be as high as 37%.
Does Delaware Statutory Trust have an appreciation interest?
Furthermore, the Delaware Statutory Trust distributes all potential appreciation to the DST owners, consistent with their percentage ownership of the Trust.
What is a Delaware statutory trust?
Delaware statutory trust. more... A Delaware statutory trust (DST) is a legally recognized trust that is set up for the purpose of business, but not necessarily in the U.S. state of Delaware. It may also be referred to as an Unincorporated Business Trust or UBO. Delaware statutory trusts are formed as private governing agreements under which ...
How to form a statutory trust in Delaware?
To form a statutory trust, a private trust agreement must be developed by all involved parties to ensure that individual interests are protected. The private trust agreement need not be shown to any official of the State. Once the agreement is completed, a Certificate of Trust can be obtained from the Delaware Division of Corporations and completed. The signatures of the trustee (s) involved are then required, followed by submission of the forms to the Division of Corporations, along with a one-time $500 processing fee. If the statutory trust is, or will become, a registered investment company, it must maintain a registered agent and a registered office within the State of Delaware. If no desire for the statutory trust to be an investment company exists, the only remaining requirement is that it must have at least one trustee who resides in, or has a principal place of business within the State of Delaware.
What is a DST investment?
DST Investments are offered as replacement property for accredited investors seeking to defer their capital gains taxes through the use of a 1031 tax deferred exchange and as straight cash investments for those wishing to diversify their real estate holdings. The DST property ownership structure allows the smaller investor to own a fractional interest in large, institutional quality and professionally managed commercial property along with other investors, not as limited partners, but as individual owners within a Trust. Each owner receives their percentage share of the cash flow income, tax benefits, and appreciation, if any, of the entire property. DSTs provide the investor the potential for annual appreciation and depreciation (tax shelter), and most have minimum investments as low as $100,000, allowing some investors the benefit of diversification into several properties.
What is a DST in Delaware?
v. t. e. A Delaware statutory trust (DST) is a legally recognized trust that is set up for the purpose of business, but not necessarily in the U.S. state of Delaware. It may also be referred to as an Unincorporated Business Trust or UBO.
How many trustees are required for a statutory trust in Delaware?
If no desire for the statutory trust to be an investment company exists, the only remaining requirement is that it must have at least one trustee who resides in, or has a principal place of business within the State of Delaware.
What is a trustee's responsibility?
The trustee is limited to making capital expenditures with respect to the property for normal repair and maintenance, minor nonstructural capital improvements, and those required by law.
When did Delaware start recognizing statutory trusts?
In Delaware, it was not until 1947 that Common Law began recognizing statutory trusts.
What is a DST in Real Estate?
Delaware statutory trusts are often used in real estate investing to allow multiple investors to pool money together in exchange for small holdings of the trust.
What is a DST 1031 Exchange?
In a DST 11031 exchange, the property seller is allowed to move funds from an asset’s profit into a new like-kind property without paying capital gains taxes.
Rules of DST Investments
Delaware statutory investments are subject to governing laws. The following laws state what can and cannot be done in a DST investment:
What to Know When Considering a DST
Because of the nature of the trustee and investor relationships within a Delaware statutory trust, it is important to choose your investors wisely. A competent trustee will be the difference between success and failure in your DST.
Current DST 1031 Properties
Kay Properties currently has a wide array of DST properties available in our listing service. Our marketpalce showcases DSTs from over 25 sponsor companie. We also offer a wider array of custom DSTs avaialble to Kay clients.
How Do Delaware Statutory Trusts Work?
Whether it’s a portion of the rent collected or cash flow generated from managing and operating individual properties , contributors to a Delaware Statutory Trust will receive their fair share of profits relative to their initial investment.
Why invest in Delaware Statutory Trust?
As an investor, diversity helps mitigate downside and risk. Therefore, merely investing in a Delaware Statutory Trust, along with other assets (whether the stock market or actively managed real estate investments), is a way to diversify holdings even further. At the very least, investors are advised to create multiple income streams, and this is just one more way to do so.
What is a tenant in common in Delaware?
However, the two are actually quite different. Whereas a Delaware Statutory Trust will typically have several investors place capital in an actively managed trust, tenants-in-common is a legal term used to describe an arrangement between two or more parties who share ownership in a single real estate asset.
Do Delaware Statutory Trusts allow contributors to participate in real estate transactions?
In other words, Delaware Statutory Trusts do not allow their contributors to actively partake in how the real estate assets generate profits. Instead, trust operators are responsible for taking an active role in each asset’s performance.
Can DST participants manage assets?
If for nothing else, DST participants aren’t allowed to actively manage assets within the trust. Instead, investors trade their active roles for a sponsor (also known as the “operator”) qualified to manage the assets held in the trust.
Can trusts produce diversified portfolios?
These trusts have proven they can produce in a diversified portfolio. However, much like every other type of investment, investors must weigh the pros vs the cons. That said, there are drawbacks to this particular investment strategy investors need to be aware of:
Is Delaware Statutory Trust a passive income?
Through no fault of their own, most investors are unfamiliar with the concept of a Delaware Statutory Trust (DST). Nonetheless, those familiar with these impressive wealth-building vehicles are more than aware of the unique advantages they award savvy investors. In addition to acting as a tax shelter, DSTs may serve investors as a dependable source of passive income. It is worth noting, however, that Delaware Statutory Trusts are far too underutilized. The more investors know about these investment vehicles, the more they may be willing to partake in them.
What is a Delaware Statutory Trust?
Under Delaware law, a DST is a specialized type of trust that is formed for the purpose of conducting business. They are formed with private trust agreements under which real property is “…held, managed, administered, invested, and/or operated.”
How Are DST Investments Structured?
As such, a typical DST investment structure involves two parties: the sponsor and the investors.
What is a Delaware Statutory Trust?
A Delaware Statutory Trust (DST) is a legal entity used to arrange for the co-ownership of property. Given a DST’s legal structure, co-owners are entitled to profits earned from the property (such as rent) without any management responsibilities, making DSTs advantageous in constructing multi-investor commercial real estate offerings.
Why are DSTs statutory trusts?
That DSTs are statutory trusts provides them with further nice features for real estate investment.
What is a 1031 trust?
Statutory trusts formed in accordance with the Delaware Statutory Trust Act (DSTA) are the only trusts that are explicitly recognized as 1031-compatible by the IRS. The DSTA was written to allow unencumbered freedom of contract, making DSTs well-suited for large-scale investments in diverse high-quality assets.
What is the difference between a DST and a trustee?
With the trustee/beneficiary distinction inherent to trusts, beneficial owners take equitable title to a DST’s assets, while the trustee (sponsor) is responsible for managing those assets. Beneficiaries benefit, trustees manage. DSTs are a particular kind of trust.
How long does a DST hold on real estate?
This period can last anywhere between 7 and 15 years.
Can you use a Kentucky Statutory Trust for multi-property real estate?
The USTA has in turn been adopted by Washington D.C. and Kentucky. So, in principle one could use a Kentucky Statutory Trust to arrange a large multi-investor, multi-property real estate investment, but it’s not clear that one should. There are still stronger reasons to use DSTs for this purpose.
What is the difference between a trustee and a beneficial owner?
In a common law trust, the trustee and the beneficial owner count as owning the property in different senses: the trustee takes legal title, for the purposes of management. beneficial owners take equitable title, for the purpose of raking in benefits.
What is a Delaware Statutory Trust?
As its name implies, a Delaware Statutory Trust is a trust, organized under Delaware law, and set up for the purpose of conducting business. They are formed with private trust agreements under which real property is “…held, managed, administered, invested, and/or operated.”
Pros and Cons of Investing in a DST
Like any real estate investment opportunity, there are pros and cons to making a DST investment. The pros include:
DST Investment Returns Explained
Like any commercial real estate asset, DST returns come from two sources, income and appreciation.
Measuring DST Returns
DST Returns are measured the same way as those for a traditional commercial real estate asset. Of note, there are three metrics that deserve special attention:
DST Returns & Private Equity Real Estate
Because of the operational complexity associated with DSTs, they are organized by a sponsor who has expertise needed to stand up the investment. DST sponsors may or may not be a private equity firm.
Summary of Delaware Statutory Trust Returns
A Delaware Statutory Trust is a specialized type of entity that is formed specifically for the purpose of real estate investment.
Interested In Learning More?
First National Realty Partners is one of the country’s leading private equity commercial real estate investment firms.
What is a DST in Delaware?
A DST (Delaware Statutory Trust) is simply a separate legal entity created under the laws of Delaware to hold title to one or more income producing commercial properties. A DST offering can be any type of commercial property; apartments, retail space, office buildings, industrial parks, etc.
Is DST a passive investment?
Investors will find something very similar to what they already own, albeit remotely managed and truly passive. Something that allows them to completely disengage from the day to day decision making process. They may find the DST can be a very suitable option.
Do DST investors need an LLC?
Low cost of ownership: Unlike a tenant- in-common (TIC) program, DST investors are not required to maintain any type of special purpose LLC to hold their real estate.
What is a trust agreement in Delaware?
The trust agreement is a definitive document , and Delaware law provides that the Delaware Court of Chancery will enforce its terms upon the trustees and beneficial owners (See 12 §3804).
What is the statute of trust?
The Statutory Trust Act, similar to the Delaware LLC law, relies on the legal principle of freedom of contract (See 12 § 3823 (b)). This grants the power to determine the rights and responsibilities of the various parties to the drafters of the governing instrument, usually referred to as the trust agreement (See 12 §3801 (f)).
What is a DST in Delaware?
The Delaware Statutory Trust (DST), however, is a statutory entity, created by filing a Certificate of Trust with the Delaware Division of Corporations, and governed by Chapter 38, Part V, Title 12 of the annotated Delaware Code (See 12 §§ 3801 through 3862).
Why do lawyers use common law trusts?
For nearly 400 years, the common law trust has been utilized by lawyers, primarily for the benefit of extremely wealthy people who have cultivated a realm of trusts in order to pass ownership of assets from generation to generation with the least amount of taxation and the greatest degree of security in the process.
Is a Delaware trust a legal entity?
The Delaware Statutory Trust Act (DSTA) states the trust is a separate legal entity and no creditor of a beneficial owner has any right to obtain possession of any of the property belonging to the trust (See 12 §3805 (b)). The DSTA also states that a beneficial owner has no specific interest in the property of the trust (see 12 §3805 (c), ...
Is Delaware a common law state?
Delaware is one of the few states in America to have a statutory trust law. Most states still rely upon common law trusts. Common law trusts, though often still used, have many outdated rules, which can create uncertainty about a number of legal aspects of the trust. Delaware has undertaken the task of modernizing the common law ...
Is a trust agreement a private document?
The trust agreement is the private, governing document of the entity. Delaware does not require the trust agreement to be filed (unlike several other states), and therefore the parties to the statutory trust and their relative duties and responsibilities can remain the secret of the parties involved (See 12 §3810).