A Delaware Statutory Trust (DST) is a legal entity in which each beneficiary has a “beneficial interest” and for Federal income tax purposes is treated as owning an undivided fractional interest in the property held by the trust. Delaware statutory trusts are formed as private governing agreements under which either (1) property (real, tangible and intangible) is held, managed, administered, invested and/or operated; or (2) business or professional activities for profit are carried on by one or more individuals who act as trustees for the benefit of a party who is entitled to a beneficial interest in the trust property.
A DST is often used to hold property for 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. Unlike property held by a Limited Liability Company, the property held by the DST will qualify as a “like kind” exchange replacement property (IRC 2004-86). DST property owners build equity from the pro-rata portion of any principal paid down from the loan on the property, unless the loan paid interest only.
The DST property ownership structure allows the smaller investor to own a small interest in large 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.
A chief advantage of the DST structure is that a lender views the trust as only one borrower which makes it easier and less expensive to obtain financing. In addition, the investor’s only right with respect to the DST is to receive distributions and they have no voting authority regarding the operation of the property.
To form a statutory trust, the parties must prepare a private trust agreement. Once the agreement is completed, the DST completes a Certificate of Trust, filed with the State of Delaware. 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.
Blumberg offers DST filing services and a DST Trust Kit (Item 10DST) to simplify the maintenance of trust records. It includes the popular Ex Libris® binder gold lettered with the trust name on the spine; 20 imprinted Delaware Statutory Trust Certificates numbered 1 – 20, and a specimen certificate with full page stubs bound in a separate loose leaf section; a pocket seal for a DST, an Ex Libris matching zippered seal pouch and Tell-a-Seal® label; a trust index and 50 sheets of archival 25% cotton minute paper. For more information on our Delaware Statutory Kits Click Here.