What is a Delaware Statutory Trust (DST)?
A Delaware statutory trust (DST) permits fractional ownership where multiple investors can share ownership in a single property or a portfolio of properties, which qualifies as replacement property as part of an investor’s 1031 exchange transaction. A DST takes all decision-making out of the hands of investors and places it into the hands of an experienced sponsor-affiliated trustee.
A typical 1031 exchange involving the eventual investment into a DST has three basic steps:
Key Benefits of DST 1031 Exchanges
NO MANAGEMENT RESPONSIBILITIES – The DST is the single owner and agile decision maker on behalf of investors.
ACCESS TO INSTITUTIONAL-QUALITY PROPERTY – DSTs allow investors to acquire partial ownership in properties that otherwise would be out-of-reach.
LIMITED PERSONAL LIABILITY – Loans are nonrecourse to the investor. The DST is the sole borrower.
LOWER MINIMUM INVESTMENTS – DSTs accommodate much lower minimum investments. 1031 exchange minimums often are $100,000.
DIVERSIFICATION – Investors can divide their investment among multiple DSTs, for a more diversified real estate portfolio.
ESTATE PLANNING – All 1031 exchange investments receive a step-up in cost basis so your heirs will not inherit capital gain liabilities.
INSURANCE POLICY – If for some reason the investor can’t acquire the original property they identified, a secondary DST option allows them to meet the exchange deadlines and defer the capital gains tax.
ELIMINATE BOOT – Any remaining profit on the sale of your relinquished property is considered “boot.” The excess cash (boot) can be invested in a DST to avoid incurring tax.
SWAP UNTIL YOU DROP – The DST structure allows the investor to exchange real properties over and over again until the investor’s death.
If you are a realtor or investor who is interested in learning more about how the Delaware Statutory Trust works, please fill out the form below to schedule a consultation.