{"id":286,"date":"2023-10-05T14:03:27","date_gmt":"2023-10-05T14:03:27","guid":{"rendered":"https:\/\/royalinkprojects.com\/cai\/?page_id=286"},"modified":"2025-06-26T04:43:35","modified_gmt":"2025-06-26T11:43:35","slug":"dst-explained","status":"publish","type":"page","link":"https:\/\/royalinkprojects.com\/cai\/dst-explained\/","title":{"rendered":"DELWARE STATUTORY TRUST EXPLAINED"},"content":{"rendered":"\n
\n

DELWARE STATUTORY TRUST EXPLAINED<\/h1>\n<\/div><\/div>\n\n\n\n
\n

A Delaware Statutory Trust, or a DST as it is commonly referred to, is a tool property owners use to accomplish a 1031 Exchange. A DST is a legal trust structure created under Delaware law designed to qualify as a replacement property as defined in IRS Revenue Ruling 2004-86.<\/p>\n\n\n\n

A DST usually has the following components as part of the legal structure: a trust document, a trustee, a master tenant, beneficiaries, and the property.  While the DST structure with all its different named legal parties can sometimes be daunting to follow, it can be boiled down to several familiar positions.<\/p>\n\n\n\n

    \n
  • The Sponsor of the DST, who may also be the trustee, or they may have an affiliated company be the trustee, purchases the property and is responsible for making it a DST. The equivalent of this entity in a personal real estate transaction is you.<\/li>\n\n\n\n
  • The tenant is the entity occupying the property. It is the same when you purchase a property and find someone or some company to rent the space.<\/li>\n\n\n\n
  • The Master Tenant is the entity that is responsible for the property management, collection of rent, and leasing to the tenant. In a personal real estate transaction, this is usually done by a property manager.<\/li>\n<\/ul>\n\n\n\n

    Once a DST is created and has gone through the extensive due diligence process, it is made available for investment to the public. The DST owns the underlying real estate and an investor, called a Beneficial Owner, owns a percentage of the overall DST. For 1031 exchange purposes the IRS views the investor as owning the real estate directly, but for all other purposes, the investor is a passive participant. This means that no investor has the authority to direct any action, legal or otherwise, of the DST, thus protecting every investor from another investor\u2019s actions.<\/p>\n\n\n\n

    [If an investor is participating in a 1031 exchange, please follow the IRS rules to qualify.]<\/strong><\/p>\n\n\n\n

    As mentioned above, the investor owns a percentage of the DST which means they receive a portion of the net income, tax deductions, and appreciation or value loss on the property. Some of the benefits of a DST over personal real estate are the following:<\/p>\n\n\n\n

      \n
    • The opportunity to own high quality, investment grade real estate such as shopping centers, industrial properties, office buildings, etc., which can generate cash flow from national tenants.<\/li>\n\n\n\n
    • The opportunity to receive cash flow without the work of finding, acquiring, and managing the property yourself.<\/li>\n\n\n\n
    • Avoidance of the 4 \u201cT\u2019s\u201d \u2013 toilets, tenants, trash, and telephone calls.<\/li>\n\n\n\n
    • Limited personal liability \u2013 and loan on the property is non-recourse which means the beneficial owners are not personally liable for the debt.<\/li>\n<\/ul>\n\n\n\n

      As beneficial as a DST may be for an investor, you also need to be aware of the fees and risks.  These are disclosed in the DSTs private placement memorandum. There are typically acquisition fees, management fees, and DST expense fees. Risks are similar to owning real estate personally such as changing markets, tenant vacancies (no incoming rent for income), and tax law changes. A DST also has the risk that the trustee will perform as expected. As with personal real estate, there is also no guarantee that the value of the DST will increase.<\/p>\n\n\n\n

      At the end of the day, an individual interested in doing a 1031 exchange should investigate a Delaware Statutory Trust as a possible investment. Understanding the benefits and risks are essential before deciding to invest. However, if you are ready to stop being a landlord and relinquish the day-to-day management, would like some diversification, and yet still own real estate, a DST may be right for you.<\/p>\n<\/div><\/div>\n\n\n