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What Is a Delaware Statutory Trust (DST)?

by on Nov 18, 2020
What Is a Delaware Statutory Trust (DST)?

Many have an interest in real estate investing and taking advantage of an industry with a few perks over other investment options. One of those perks happens to be the 1031 DST option. A DST is a term that is being tossed around in the real estate and business industries. It is a legally binding trust known as the Delaware Statutory Trust. Used commonly in the business world, this trust is not limited to the state of Delaware. It is still legally binding among private parties who want to share investment and allow these accredited investors to take advantage of interest as a single asset or multiple properties in a portfolio.

History of the DST

Dating back several centuries, the use of trusts has been essential for private business and partnerships that trust their partners and investors to create their entity to fit their needs and agreement. This particular trust, the DST, saw its origin in 1988 under the Delaware Statutory Trust Act and provided new freedom from corporate law as they were their own entities. With this development came the increasing use of the DST.

In 2004, the IRS took to clarify the DST and what it means for federal tax purposes by those who own the DST or share an investment. The property and interest funds that accrued in these trust accounts became officially identified as a trust, subjecting them to traditional trusts' legal implications. The IRS also noted that the taxpayer on the trust is eligible to exchange the interest in the DST and real property identified as a structure or piece of acreage.

How are they most commonly used?

Presently, the use of a DST is through structural commercial real estate properties. For those investing in the 1031 DST, this is one of the key advantages of enjoying this account and moving forward with investing in this manner. The real attribute to this investment is the lack of management requirements when the DST's trustee inherits the replacement properties. The burdens of management and maintaining the property become the initial sponsor's responsibility, which means that the i1031 investor can enjoy capital gains through a hands-off or passive income.

Pros and Cons to 1031 DST Investing

Like any investment, there are both pros and cons to consider when looking into this investment and opt to become an investor in one of these accounts. The lack of hands-on is a great pro and ideal for those who enjoy making multiple investments into DST accounts. Another pro is the limited liability protection because these particular trusts serve as legal entities separate from all other assets and accounts. This gives asset protection because it is not combined with others.

There are some cons to consider before you jump into a 1031 DST. First, know that the liquidation of this trust can be must longer and more of a risk. With real estate property, they cannot be liquidated right away like stocks and other investment options. This could take anywhere from days to months to finalize. Management freedom is restricted. While this is a pro for many investors, some find this to be risk leaving the property management in others' hands when they have a significant investment.

Consider a 1031 DST Today

If you are looking into new investment options and think that real estate is the right way to go, a 1031 DST trust may be what you need. If you want to take that risk without involving additional assets, now is the time to gather new information about the 1031 DST and how it can help you with your wealth and financial goals.

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