DELAWARE STATUTORY TRUSTS
WHAT IS A DST?
A Delaware Statutory Trust ("DST") is a business trust that can be used for real estate ownership where a trustee holds title to assets for the benefit of the trust interest owners.
Investors in a DST own an undivided interest in the assets held by the trust.
DSTs may provide a solution for exchangers who may not have the time, energy, or real estate expertise to find and/or manage replacement property.
DST ADVANTAGES & DISADVANTAGES
Access to institutional quality real estate
Tax Reporting (Grantor Letter)
Lower Minimum Investment
Loss of Control
Long-Term Holding Periods
No Control or Involvement in Property
No Public Market exists for the DST Interests, and it is highly unlikely that any such market will develop.
Under IRS ruling 2004-86, for beneficial interests to qualify as direct interests in real estate for Section 1031 purposes, the DST must be limited in its actions and may not:
1) Exchange DST property for other property.
2) Invest cash between distribution dates in anything other than short-term securities.
3) Accept additional capital to the DST.
4) Renegotiate terms of debt or enter into new financing.
5) Renegotiate existing leases, except in the event of an original tenant bankruptcy or insolvency.
6) Enter into new leases, except in the event of an original tenant bankruptcy or insolvency.
7) Make repairs or improvements other than minor, non-structural repairs.
To deal with these limitations, DSTs contain provisions for "springing" into a limited liability company taxed as a partnership if action prohibited in the DST format is needed. This is normally not a taxable event, but may limit future 1031 exchange options.