What is a Delaware Statutory Trust?
A Delaware Statutory Trust (DST) is a legal entity formed as a trust under Delaware state law. The DST is classified as a grantor trust for income tax purposes and the purchaser of an interest in the trust is acquire an undivided interest in the asset or assets held by the Delaware Statutory Trust. A DST is structured so that each investor owns a beneficial interest in the trust and the managing trustee of the DST is usually the Sponsor or an affiliate of the Sponsor.
Benefits of a Delaware Statutory Trust include:
The DST is the single owner and borrower, lenders only underwrite the DST not each investor.
Lower minimum investment requirements than a TIC (tenants in common) ownership.
DST allows cash investors who did not 1031 into the property the option to complete a 1031 tax deferred exchange when the property is sold.
Investors are not required to sign for personal recourse on loans.
Drawbacks of Delaware Statutory Trusts:
A DST owner does not maintain management control of the investment property. The investor is subject to management decisions made by the managing trustee.
DST’s are a fairly new structure and there is not a public market for the interests in a Delaware Statutory Trust, so selling you interest in the trust may be difficult, however, it is generally easier and more cost effective than in a TIC structure.