WHAT IS A DELAWARE STATUTORY TRUST?

With Revenue Ruling 2004-86, the IRS approved an interest in a Delaware Statutory Trust (DST) as a “like kind” property in a #1031 exchange. Over the years, DSTs have become the replacement vehicle of choice in such exchanges.

A DST is a separate legal entity created under the laws of the state of Delaware. The independent trustee of the DST holds the legal title to the real estate properties inside the trust. Investors own a fractional interest of the trust proportionate to their investment amount.

Key Benefits of DSTs in 1031 Exchanges

PROFESSIONALLY MANAGED PROPERTIES

DSTs allow investors to acquire partial ownership in multi-million-dollar properties that otherwise would be out-of-reach. They are generally of Institutional quality and professionally managed to optimize their value to investors.

YOU KNOW WHAT YOU ARE GETTING

Investors clearly know what properties they are investing in. They know their location, demographics, occupancy rate, actual income, lease terms and many other relevant details that are fully disclosed.

STEADY CASH FLOW

DSTs are set up to provide a steady monthly income stream. They also allow for the continued use of depreciation to shelter some of the income received.

DIVERSIFICATION

Investors can divide their investment among multiple DSTs, which can provide a more diversified real estate portfolio across geography and property types.

ESTATE PLANNING

It’s much simpler to pass on a fractional ownership in a DST rather than a whole property which often leads heirs to fight over. Also, it provides them with professional real estate management versus the burden of hands-on management.

Potential Risks of Using DSTs

All investments have inherent risks including those that are common to real estate investments.

Specific risks include but are not limited to:

• Lack of liquidity-there is currently no secondary market,
• Property appreciation is not guaranteed,
• The potential for loss of principal invested,
• Other risks are disclosed in detail within the Private Placement Memorandum that must be reviewed before investing.

To discuss the use of DST’s in exchanges call Dieter Thurow at 707-431-8898 or send a confidential email to dieter.thurow@npbfg.com