Understanding A Delaware Statutory Trust And How They Work With 1031 Property Exchanges
USING A DELAWARE STATUTORY TRUST TO COMPLETE YOUR 1031 EXCHANGE
In the majority of cases, 1031 Exchanges are completed by the investment property owner with the help of a real estate broker. However, if suitable, there may be another alternative – a passive solution to satisfying a 1031 Exchange – and that is a Delaware Statutory Trust (DST).
DSTs that are properly structured are recognized by the IRS as qualified replacement property for real property. Investors in a DST are not direct owners of the real estate. The trust holds title to the property, for the benefit of many investors, each of whom has a “beneficial interest” and is treated as owning an undivided fractional interest in the property.
Simply put, DSTs provide a turn-key solution for investors who may not have the time, energy or real estate expertise to find and/or manage a replacement property. DSTs can be used for all or a portion of the sales proceeds. Also, be mindful that there may be fees and expenses associated with a DST.
With its unique structure, a DST can offer you many potential benefits:
- Access to institutional-quality real estate
- Professional asset and property management
- Passive ownership
- Non-recourse institutional financing
- Lower minimum investments
- Portfolio diversification
- Ability to close quickly
Guidelines For DSTs
There are certain guidelines that DSTs must follow. Specifically, a DST may not:
- Invest accrued cash, from rental income or investment proceeds, between distribution dates in anything other than short-term securities
- Accept additional capital to the DST
- Renegotiate terms of debt or enter into new financing
- Renegotiate leases
- Enter into new leases (except in certain circumstances)
- Make improvements other than minor non-structural repairs
We offer a complimentary appointment available to discuss your property and review your tax return and discus your options. A diversified portfolio of DST properties can eliminate property management and potentially increase your monthly income and reduce income taxes. It’s worth a visit to find out.