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Understanding A Delaware Statutory Trust And How They Work With 1031 Property Exchanges




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.