WHAT IS A DELAWARE STATUTORY TRUST?
The Delaware Statutory Trust, often referred to by its nickname of DST, is a separate legal entity drafted as a trust under the laws of the state of Delaware. The DST is also known as a Delaware Business Trust. The Delaware Statutory Trust is considered to be an investment trust that will be classified as a trust for federal tax purposes. As such, the DST is classified as a "pass-thru" entity and a "disregarded entity" so that any and all income tax consequences will "pass-thru" to the investor's individual income tax return.
PROPERTY HELD BY TRUSTEE OF THE DELAWARE STATUTORY TRUST
Investors no longer hold legal title to the investment property as they did under the Tenant-In-Common or TIC investment structure, but instead acquire a beneficial interest in the Delaware Statutory Trust. They are now considered a beneficiary of the Delaware Statutory Trust. Legal title to the investment property is now held in the name of the Trustee of the Delaware Statutory Trust.
DELAWARE STATUTORY TRUST QUALIFIES FOR 1031 EXCHANGE
The purchase or sale of a beneficial interest in a Delaware Statutory Trust qualifies for tax-deferred exchange treatment under Section 1031 of the Internal Revenue Code ("1031 Exchange"). Investors can sell their existing investment property and 1031 Exchange into a beneficial interest in one or more Delaware Statutory Trusts. They can also sell their beneficial interest in a Delaware Statutory Trust and 1031 Exchange into another DST or into other property selected through the assistance of their real estate broker.
REVENUE RULING 2004-86
The Internal Revenue Service ("IRS") approved the use of Delaware Statutory Trusts or DSTs for 1031 Exchange replacement property solutions when they issued Revenue Ruling 2004-86.
There are risks associated with investing in real estate and Delaware Statutory Trust (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence or $200,000 income individually/$300,000 jointly of the last two years, and reasonably expects the same for the current year) and accredited entities only. Each prospective investor must consult his or her own tax advisor regarding the qualification of a particular transaction under Section 1031.