How to Form a Delaware Statutory Trust (DST)
What is a Delaware Statutory Trust?
A Delaware Statutory Trust (DST) is a legal entity that allows multiple investors to pool their funds and invest in real estate properties. It is a popular investment vehicle for individuals looking to diversify their portfolios and gain exposure to the real estate market without the responsibilities of property management.
Why Form a Delaware Statutory Trust?
There are several advantages to forming a Delaware Statutory Trust:
- Limited liability: Investors in a DST are not personally liable for the debts or obligations of the trust. Their liability is limited to the amount of their investment.
- Tax benefits: DSTs offer potential tax benefits, such as the ability to defer capital gains taxes through a 1031 exchange. This allows investors to sell appreciated property and reinvest the proceeds into a DST without immediate tax consequences.
- Professional management: DSTs are managed by professional trustees who handle the day-to-day operations of the trust, including property management and maintenance. This relieves investors of the burden of managing the properties themselves.
- Diversification: By pooling funds with other investors, DSTs provide the opportunity to invest in a diversified portfolio of properties, which can help mitigate risk.
Steps to Form a Delaware Statutory Trust
Forming a Delaware Statutory Trust involves several steps:
1. Choose a Qualified Trustee
It is important to select a qualified trustee who will act in the best interests of the trust and its beneficiaries. The trustee will have fiduciary responsibilities and will be responsible for managing the trust's assets.
2. Draft and Execute the Trust Agreement
The trust agreement is a legal document that outlines the terms and conditions of the trust. It should include provisions regarding the distribution of income and profits, the rights and responsibilities of the beneficiaries, and the powers and duties of the trustee.
3. File the Certificate of Trust
The certificate of trust is a document that provides evidence of the existence of the trust. It should be filed with the Delaware Secretary of State's office. The certificate typically includes the name of the trust, the names and addresses of the trustees, and the date of the trust's formation.
4. Fund the Trust
Once the trust is formed, the investors must contribute their funds to the trust. The funds will be used to acquire real estate properties or other assets in accordance with the trust agreement.
5. Comply with Securities Laws
If the DST is offered to the public, it may be subject to securities laws and regulations. It is important to consult with legal counsel to ensure compliance with these laws.
Conclusion
Forming a Delaware Statutory Trust can be a beneficial investment strategy for individuals looking to diversify their portfolios and gain exposure to the real estate market. By following the steps outlined above and seeking professional advice, investors can form a DST and enjoy the advantages it offers.
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