Delaware Statutory Trusts (DST) and Investors

[Brian Bradley]

Thank you for visiting this forum. If you are hear you have heard about the Delaware Statutory Trust (DST) and are looking for more information on what they are, what they are good for, how do they work in protecting me and my assets, and its scalability etc. Or you are a CA resident investor looking for asset protection and have come across the DST in bloggs / some forums on BP or other investors who have a DST System established already.

The point of this forum is to be a direct point of references for information, education, and professional resources on the DST, particularly for California investors looking for asset protection options. I have not found a specific forum yet addressing this topic, but some specific posts directed to individual needs. @Scott Smith @leslie  @leslie pappas and @bill exeter have been very useful professionals for those posts. So I hope you bring your knowledge to this forum for those investors who are looking for and or considering a DST.

This is not for legal advise but education. So do not take what me or anybody else says as legal or professional advise. But opinion and a starting point for you to use. Always go and hire an Attorney and CPA.

My next post on the DST will be about what it is, who can benefit from it etc. I plan to get that up later tonight. Look forward to hearing from you, your questions, comments, experiences, knowledge. The great thing about BP is it vast community to learn from and with.

[Brian Bradley]

So what is the DST? The DST is a statutory business trust. If you are a California investor, then this is something to listen up and research up on. The DST (Delaware Statutory Trust Act 12 Del.C. section 3801 (1988) allows for a series structure like a Series LLC. Think of a parent-child relationship. The DST is your parent, and it can have as many children as it wants. Each child is a ‘series'. The benefit of this for CA investors is the ability to avoid the Franchise Tax imposed upon LLC's. The DST is one company with one filing, and one tax return. Each child is treated as if it were its own company for liability purposes.

It is structurally analogous to other business entitles where management and control is separated from equitable ownership. The DST is similar to a corporation in that the beneficial owners of the trust have no greater liability than that of a stockholder in a corporation. A DST is similar to a LP and LLC in that it leaves it to the parties to the governing instrument to craft many of its governing provisions, and prevents creditors from only collecting what the beneficial owner is entitle to according to the germs of the governing instrument. This has to be done in its creating documents so you must have an experienced attorney do this for you.

Think of the DST like a trust. It will have a Grantor, a Trustee, and a beneficiary. The Trust will have the REI Asset Holding DST - Child Series as the Grantor, the client will serve as the Trustee, and the beneficiary will be the series. The property is held in the name of the holding trust and is controlled by the company while the client (you) receives disbursements from the title holding trust.

To keep the DST from being pierced you MUST maintain compliance or the structure will collapse and all series would then be treated as one. You must have a valid trust agreement, be filed with the state of Delaware, maintain a Delaware Registered Agent, and abide by certain rules of the IRS, and maintain accurate accounting of money to each series. Hence, have an attorney experience with DST set this up for you. This is not a DIY project. And talk to your CPA. 

DST's are commonly used for:

asset-backed securities transactions – also consult a SEC Attorney

collateralized mortgage obligations

real estate investments

leveraged leasing transactions

mutual funds and investment companies

liquidating trusts

1031 exchanges

trust preferred securities transactions

private investment funds

This is obviously just the tip of he iceberg.