{"id":130490,"date":"2020-10-16T15:00:51","date_gmt":"2020-10-16T21:00:51","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=130490"},"modified":"2021-03-16T17:03:50","modified_gmt":"2021-03-16T23:03:50","slug":"delaware-statutory-trustreal-estate-investors","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/delaware-statutory-trustreal-estate-investors","title":{"rendered":"The Delaware Statutory Trust: What Real Estate Investors Need to Know"},"content":{"rendered":"<p>Let&#8217;s take a look at Delaware statutory trust law to find opportunities for real estate investors.<\/p>\n<h2>How Does a DST Help Investors?<\/h2>\n<p>Every investor is eligible for a Delaware statutory trust\u2014anyone is eligible for one\u2014but some investors are better served by one than others. Among those who may see more advantages are:<\/p>\n<ul>\n<li>Anyone doing business in California. (More on that detail below.)<\/li>\n<li>Investors holding multiple properties or seeing growth at a rapid scale.<\/li>\n<li>Investors looking for high security in their asset protection plan.<\/li>\n<li>High-earning and high net worth individuals.<\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-118217 size-main-slider\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/10\/investor-1-702x336.jpg\" alt=\"real-estate-investing\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<p><strong><em>Related: <\/em><\/strong><em><a href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-lawsuits-how-to-shut-down\" target=\"_blank\" rel=\"noopener noreferrer\">Lawsuits Are a Big Business\u2014Here\u2019s How to Shut Them Down<\/a><\/em><\/p>\n<h2>Are You Doing Business in California?<\/h2>\n<p>Investors looking toward California should be prepared to navigate the state\u2019s unique laws and agencies, especially the dreaded <a href=\"https:\/\/www.ftb.ca.gov\/\" target=\"_blank\" rel=\"noopener noreferrer\">Franchise Tax Board<\/a> (FTB) and its effect on asset protection structures. The FTB has final say on who is \u201cdoing business in California.\u201d<\/p>\n<p>The <a href=\"https:\/\/leginfo.legislature.ca.gov\/faces\/codes_displaySection.xhtml?lawCode=RTC&amp;sectionNum=23101.\" target=\"_blank\" rel=\"noopener\">full text of their definition<\/a> is a slog, as any tax agency\u2019s documents would be, but we\u2019ve translated the FTB\u2019s criteria of what it means to be \u201cdoing business in California\u201d into a plain English checklist.<\/p>\n<ul>\n<li>Do you make money in California? (\u201cEngage in any transaction in California for the purpose of financial gain or profit.\u201d)<\/li>\n<li>Was your business formed in California? (\u201cAre incorporated or organized in California.\u201d)<\/li>\n<li>Can you work or operate in the state? (\u201cHave qualified or registered to do business in California.\u201d)<\/li>\n<\/ul>\n<p>But even if you couldn\u2019t check any of these boxes, if you\u2019re a member of an LLC or partnership that <em>is<\/em> doing business in the state, you can still qualify. Especially if:<\/p>\n<ul>\n<li>The LLC is in California and runs operations there.<\/li>\n<li>At least 25 % or $50,000 in sales, whichever is less, happen in California, even if the property is owned by the LLC.<\/li>\n<li>The amount of compensation in California paid by the LLC exceeds $50,000 or 25% of the total compensation paid.<\/li>\n<\/ul>\n<p>So even an out-of-state organization can easily be \u201cdoing business\u201d in California and is thus subject to the $800 franchise tax.<\/p>\n<p><strong><em>Related: <\/em><\/strong><em><a href=\"https:\/\/www.biggerpockets.com\/blog\/california-real-estate-investors-delaware-statutory-trust\" target=\"_blank\">California Investors: Why DSTs Are Better Than LLCs (Hint\u2014Taxes!)<\/a><\/em><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-107304\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/02\/tax-incentives.jpg\" alt=\"calculator with less tax and more tax buttons\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/02\/tax-incentives.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/02\/tax-incentives-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<h2>Bottom Line: DSTs Are a California Investor\u2019s Best Friend<\/h2>\n<p>You\u2019ve heard the phrase \u201cthe rich don\u2019t own assets, they control them.\u201d This is because the wealthy are protecting their real estate investments in holding structures that allow them to retain control of investment properties as a beneficiary without technically being the \u201cowner\u201d of a property.<\/p>\n<p>If you are a California investor or simply doing business in California through partnership in an LLC, you should know how to avoid California franchise tax. A Delaware statutory trust is not included among the business structures required to pay the annual $800 franchise tax per entity because they are considered an estate planning tool and not a traditional company.<\/p>\n<p>A DST is similar to other <a href=\"https:\/\/www.biggerpockets.com\/blog\/pillars-asset-protection-real-estate-investors\" target=\"_blank\">real estate asset protection<\/a> entities that are helpful for protecting your assets. Like an LLC or Series LLC, a DST may sue or be sued, but you are also protected from liabilities. DST is an intellectual grandparent of the Series LLC, but both tools take advantage of a parent-child structure to provide protection.<\/p>\n<p><a href=\"https:\/\/store.biggerpockets.com\/collections\/all-books\/products\/the-book-on-advanced-tax-strategies?utm_source=blog\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-122069\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/02\/Blog-link-button.jpg\" alt=\"\" width=\"700\" height=\"120\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/02\/Blog-link-button.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/02\/Blog-link-button-300x51.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>Questions? Comments?<\/em><\/p>\n<p><strong>Let&#8217;s discuss below.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A Delaware statutory trust is a vehicle for passive real estate ownership that provides investors a shield from franchise taxes. Learn how to qualify here.<\/p>\n","protected":false},"author":23983,"featured_media":120041,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4241],"tags":[],"class_list":["post-130490","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-business-management"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/130490","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/23983"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=130490"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/130490\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/120041"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=130490"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=130490"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=130490"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}