Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
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.
Attorney · San Francisco, CA · Member since 2017 · 3 posts · 3 votes
7y
@Brian Bradley and @Scott Smith, great discussion and responses to questions. Thank you! I've had a few CA-based estate planning clients looking into setting up a DST for their out-of-state properties, and I couldn't have been happier to send them here to gain a decent understanding of what they are and how they compare to alternative options. You both rock. Keep it up. :)
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
7y
@Karen T. Delaware Statutory Trusts.
What you are talking about is a tax deferred trust also called a DST that investors use for capital gain 1031. We have not been addressing that. I think some questions have come up for such regulations for the deffered trust 1031 but i have seen 90% of everybody is on topic with the Delaware statutory trust. The few 1031 regulations that did not apply were quickly answered.
If you go back up to the very first 2 posts it’s very specific on the trust.
That’s part of why this forum exists to get through the confusion etc and the regulations of one DST thinking it’s applicable to a 1031 DST.
Registered Representative · Bend, OR · Member since 2018 · 91 posts · 38 votes
7y
Yes I know what they are. I was just confused on some of the information on this thread regarding Delaware Statutory Trusts. I think it may be misleading. The Deferred Sales Trusts are not used in a 1031. They are used instead of. And a lot of investors do use a 1031 into Delaware Statutory Trusts. I think you need to end this thread as it is VERY confusing.
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
7y
@Account Closed an expert on Delaware Statutory Trusts has even come into this forum for the education process.
YOUR DST for the Deferred sales trusts is used as an alternative exit strategy. Please keep to the topic of this forum.
If you have questions ASK them. As of now, you seem to be the only person confused, as the entire forum conversation has gone very smoothly so fare, except for your part in it.
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
7y
@Account Closed I suggest you start with DST (Delaware Statutory Trust Act 12 Del.C. section 3801 (1988) then you can go to Senate Bill No. 355, 66 Del. Laws Ch. 279 (1988); then go to the IRS regulations such as 2004-86; IRC Section 301.7701-4(a); California's Revenue and Taxation Code (R&TC) section 23101; California law, specifically Public Law 86-272. I can go on and on with such "misleading" law and codes. Thank you Karen for your questions.
Attorney · Akron, OH · Member since 2016 · 535 posts · 389 votes
7y
@Brian Bradley / @Bryan Zuetel , do you know if a Delaware Statutory Trust substantially differs from a state that has enacted the Uniform Trust Code? For instance, is a DST an actual registered legal entity like that of an LLC/corporation/LLP, or does it have the same status as a regular trust?
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
7y
@James Galla yes thats a good question. A Delaware Statutory Trust is treated as a trust, rather than an incorporated entity such as a limited liability company, for tax purposes. There are several things you must do to keep a the DST from being pierced or having the Series structure collapse. To maintain that treatment you must stay in compliance with the IRS regulations, or they will classify you as a business entity. The IRC is the internal revenue code which is the foundation of our legal knowledge to know how the trust will be treated for federal and franchise taxes. IRC Section 301.7701-4(a). Taxation of the DST as structured use accomplishes tax treatment as a trust and not as a business entity. We maintain strict compliance with the IRC code and 12 Del.C. 3801.
Registered Representative · Bend, OR · Member since 2018 · 91 posts · 38 votes
7y
@Brian Bradley I apparently do not get on BP enough to defend myself. I just think you are confusing people by giving advanced legal advice and not clarifying the different types of DSTs as well as what the purpose is of each. Many investors search up DST as an investment product to buy and you are saying here that they can setup their own, which is a pretty advanced and expensive strategy and not at all relevant to what many people who do that search are looking for. I think specialized legal advice should be reserved for clients where you know their entire situation, not on a post. And I think attacking someone on a forum is really unprofessional, even for an attorney. It is very clear you are selling the service you provide of setting up an advanced strategy, which in many cases is probably not necessary for most people who do real estate investing on their own.
I'm not sure what you mean by 'your DST' because that doesn't even make sense. What do you perceive to be 'my DST'. This is very unprofessional of you to attack me. I simply suggested some clarification for the benefit of the audience as I saw confusion with some of the other posts on your thread.
For the record - Brian Bradly is suggesting ONE WAY to use a the Delaware Statutory Trust in real estate investing. There are other forms of DSTs as well as a completely different and unrelated Deferred Sales Trust which some people have used and it often is confused with the former since they have the same acronym. VERY IMPORTANT to hire you own attorney(s) who can give advice on YOUR specific situation with regard to estate planning and long term legal costs and remember that anything you read on a post is not intended as legal advice.
Registered Representative · Bend, OR · Member since 2018 · 91 posts · 38 votes
7y
Wow @Brian Bradley. All I can saw is wow. I sell DSTs all day every day and have been since they came on the market as securities. Rude is an understatement to describe your post. Anyone that would search BP for DST in considering them as an investment and seeking to learn more that ran across your post would be thoroughly confused by it. Sadly, you must not have any experience with DSTs as an investment vehicle. You might spend some time researching what is a very robust and well educated industry surrounding these types of investments.
Please leave me out of your defensive responses going forward.
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
7y
@Karen T. Like I said baseless mongering with zero facts. @Scott Smith and I set up an enormous amount of these for our clients nation wide and in CA. YES, DST as in delawre Statutory Trust. WE use DST as asset protection for clients. As licensed attorneys we take our jobs and ethics very seriously and Anytime somebody like you attack’s with zero basis and facts and can’t support a single claim you make I will push back. AND Hard. You sell deferred tax trusts. Big difference. AnD the exact title of this forum is Delaware Statutory Trust. Again reading comprehension! Sorry you Are a victim monger who has contributed zero to this forum. Read the Statutes posted númerous times as well as the title of the forum, and the first two posts and the statutes I told you to read. But I guess actually research into something different is to much to ask you. You sell deffered tax trusts not Delaware statutory trusts that we are talking about in this forum. Support on thing you claim. Just one. Oh wait you can’t since it’s baseless accusations.
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
7y
@Karen T. And another thing that shows how off you are is that we do not sell or use DSTs as investments but asset protection holding trusts. Huge difference. I suggest you take your own advice and learn the ways DSTs can be used. Your blind ignorance is causing the issue. Asset Protection vs investment. Theirs a distinction. One you don’t seem to see or ask. Asset Protection is to protect owners from personal liability and minimize judgments and loss. Asset protection systems are not investments you purchase. You can also use DSTs as a business investment as in let’s say institutional investing for accredited investors. But that’s not what we are discussing. We are talking about assst protections and the benefit the DST has for CA investors and others.
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
7y
We are moving on to multiple new pages in the forum, so for a refresher of what this discussion / forum is about, and for those who are not going to read the entire forum pages in full, trust me I get it, this forum is about how to use, and the benefits of the Delaware Statutory Trust as a Asset Protection system, and particularly for those CA investors who want to Series out their properties into child series like with Series LLCs, without paying the $800 Franchise Tax for each child series. The Delaware Statutory Trust (DST) as we will call it, is found in Delaware Statutory Trust Act 12 Del.C. section 3801 (1988). It allows for the Series structure like protection of a Series LLC.
This is not an investment DST, but a Business Trust DST, and to keep that classification of a trust by the IRS it must maintain strict compliance or the asset protection structure will collapse. This is where working with your team CPA and lawyer are a must. There are lots of other purposes of DST. Some use for 1031 exchange's, some use as an investment tool to as accredited investors in institutional investments, etc etc. This is not what this forum is about. This is about the DST for Asset Protection as a trust asset holding company.
A lot of the specific code sections have been discussed already. You should scroll up to see those. Some of these are:12 Del.C. 380; IRC Section 301.7701-4(a); Senate Bill No. 355, 66 Del. Laws Ch. 279 (1988); IRC Section 301.7701-4(a);California's Revenue and Taxation Code (R&TC) section 23101; California law, specifically Public Law 86-272.
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
7y
@Rajesh P. A land trust is not a business trust that allows for separation of assets into individual series. It is a trust that you can transfer property into out of your name and into the name of the trust. Generally you would use a land trust in connection with a Series LLC. But if using just a land trust alone by not separating the assets into individual series, you do not stop the bleeding.
SO for CA investors who want a Series LLC, you can create a Series LLC even if a resident of CA, nothing is stopping you, BUT CA will exercise a franchise tax on each child series you create. $800 per child series. So as you grow your assets and add more properties into that Series LLC and have more 'children' in CA, you keep paying more and more in franchise tax.
The Delaware Act expressly provides that “[n]o creditor of the beneficial owner shall have any right to obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the property of the statutory trust.” 12 Del. C. §3805(b). The title to trust property may be vested in one or more trustees, but shall not be subject to claims against the trustee which are unrelated to the statutory trust.
Attorney · San Francisco, CA · Member since 2017 · 3 posts · 3 votes
7y
@Brian Bradley and @Scott Smith, great discussion and responses to questions. Thank you! I've had a few CA-based estate planning clients looking into setting up a DST for their out-of-state properties, and I couldn't have been happier to send them here to gain a decent understanding of what they are and how they compare to alternative options. You both rock. Keep it up. :)
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
7y
For you CA Resident Investors, I am going to be giving some presentations in SoCA on Asset Protection and the use of the Delaware Statutory Trust (DST). 12 Del. C. §3801 (1988)
I will keep you posted on the dates and locations. As of now looking at Pasadena and the Inland Empire. Possibly also Culver City.
For those who mist the prior posts about what the DST is and its benefits for CA Investors below is a summary.
The (DST) as we will call it is just another tool in the toolbox for asset protection. What you want to do when creating an asset protection system is to keep in mind the 5 pillars (avoiding high risk activates, having adequate insurance, compartmentalization, operations, and anonymity,) attack any incentive to sue you, drive away damages, provide an incentive for settling claims fast, and improve your bargaining position to a position of strength.
If you are a CA resident, and you want to own more than one asset, or note etc and if you also want to compartmentalize your assets into their own series for more liability protection, this can cost you. If you were to create a Series LLC as a CA resident, the State of California will charge you an $800 franchise tax per child series that you create. So as you grow, you will keep paying more and more in just franchise taxes alone. So what do you do? If you create separate LLCs and operating agreements for each asset that will be extremely expensive.
One option is to create a Delaware Statutory Trust (DST) to act as your asset holding company, and then create a traditional LLC as your operating company. You would just be paying the franchise tax on the Traditional LLC operating company, which has no assets connected to it, nor in your personal name.
A DST is a business trust, and since it is a business trust, it is exempt from paying the California franchise tax of $800 per series. So, if you want to compartmentalize your assets into separate child series and limit your downside risk like the Series LLC, but not pay the $800 franchise tax, you can do that. And the DST provides anonymity. It makes it very hard, time consuming and expensive to find you're name as the owner. This is because the anonymous DST will hold the assets. Anyone researching the owner will only find the name of the trust as the owner.
To properly maintain a DST and not have it collapse on you, you must work with an experienced lawyer and CPA to maintain compliance. In addition, IRS code 301.7701-4(a) holds that the DST will be recognized as a Trust and not a business organization if it is created for the purpose of protecting and conserving the trust property for beneficiaries. This compliance of being a protection system is required and must be complied with to not be pierced. A DST that operates as a business or that does not limit the power of trustees will be deemed a corporation. Hence why you use a DST as a asset holding company for the purpose of protection and conservation, and then have a side traditional LLC as your operating company.
For California residents and investors, now you have the best of both worlds. An asset protection system that allows you to compartmentalize your assets into series, an added tax benefit of not paying the CA franchise tax on those series, and a shell operating company that holds no assets.
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
7y
If you are a CA resident and following this forum then you have read above about the DST and its benefits for CA Investors. Another option for CA investors is the Private Retirement Plan/Trust (PRT) which provides one of the highest levels of protection for your assets. With our litigious and predatory society there are few purely domestic asset protection planning strategies that offer California residents true asset protection. The great thing is that being a California resident, you have an additional option that is not well known but exclusive for CA Residents; the Private Retirement Trust (PRT).
A PRT is a retirement plan that FULLY EXEMPTS ALL trust assets from any creditor attached so long as it’s designated for future use in retirement. In 1970 California instituted its’ state exemption law that assets owned in a private retirement trust are fully exempt under statute. PRTs are specifically designed to enforce your legal exemption right to protect assets from lawsuits and attacks. Aretax-oriented plans like IRAs seek tax deductions for contributions. PRT instead prioritize and protect private assets that already have inherent tax benefits. Instead of seeking sources of income or assets that can be used for tax deductions like IRAs, you can contribute to your PRT as they are earned with little to no restrictions on the amount. Since funds and assets are only allocated to a PRT after they have been taxed, contributions are not deductible, therefore any private or appreciating asset can be put into a PRT without limits. If you can’t save up enough money for a traditional retirement plan or if you would like to maintain control of your assets and save for retirement on your own terms, a PRT might be for you. Tomorrow we will get into how a PRT is different from other retirement plans and how to fund it. I plan to break the PRT down into 3 or 4 posts since their is a lot of information. If I don't get to many of the questions, it is because I want to get all the post out first, which might address the question.
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
7y
Under California state statute (law) CCP 704.115, assets held in a Private Retirement Trust plan are exempt from creditor lawsuits and bankruptcy judgments, as long as designated specifically for retirement.
No Annual IRS Filings: Yet another advantage of a taking up a PRP is that there is no need for annual Internal Revenue Service filings (IRS).
Contributions are only made after they are taxed which results in a great degree of freedom for the types of funds that can be allocated in addition to very few restrictions on funding amounts. Funds and contributions to your PRT are primarily going to be in the form of private assets that are taxed as they are earned; the only difference between private assets and funds contained in a PRT is that those funds are allocated specifically for use in retirement. contributions are not tax deductible because the assets being allocated for retirement have already been taxed. Though they are not tax deductible, contributions retain their full character once contributed to your PRT so the inherent tax benefits in each asset are preserved for your benefit during retirement.
Funding a PRT is unrestricted as long as assets can be justified and proven as needed for retirement, and can include private business interests, stock, and notes, if properly administrated. There is no restriction on the type of investments that you can cover in the plan. Thus, a large variety of assets particularly rental properties for retirement purposes. Additionally, you can put these investments into any financial institution of your desire as well. Obviously any system involves a detailed analysis of your situation and assets so a consult would be necessary. But overall, the PRT is a very good wealth generator and asset protection system exclusively for CA residents.
Registered Representative · Bend, OR · Member since 2018 · 91 posts · 38 votes
7y
@Brian Bradley I don't sell Deferred Sales Trusts. I don't know why you keep saying that.
This is absurd to me. Your personal attacks are ridiculous. If anyone reading this is interested in learning more about Delaware Statutory Trusts that you can buy shares as an accredited investor of as opposed to what Mr. Bradley is promoting here, you can reach out to me via private message. They are two very different topics. An even different topic is the DST that Brian thinks I sell - that I do not sell - Deferred Sales Trust. I think the takeaway here is that real estate investing has some advanced topics that do not belong on a forum blog.
Brian, please stop including attacks on me in your comments. There is no reading comprehension issue on my end - I work with Delaware Statutory Trusts as well. Just pointing out a different idea and use for them for investors in the effort to clarify for people reading this. The fact that you would accuse me of being an uneducated person that can't read speaks more to your character and experience than mine.
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
7y
@Account Closed I think you have lost your mind. The last time I have even written about you or to you was over 2 months ago when you were well misplaced and had no clue what you were talking about and I directly replied to you then. This forum has since moved on beyond you months ago. I guess you just need to feel important again. Thanks for coming back to the forum. This forum is not about using DSTs to purchase shares as an accredited investor. Again, for the nth time. Reading comprehension Karen. Again. Everybody in this forum understands the difference as we talked about it A LOT. Look forward to your trolling me again in a few months.
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
7y
Very exciting. I’m gonna be teaching a national CLE seminar “continuing legal education” for attorneys on asset protection for the national academy of CLE.
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
7y
For CA residents, or for any person looking for asset protection, we have talked about no one size fits all system exists. Asset Protection systems are all personal. Another issue is that most ‘asset protection' attorneys are estate planning attorney's and work on exempting assets from estate tax and avoiding probate, which has nothing to do with asset protection from creditors and lawsuits. Or they stick with what they are familiar with and try to fit everybody into one system (LLC / Land trust).
Most asset protection planning is limited, especially in CA where courts have pierced the veil of LLCs set up for asset protection and pierced the veil. If you are living in CA, you are living in a judicial hellhole that ranked #1 by NFIB. If your protection is "limited" as the tile implies with LLC, and CA is horrible state for litigation and taxes, and judges give very little respect to elaborate asset protection schemes to protect debtors (you), what option do you have? I personally would look first towards State Exemptions and what assets I can exempt, then, after I have maxed out my exemption options with my assets, I would then look at what additional asset protection system I need to set up to protect the rest.
An exemption is a legal right under Federal or State Law to have certain assets unavailable to creditors under any circumstances. This is NOT an asset transfer, therefore cannot be fraudulent or voidable. The interesting thing is, despite how bad of a state CA is for asset protection and taxes, it actually has VERY strong and unique asset protection opportunities via its State Exemptions for Personal Retirement Plans found under California Civil Code 704.115. When you actually compare these exemptions to the other States that are considered the strongest, (TX, NV, FL).
Under CCCP section 704.115 no other state have a unlimited state exemption for private retirement plans such as CA. In fact, the federal retirement law ERISA was modeled after it and has been around and tested in court for many years.
Yes it is hard to believe. Despite having horrible, if not the worst, climate for taxes and litigation, there is actually something CA offers its residents for protection that can convince small, midsized business owners and investors to stay in CA and not move out of the state.
By having an experienced lawyer familiar with PRP or PRTs (interchangeably used) to properly draft and maintain a CA Private Retirement Plan (PRP) you can protect your assets via exemption. And not the limited protection under a charging order. The surprising fact also is that CA is the ONLY state with an exempt private retirement plan (PRP).
The point is, when talking about or considering an asset protection system, the smartest and wealthiest clients 1. Have insurance, 2. Pick up all their state and federal exemption they are entitled to, and 3. Then set up some asset protection entities they need to cover the rest, be it offshore foreign asset protection trusts, DSTs, or LLCs, LP, S-Corps, Etc. It is then a matter of assessing the remaining non exempt assets with protection needs and tax planning.