Delaware Statutory Trusts (DST) and Investors

Tax, SDIRAs & Cost Segregation
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Delaware Statutory Trusts (DST) and Investors

Brian Bradley
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.

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Yaasha Sabba
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. :)

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  • Hasena Williams
    Member since 2019 · 2 posts · 0 votes
    7y

    I am new to Bigger Pockets, and am very excited to take my investment business to the next level.  I'm even more excited to know that this tremendous resource exist and that it is so easy to connect with pro's and experts in various related fields.  My first connection was with Yaasha Sabba, and he was great, a wealth of knowledge.  Yaasha was able to provide some guidance about purchasing a CA property with out of state entity.  As my needs become more complex, I hope to be able to use him in the future.

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  • Victor Saumarez
    Investor · Lahaina, HI · Member since 2012 · 47 posts · 35 votes
    7y

    I am interested in learning more about DSTs as an investment vehicle. I have read up on the basics and been in touch with 4 or 5 companies with a strong internet presence that offer investments within them. However, I am getting nowhere. I don’t know if its because they have fulfilled their investment quotas, or are primarily targeting 1031 exchanges, or maybe my investment parameters are too narrow. I notice on or two BP members are involved in this area and hope someone can point me in the right direction. Should I be contacting these companies direct, or through an intermediary. If so, where do I find an intermediary. My focus is on diversified income-producing residential apartments, non-leveraged, away from coastal frothiness and weather-impacted regions. I am an accredited investor. My focus is on passive income with better-than current fixed income yields. 

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    7y

    I feel you @Victor Saumarez. A slick web site doesn't guarantee customer service. Actually most of these companies are regular broker dealers and the DST side of things is just a small part of their securities businesses. Few are truly real estate people.

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  • Victor Saumarez
    Investor · Lahaina, HI · Member since 2012 · 47 posts · 35 votes
    7y

    Thanks for that Dave. Have you had any success in investing in DSTs?

    0Reply
  • Michael Barna
    Member since 2019 · 6 posts · 0 votes
    7y

    What is the general cost of setting up a DST for a single CA property?

    0Reply
  • Rene D.
    NV · Member since 2019 · 254 posts · 57 votes
    7y

    @Michael Barna did you set up an LLC for your single property?

    0Reply
  • Michael Barna
    Member since 2019 · 6 posts · 0 votes
    7y

    I'm vacillating between an LLC and DST, with the idea that I'll likely at other properties in the future.

    0Reply
  • Rene D.
    NV · Member since 2019 · 254 posts · 57 votes
    7y

    @Michael Barna that is exactly where I am too.

    0Reply
  • Robert Novack
    Member since 2018 · 1 post · 0 votes
    7y

    DST VR Series LLC

    I live in Delaware and use a series LLC for my real estate investing that is owned by my holding company LLC. I also have an LLC/S-Corp that handles my higher risk operations. When I am purchasing a HOLD/rental The Holding company is the primary member of the series. When I am flipping a house the S-CORP is the primary member.

    Many of the gurus promote using trust agreements instead of LLC or at least in combination with them for the best asset protection. Now Im hearing about a trust that simulates a series LLC... ??

    What is better to use? Series LLC , DST or a combination of both?

    The series LLC requires separate bank accounts which also require separate EIN as part of maintaining each series (baby LLC) as its own LLC to protect your assets in the other series. It also requires some of maintaining of minutes etc... The more I grow so does the need for more administration.

    The series LLC also utilizes the charging order (at least in Delaware) if someone actually wins a law suit.

    However, from the prior comments allude to the DST also having a a considerable amount of protection (which is better?).

    It also seems to have less accountability inside the agreement. Are assets inside one baby trust protected against a law suit in another baby trust ? Do you have to have separate bank accounts etc...

    Is the DST actually a trust? One of the responses used the terminology " Like" a trust.

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  • Scott SmithPro Member
    Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
    7y

    Generally, I prefer the Series LLC. It was first created in 1996 in Delaware, over two decades ago.

    Understanding the Series LLC is a great starting point for understanding DSTs. Both use a parent-child structure and have infinite scalability, offering creative solutions for investors.

    California investors have special concerns because of the state's laws and tax regulations. While a Series LLC presents an ideal solution for investors in every other state, it would incur an $800 franchise tax at the very least.

    The Delaware Statutory Trust is a great alternative, because it offers a similar level of protection to the Series LLC while also avoiding this tax burden. The state views DSTs as estate planning tools, which do not have to meet the same requirements as corporations or LLCs. Any investor who is doing business in California may be subject to state taxes.

    One thing to watch when using trusts in addition to their protection afforded, is revocability. The DST is revocable which helps in adjusting for business conditions, where some trusts are irrevocable. That being said, it is best to look at the individual goals of the investor to decide whether to use a DST or LLC.

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  • Karyn Cortez
    Member since 2019 · 2 posts · 0 votes
    7y

    This is a great topic. Thank you! I am buying a property (also in Delaware) subject to the existing mortgage. It needs substantial rehabbing. We are going to transfer the property into a trust for estate planning purposes in order to avoid triggering the due on sale clause. One of our S-LLCs will be the beneficiary; the current owner will be the initial trustee and another LLC will be the successor trustee. The current owner will then resign, leaving one LLC as the trustee and the S-LLC as the beneficiary. There are no land trusts in Delaware. Question: Should we use a common law trust or DST? Also - We are planning on paying the transfer taxes, but do we need an attorney to put the property into the trust? How does property get "into" a trust? TIA

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  • Kevin Chan
    Member since 2019 · 89 posts · 64 votes
    6y
    Originally posted by @Scott Smith:

    Generally, I prefer the Series LLC. It was first created in 1996 in Delaware, over two decades ago.

    Understanding the Series LLC is a great starting point for understanding DSTs. Both use a parent-child structure and have infinite scalability, offering creative solutions for investors.

    California investors have special concerns because of the state's laws and tax regulations. While a Series LLC presents an ideal solution for investors in every other state, it would incur an $800 franchise tax at the very least.

    The Delaware Statutory Trust is a great alternative, because it offers a similar level of protection to the Series LLC while also avoiding this tax burden. The state views DSTs as estate planning tools, which do not have to meet the same requirements as corporations or LLCs. Any investor who is doing business in California may be subject to state taxes.

    One thing to watch when using trusts in addition to their protection afforded, is revocability. The DST is revocable which helps in adjusting for business conditions, where some trusts are irrevocable. That being said, it is best to look at the individual goals of the investor to decide whether to use a DST or LLC.

    If I'm in California and I have 3 properties- 1 in CA, 2 out of state.. what would be the startup cost to form the parent DST + child DST's? And is there a fee to maintain it/them each year? And to have you / lawyer maintain as a trustee?

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