Curated by: Rubric Advisors
Investing & Markets
Delaware Statutory Trusts
Delaware Statutory Trusts let investors own fractional interests in institutional real estate while qualifying for 1031 exchanges, a popular option for passive investors exiting active property ownership.
Delaware Statutory Trusts
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What Is a Delaware Statutory Trust?
- A legal entity that holds title to real estate on behalf of investors
- Each investor owns a beneficial interest, not a direct deed to the property
- Typically holds institutional-quality properties like apartments or warehouses
- Managed by a professional sponsor who handles all property operations
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Full Guide
What Is a Delaware Statutory Trust?
- A legal entity that holds title to real estate on behalf of investors
- Each investor owns a beneficial interest, not a direct deed to the property
- Typically holds institutional-quality properties like apartments or warehouses
- Managed by a professional sponsor who handles all property operations
DSTs and 1031 Exchanges
- The IRS treats DST interests as like-kind property for 1031 exchange purposes
- Investors can defer capital gains taxes by exchanging into a DST
- Multiple DSTs can be combined to meet exact exchange amount requirements
- A qualified intermediary must hold exchange proceeds during the process
Benefits and Structure
- Completely passive with no tenant calls, repairs, or management duties
- Minimum investments generally range from $25,000 to $100,000
- Hold periods are typically 5 to 10 years with no early exit option
- Depreciation deductions pass through to individual investors
DST vs. Tenants in Common (TIC)
- TIC investors hold direct deed interests while DST investors hold trust interests
- TICs are limited to 35 co-owners; DSTs can have hundreds of investors
- DST investors cannot vote on property decisions or make capital improvements
- TICs allow refinancing and new leases; DSTs are restricted by IRS rules
Tax Treatment and Depreciation
- Investors receive K-1 forms reporting income, losses, and depreciation
- Depreciation may shelter a portion of cash distributions from current taxes
- Upon sale, investors can execute another 1031 exchange to continue deferral
- At death, heirs may receive a stepped-up basis eliminating deferred gains
Risks and Limitations
- Investments are illiquid with no secondary market for most DST interests
- Investors have no control over property management or disposition timing
- Sponsor fees and commissions can reduce net returns meaningfully
- Property-level risk remains as vacancies or market declines affect returns
Who DSTs Are Best For
- Landlords seeking to exit active management while deferring capital gains
- Retirees who want real estate income without operational responsibilities
- 1031 exchange buyers needing to identify replacement property quickly
- Sponsor quality and fee transparency should be evaluated carefully
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