Tax – 1031 Exchange
December 16, 2024
Resources – Legal Links
January 1, 2025The information provided herein is for informational purposes only and should not be relied upon as legal or regulatory advice. For accurate and comprehensive details, please consult a qualified professional or contact the appropriate government organization to obtain official guidance on the process.
A Delaware Statutory Trust (DST) is a legal entity that allows multiple investors to own fractional interests in a single high-value property or portfolio of properties. DSTs are commonly used in 1031 exchanges to meet the like-kind requirement, offering a passive investment option while deferring capital gains taxes.
Below we share some key aspects and also compare it to syndicates
Key Differences Between a DST and a Syndicate
| Feature | DST | Syndicate |
|---|---|---|
| Legal Structure | A trust established under Delaware law. | Typically structured as an LLC or LLP. |
| Ownership | Investors own a beneficial interest in the trust. The trust holds title to the property. | Investors own membership shares in the LLC or LLP, which directly owns the property. |
| Management Control | Fully passive. Investors have no control over property decisions; the trustee or sponsor manages all aspects. | May involve limited input from investors, but the general partner (GP) or syndicator makes major decisions. |
| 1031 Exchange Eligibility | Eligible for 1031 exchanges as "like-kind" property. | May not qualify for 1031 exchanges because ownership is often classified as securities. |
| Investor Liability | Limited liability for investors | Limited liability for investors (in an LLC/LLP). |
| Investment Purpose | Designed primarily for passive, long-term ownership and tax deferral. | Can involve shorter-term, higher-risk projects (e.g., development or value-add properties). |
| Financial Thresholds | Typically $100K+ investments | Typically $50K+ investments |
click the buttons to know more about some definitions ...
Delaware Statutory Trust (DST)
- Under SEC Regulation D Rule 506(c) Typically requires accredited investors .
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Under Regulation A+ (Tier 2): DSTs may allow non-accredited investors to participate in the offering. However, there are restrictions that non-accredited investors may typically need to invest up to 10% of their annual income or net worth.
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Considered Illiquid as they are usually not traded on secondary exchange
- Most DSTs are structured with a set term of around 5 to 10 years. At the end of the term, the trust typically sells the properties, and any gains are distributed to investors.
