An investor can take part ownership of real estate properties through the Delaware Statutory Trust (DST). Investing in this type of property can provide investors with certain benefits, including access to certain types of real estate, portfolio diversification, and potential cash flow.
A successful DST involves two parties: Trustees and beneficiaries. There are specific requirements for both roles.
The DST Trustee
Trustees are individuals or entities who oversee the trust. DSTs are managed by sponsors (or sponsors) hired by the trustee. Among the duties of the DST sponsor is the daily management of the business, including finding and holding property assets. Furthermore, investors receive the beneficial interests of the DST from the sponsor.
Delaware is one of the requirements for DST trustees, though they can have a managing or signatory trustee located elsewhere.
Trustees must also follow certain rules when creating, maintaining, and overseeing trusts:
- There is a restriction on the use of income from DST operations for the acquisition of additional properties or for improvements to existing assets (other than essential repairs or maintenance).
- The trust cannot accept new investors after it closes.
- Loans and leases cannot be renegotiated to generate better terms by trustees.
The fiduciary responsibilities of trustees include:
- Assuring that informed, thoughtful decisions are made based on information that is currently available
- An act or decision must be made with the idea that it is in the best interests of the trust and its beneficiaries, a duty of loyalty
The DST Beneficiary
The term “beneficiary” means “investor.” Thus, the beneficiary of the DST represents a trust investor. Although beneficiaries do not have specific duties or responsibilities, each must be an accredited investor to participate legally.
Accredited investors must meet the following requirements:
- Maintain a personal income of $200,000 ($300,000 for married people), with assurances of maintaining the same level next year
- Over $1 million in net worth (excluding primary residence)
- Credentials in investment management
- Working in a private investment fund as a “knowledgeable employee”
- It is important for DST beneficiaries to understand that they do not have control over the decisions made by their sponsors. DSTs are also long-term investments. Several years will pass before capital is released from the trust.
Getting to Know the Details
Trustee and beneficiary understanding of the Delaware Statutory Trust requirements is essential for launching, managing, and investing in one. Additionally, DSTs should be considered long-term investments. In this regard, investors should seek advice from an advisor before participating in a DST.