Betty Friant, CCIM, Executive Vice President and Managing Director of Kay Properties & Investments, discusses the benefits of Delaware Statutory Trusts (DSTs) and their beneficial ownership structure. DSTs and beneficial interest ownership are powerful tools used by investors across various investment vehicles, offering the ability to own a piece of a larger asset or investment.
DSTs are utilized by financial instruments such as mutual funds, corporate bonds, real estate investment trusts, and 1031 exchanges. These trusts serve as a way for investors to hold and manage assets for investment purposes, providing beneficial interest positions for investors looking to access large real estate assets without purchasing the entire property alone.
The Delaware Business Trust Act of 1988 introduced the DST as a statutory trust entity designed to improve the functionality of trusts in structured financial transactions. Renamed the Delaware Statutory Trust Act in 2002, the DST has become a preferred vehicle for organizing and managing assets across various structured financial transactions due to its beneficial ownership feature.
Beneficial ownership in a DST grants each beneficiary the right or interest in the trust’s assets and potential income. This feature allows investors to receive their pro-rata benefits, including distributions, potential appreciation, and equity created through principal pay-down of loans. DSTs have been approved for 1031 exchanges, offering real estate investors a unique avenue to accomplish investment objectives.
DSTs provide additional advantages such as greater diversification and access to larger assets, limited liability for investors, and flexibility in investment options and strategies. This structure allows investors to tailor their DST investment portfolios to meet their specific financial goals and risk tolerances. Estate planning benefits are also available as DSTs allow owners to easily divide their interest in the trust among heirs.
While DSTs offer many benefits, investors should be aware of the risks associated with real estate investments. All real estate investments carry speculation risks, including unexpected vacancies, economic downturns, and unforeseen repairs. It is essential for investors to review the risk section of potential DST offerings with their CPA or tax attorney before investing to understand potential returns and loss of principal.
