What Is a Delaware Statutory Trust (DST)?
A plain-English explanation of how DSTs work, who owns what, and why they're used in 1031 exchanges.
The short answer
A Delaware Statutory Trust is a legal entity, formed under Delaware law, that holds title to one or more income-producing properties. Investors purchase beneficial interests in the trust, which entitle them to a proportional share of the property's income, expenses, and any eventual sale proceeds.
Who does what
A professional real estate company, called the sponsor, finds the property, arranges financing, structures the trust, and oversees management. Investors are passive: they don't sign leases, approve repairs, or field tenant calls.
Because the trust holds title, investors don't have to individually qualify for the property's mortgage.
Why DSTs matter for 1031 exchanges
In Revenue Ruling 2004-86, the IRS indicated that a properly structured DST interest can be treated as a direct interest in real estate. That means it can qualify as like-kind replacement property in a 1031 exchange.
The trade-offs
That passivity comes at a cost. DST investors have no voting control, interests are illiquid, and the sponsor's rules (sometimes called the 'seven deadly sins') limit what the trust can do, such as raising new capital or renegotiating most loans.
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Schedule a Strategy CallEducational information only; not tax, legal, or investment advice. DSTs involve risk, including loss of principal, and are available only to accredited investors. Consult your own advisors.