Delaware Statutory Trust (DST)
A Delaware Statutory Trust is a legal entity that holds real estate and issues fractional beneficial interests that qualify as like-kind property under IRS Revenue Ruling 2004-86, making DSTs a common 1031 replacement vehicle for passive investors.
What it means
Created under Delaware statute, a DST holds a single property (or, in some structures, a small portfolio) in trust. Investors buy fractional beneficial interests, typically through a broker-dealer channel, and receive pro-rata distributions of net cash flow. The IRS ruled in 2004 that a properly structured DST interest is like-kind to direct real estate, opening the door for passive 1031 replacements.
DSTs are illiquid, passive, and fee-laden. Investors cannot refinance, redevelop, or force a sale — the sponsor controls all operating decisions and the trust typically dissolves when the property is sold, often on a 5–10-year horizon. DSTs are commonly used as (1) the main replacement for investors moving from active ownership to passive, or (2) a backup identification in case a primary deal falls out.
DST offerings are securities and are sold under Reg D exemptions to accredited investors only.
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