Delaware Statutory Trust Glossary
1031 Exchange Place understands the importance of being knowledgeable about any type of investment before you begin toinvest. For this reason, we've compiled a comprehensive list of key terms related to DSTs.
As a popular form of real estate investment, DSTs offer many benefits, including access to larger properties and potential tax advantages. However, like any investment, understanding the terminology and jargon associated with DSTs is essential to making informed decisions. That's why we've created this glossary, to provide you with a handy reference guide for all the DST terms you might come across. From "Capital Gain" to "Replacement Property," we've got you covered.
Whether you're a seasoned investor or just starting out, our DST glossary is an invaluable resource to help you navigate the complex world of DSTs with confidence. So take a look around, explore the terms, and deepen your understanding of this exciting investment opportunity.
An individual or entity that meets certain financial and other criteria and is permitted to invest in private placements.
Accredited Mortgage Trust (AMT)
A type of DST that invests in mortgages and mortgage-backed securities.
The process of making changes or additions to the trust agreement or other governing documents of a DST.
A document that provides information about the DST's financial performance and operations over the course of the year.
A person or entity who holds a beneficial interest in a trust.
Blue Sky Laws
State securities laws that regulate the sale of securities and the conduct of securities professionals.
Board of Trustees
The group of individuals responsible for overseeing the management and operations of a DST.
A type of debt security issued by a DST that pays a fixed rate of interest over a specified term.
Breach of Trust
The failure of a trustee to fulfill their duties and obligations under the trust agreement, which can result in legal liability.
A DST that is created to hold and manage business assets, such as intellectual property, patents, and trademarks.
The record of a beneficiary's contributions to the DST and the value of their interest in the trust.
A capital gain refers to the profit that an investor makes from the sale of an investment property that has appreciated in value over time. This capital gain is typically subject to taxes, but by utilizing a 1031 exchange, investors can defer those taxes by reinvesting the proceeds from the sale into another like-kind property.
To qualify for a 1031 exchange, the new property must be similar in nature and purpose to the old property, and the entire proceeds from the sale must be reinvested into the new property. By deferring the capital gains taxes through a 1031 exchange, investors can continue to grow their real estate investments without having to pay taxes on the gains until they sell the new property.
Capital Gain or Loss
A capital gain or loss refers to the difference between the amount paid for a property and the amount received when it is sold. If the selling price is higher than the purchase price, the taxpayer has a capital gain, and if the selling price is lower than the purchase price, the taxpayer has a capital loss.
In a 1031 exchange, the capital gain or loss on the relinquished property is deferred rather than realized, meaning that the taxpayer does not have to pay taxes on the gain or loss at the time of the sale. Instead, the gain or loss is carried forward and applied to the replacement property acquired in the exchange. This can provide significant tax benefits to taxpayers who are looking to sell one property and acquire another.
Capital Gain Tax
Capital Gain Tax refers to the tax imposed on the profit realized from the sale of an asset that has increased in value over time. In the context of a 1031 exchange, a capital gain tax would apply to the difference between the sale price of the original property and its adjusted basis (i.e., the original cost plus any capital improvements made during ownership).
However, if the property owner uses the proceeds from the sale of the original property to acquire a like-kind replacement property through a 1031 exchange, they may be able to defer paying capital gain taxes on the sale of the original property until the sale of the replacement property. This allows them to reinvest the full sale proceeds into the new property, thus maximizing their investment potential.
The ratio used to determine the value of an income-producing property based on its net operating income.
Certificate of Trust
A document that establishes the existence of a DST and outlines its basic structure and purpose.
Collateralized Debt Obligation (CDO)
A type of security created by pooling together multiple debt instruments, such as mortgages or corporate bonds.
A type of trust certificate that represents a proportionate ownership interest in the DST's assets and income.
The process of changing the legal structure or classification of a DST, such as converting from a series trust to a single-series trust.
The system of policies, practices, and procedures that govern the operations and decision-making of a DST.
An evaluation of a DST's creditworthiness and ability to meet its financial obligations.
A type of debt security issued by a DST that is backed by the trust's assets.
Delaware Statutory Trust (DST)
A Delaware statutory trust (DST) is a type of trust that is formed under the laws of the state of Delaware. It is a separate legal entity that can hold assets, enter into contracts, and conduct business, but it is not considered a corporation or partnership. DSTs are often used in commercial real estate transactions as a way to pool investment capital and hold title to the property. They can also be used for other types of assets, such as intellectual property. DSTs offer tax benefits and asset protection, as well as provide a way for multiple investors to share ownership of a property or other assets.
The process of terminating the DST, which can occur when the trust term expires, the trust's purpose is fulfilled, or the trustee and beneficiaries agree to dissolve the trust.
Payments made to the beneficiaries of the DST from the trust income.
Due diligence is a crucial part of the 1031 exchange industry that involves conducting a thorough investigation and analysis of a potential replacement property before completing a 1031 exchange transaction.
During due diligence, a taxpayer and their qualified intermediary will typically review and verify important information about the replacement property, such as its title, condition, location, and potential income and expenses. This process can also include inspections, appraisals, and assessments of any potential risks or liabilities associated with the property.
The purpose of due diligence is to ensure that the taxpayer fully understands the risks and benefits of the replacement property and can make an informed decision about whether or not to proceed with the exchange. It also helps to minimize the potential for any surprises or unexpected issues to arise after the exchange is complete.
Duty of Care
The obligation of a trustee to act with reasonable care, skill, and prudence in managing the DST and its assets.
Duty of Loyalty
The obligation of a trustee to act in the best interests of the beneficiaries and to avoid conflicts of interest.
Duty of Loyalty
The obligation of a trustee to act in the best interests of the beneficiaries and to avoid conflicts of interest.
Entity Classification Election
The process of electing the tax classification of a DST as a partnership, corporation, or disregarded entity.
The plan or process for selling or liquidating the DST's assets and distributing the proceeds to the beneficiaries.
The legal obligation of a trustee to act in the best interests of the beneficiaries and to exercise their powers and duties with care and loyalty.
A formal legal document that outlines the terms and conditions of a debt security issued by a DST.
A trustee who is not affiliated with the DST or its sponsor and is appointed to provide independent oversight.
The cost of borrowing money, paid by the borrower to the lender.
A DST that primarily invests in securities, real estate, or other types of assets.
A document issued by a legal expert certifying the validity and enforceability of the DST.
The legal protection that limits the personal liability from debts and obligations of an investor to the amount of their investment.
Limited Liability Company (LLC)
A type of business structure that combines the liability protection of a corporation with the tax pass-through treatment of a partnership.
A type of partnership in which there are one or more general partners who manage the business and are personally liable for its debts, and one or more limited partners who contribute capital but have limited liability.
The process of selling the trust assets and distributing the proceeds to the beneficiaries upon dissolution.
The process of combining two or more DSTs into a single entity.
Net Asset Value (NAV)
The value of a fund's assets minus its liabilities, divided by the number of shares outstanding.
A type of debt security issued by a DST that has a fixed maturity date and pays interest periodically.
A document that provides information about a DST's securities offering and includes a description of the trust's business and operations, financial statements, and risk factors.
The price at which the trust certificates or other securities are sold to investors.
A type of trust certificate that has priority over common units in the payment of distributions and upon liquidation.
The initial contributions made by the beneficiaries to the DST, which are used to purchase trust property and generate income.
The sale of trust certificates or other securities to a limited number of accredited investors, without registration with the SEC.
The sale of trust certificates or other securities to the general public, which requires registration with the SEC.
Qualified Institutional Buyer (QIB)
An institutional investor that meets certain financial and other criteria and is permitted to invest in private placements.
Real Estate Investment Trust (REIT)
A type of DST that invests in real estate properties and generates income from rental payments and property sales.
The process of repurchasing or redeeming trust interests from the beneficiaries.
The process of ensuring that a DST is in compliance with all applicable laws, regulations, and industry standards.
The process of updating and reissuing the trust agreement or other governing documents of a DST.
The process of identifying, assessing, and mitigating risks associated with the DST's operations and investments.
Securities and Exchange Commission (SEC)
The federal agency responsible for regulating the securities industry and enforcing federal securities laws.
The process of issuing and selling trust certificates or other securities to investors.
The order of priority for payment of a DST's debts and obligations in the event of bankruptcy or liquidation.
A DST that is structured to have multiple series or cells, each with its own assets, liabilities, and investors.
Special Purpose Acquisition Company (SPAC)
A type of DST that is created for the purpose of acquiring another company.
Special Purpose Vehicle (SPV)
A DST that is created for a specific purpose, such as a securitization or financing transaction.
A type of trust that is created and governed by state law, such as the Delaware Statutory Trust Act.
A contract between an investor and a DST that outlines the terms of the investment, such as the purchase price and the investor's rights and obligations.
A trustee appointed to replace the current trustee in the event of their resignation, death, or incapacity.
Tax Identification Number
A unique number issued by the IRS to identify a DST for tax purposes.
The tax treatment of a DST as a partnership for federal income tax purposes, which allows the trust's income and deductions to be passed through to the beneficiaries.
The individual or entity who leases the property from the landlord.
The end of the DST's existence, which can occur upon the completion of the trust's purpose or upon the agreement of the beneficiaries and trustee.
The process of selling or assigning a beneficiary's interest in the DST to another person or entity.
A legal agreement that sets out the terms and conditions of the DST and governs the relationship between the trustee and the beneficiaries.
The financial resources and holdings that the DST uses to generate income and returns for its beneficiaries.
A security representing a beneficial interest in a DST.
The costs associated with operating the DST, such as legal fees, administrative expenses, and taxes.
The revenue earned by the DST from its investments, which is distributed to the beneficiaries according to the terms of the trust agreement.
The assets held by the DST, which can include real estate, securities, and other types of property.
An individual or entity appointed to protect the interests of the beneficiaries and ensure that the trustee is acting in their best interests.
The duration of the DST, which is specified in the trust agreement.
An individual or entity responsible for managing the DST and its assets on behalf of the beneficiaries.
The process of determining the fair market value of the DST's assets and liabilities.
Voting Trust Certificate
A type of trust certificate that grants the holder the right to vote on certain matters related to the DST's governance.
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