The Board of Trustees is a core component of a Delaware Statutory Trust (DST), a legal entity used extensively in the 1031 exchange industry for real estate investments.
In a DST, the Board of Trustees holds the title to the property on behalf of the beneficial owners (investors). They also manage, maintain, and operate the trust, and make all the decisions relating to property disposition, financing, leasing, and property maintenance, among other things.
The Trustees are tasked with the responsibility to act in the best interest of the trust’s beneficiaries. They serve to protect the investor’s interest, with their roles and responsibilities carefully outlined in the trust agreement.
The 1031 exchange refers to the Internal Revenue Code Section 1031, which allows an investor to defer paying capital gains taxes on the sale of a property if it is reinvested in a “like-kind” property. DSTs often come into play here, as they allow multiple investors to collectively own an interest in a property, facilitating the 1031 exchange.
The Board of Trustees is crucial in this regard, as they have to ensure that the DST’s operation is in accordance with the strict IRS guidelines for 1031 exchanges. Their management of the DST must avoid what is termed as “bad acts” to ensure the DST maintains its eligibility for 1031 exchange purposes.
In conclusion, the Board of Trustees in the context of a Delaware Statutory Trust and the 1031 exchange industry is an administrative body that holds the title, manages, and operates the DST to ensure compliance with tax laws and protect the investors’ interests.