An “Independent Trustee” in the context of a Delaware Statutory Trust (DST) and the 1031 exchange industry refers to a trustee who is not directly affiliated with the party establishing the trust. This role is critical for ensuring that the operations of the trust are conducted impartially, in the best interest of the trust beneficiaries, and in compliance with the terms of the trust agreement as well as relevant laws and regulations.

Under the structure of a DST, the Independent Trustee might have limited powers and primarily be tasked with performing duties such as entering contracts or handling bankruptcy proceedings. This is because a DST is established as a passive investment entity to accommodate 1031 exchanges, with the day-to-day operations of the DST often handled by a signatory trustee or sponsor.

A 1031 exchange is a tax-deferred exchange that allows an investor to sell a property, then reinvest the proceeds in a like-kind property and defer all capital gain taxes. The DST can serve as a potential replacement property in a 1031 exchange. The Independent Trustee’s role is crucial here to ensure that all the procedures and rules are followed, keeping the trust compliant with IRS guidelines.

While the specifics can vary based on the exact terms of the trust agreement, generally, the Independent Trustee’s role involves making decisions independently and objectively, without influence from the party that established the trust or other parties with vested interests in the trust’s assets. They should not have any material financial connections with the DST sponsor, or its affiliates, beyond their role as trustee. The aim is to protect the interest of investors and the integrity of the trust itself.