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Trust Assets

Trust assets refer to the various types of property and financial assets that are held and managed within the trust. A DST is a legally recognized trust that is set up under Delaware’s statutory law, which allows for the creation of a separate legal entity that can hold investment assets, collect income, and distribute it to the beneficiaries of the trust.

Here’s a closer look at how trust assets function within a Delaware Statutory Trust:

  1. Types of Assets: Trust assets in a DST can include a wide range of investments, such as real estate, mortgage loans, private equity stakes, securities, and other financial instruments. The trust is often used for holding real estate assets for several investors in a structure that allows for fractional ownership.
  2. Ownership and Control: The trust assets are owned by the DST itself, while the beneficial interest in the trust is held by the investors. The trustee has the control and the responsibility to manage these assets in accordance with the trust agreement.
  3. Income Generation: The purpose of holding assets in a DST is often to generate income for the beneficiaries. This income can come from rent, interest, dividends, or capital gains from the sale of trust assets.
  4. Liability Protection: One of the advantages of using a DST is that it provides a level of liability protection for the beneficiaries. Since the DST holds the assets, typically, the individual beneficiaries are not personally liable for the debts and obligations of the trust.
  5. Tax Treatment: The DST is designed to be a pass-through entity for federal income tax purposes, meaning that the trust itself is not taxed on the income it earns. Instead, the beneficiaries are taxed on their individual shares of the DST’s income.
  6. Flexibility: DSTs offer flexibility in investment choices and management, but they also have specific regulations that need to be followed to maintain their status. For example, there are limitations on the trustee’s power to make significant management decisions or renegotiate terms of existing loans.
  7. 1031 Exchanges: DSTs are commonly used in 1031 exchanges, where investors can defer capital gains taxes on the sale of investment properties by reinvesting the proceeds into a DST holding like-kind property.

When dealing with trust assets in a DST, it is crucial for the trustee to manage them according to the trust agreement and the relevant laws and regulations, including the Delaware Statutory Trust Act. Investors should consult with legal and financial advisors familiar with DSTs to understand the implications of investing in trust assets and how they will be managed.