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Trust Property

A Delaware Statutory Trust (DST) is a legally recognized trust that’s set up for the purpose of business, but it’s particularly well-known for its use in real estate investment. When you hear the term Trust Property within the context of a Delaware Statutory Trust, it refers to the actual assets held by the DST.

Here’s a more detailed breakdown:

  1. Delaware Statutory Trust (DST): A DST is a separate legal entity created as a trust under Delaware statutory law. Investors in a DST own a pro-rata share of the trust and thus have an undivided beneficial interest in the trust’s assets.
  2. Trust Property: The Trust Property of a DST typically consists of investment real estate. The property can range from single large-scale commercial buildings to a portfolio of various properties. These assets are managed by a trustee, and the trustee holds legal title to the property. The beneficiaries (investors) have a beneficial interest.In a DST, investors don’t hold title to the property themselves. Instead, they hold interests in the trust which in turn owns the real property. The trust property would encompass all the real estate assets held by the DST and may include related personal property as well (e.g., equipment used in the operation of a building).
  3. Uses in the Investment World: Trust Property in a DST is often used for real estate investment purposes, particularly under the IRS Revenue Ruling 2004-86, which allows for DSTs to be used in 1031 exchanges. This ruling provides that a beneficial interest in a DST can be treated as identical to a direct interest in real estate for tax-deferral purposes, making DSTs an attractive vehicle for investors looking to defer capital gains taxes.

The specific rules governing the operation of a DST and its Trust Property are set out in the trust agreement, which outlines how the trust operates, the trustee’s duties, and the rights of the beneficiaries. This structure allows for passive investment in real estate, where the investors are not responsible for the day-to-day management of the property. The trustee or an appointed property manager typically handles property management, leasing, and other operational aspects.