The Trust Term typically refers to the duration for which the DST is established. Under Delaware statutory law, a DST is governed by the Delaware Statutory Trust Act, which is found in Chapter 38, Part V, Title 12 of the Delaware Code. This act provides the framework for the creation, operation, and dissolution of DSTs.
Here’s what the trust term usually entails in the context of a Delaware Statutory Trust:
- Fixed Duration: The trust term of a DST often has a predetermined length. It can be set for a specific number of years or until a certain event occurs, such as the sale of the underlying property or properties.
- Extension Options: Some DST agreements may include provisions that allow for an extension of the trust term under certain conditions. These conditions must be specified in the trust agreement and agreed upon by the beneficiaries or as specified within the trust’s governing documents.
- Impact on Investors: For investors in a DST, the trust term is significant because it can affect the liquidity of their investment. A longer trust term means that the capital may be tied up for an extended period, while a shorter term may mean that the investment is more liquid.
- Dissolution at End of Term: At the end of the trust term, the DST is typically dissolved, and its assets are liquidated and distributed among the beneficiaries, unless the term is extended or the trust is renewed according to its governing documents.
- Tax Implications: The length of the trust term can have tax implications for the beneficiaries, particularly in regards to capital gains and estate taxes. It’s important for investors to understand how the trust term might affect their tax liability.
- Regulatory Compliance: The trust term must be compliant with all relevant regulations, including any securities laws that apply to the offering of interests in the DST to investors.
Investors considering a DST should carefully review the trust agreement, specifically the provisions regarding the trust term, to understand how it aligns with their investment goals and timelines. As with any investment vehicle, particularly those involving complex structures and significant tax considerations, it’s advisable to consult with a financial advisor or attorney who specializes in DSTs and real estate investments.