A Delaware Statutory Trust (DST) is a legally recognized trust that is set up for the purpose of business, but not necessarily limited to business, under Delaware’s statutory law. DSTs are commonly used for holding title to investment real estate, where multiple investors can own a beneficial interest in the trust. In the context of a DST, a trustee plays a pivotal role.
A Trustee in the context of a DST is an individual or entity who holds the title to the trust’s assets, administers the trust’s operations, and carries out the responsibilities outlined in the trust agreement, pursuant to the statutory provisions of the state of Delaware.
Here are several key responsibilities and characteristics associated with a Trustee in the DST industry:
- Title Holding: The trustee holds the legal title to the trust’s assets, which may include real estate, for the benefit of the beneficial owners or investors in the trust.
- Fiduciary Responsibility: The trustee has a fiduciary duty to manage the trust’s assets in the best interests of the beneficiaries. This means the trustee must act with care, loyalty, and good faith when making decisions about the trust.
- Management and Operations: In a DST, the trustee may have limited powers, with most of the day-to-day operations and management decisions being pre-defined in the trust agreement. The trustee typically cannot renegotiate the terms of existing loans, nor can they borrow new funds or invest in new assets, except under very specific circumstances.
- Distribution of Income: The trustee is responsible for collecting income from the trust’s assets and distributing it to the beneficiaries according to the terms of the trust agreement.
- Regulatory Compliance: Trustees must ensure that the DST complies with all relevant laws and regulations, including securities laws and IRS guidelines, particularly if the DST is structured for a 1031 exchange (a tax-deferral strategy used in real estate).
- Reporting: The trustee must provide regular reports to the beneficiaries on the performance and condition of the trust’s assets.
- Bankruptcy Remote Entity: The DST is often structured as a bankruptcy-remote entity, which means the trustee also has a role in maintaining this status. This is intended to protect the property in the event that an individual investor faces bankruptcy.
- Limited Personal Liability: As per Delaware statutory law, the trustee typically has limited personal liability with respect to the trust’s obligations, assuming they are acting within their scope of authority and not engaging in willful misconduct.
The specific duties and powers of a Trustee will be detailed in the governing document of the DST, known as the trust agreement, and these can vary widely from one DST to another, so the above points can vary accordingly. It’s also important to note that, while the DST is a creation of Delaware law, it can own properties and have investors from all over the United States or even other countries.