1031 Exchange and DST Investment
We share how our services work to eliminate the unknowns in these types of investments, while you build a trust that doesn’t leave you feeling captive to a property that struggles. Our team identifies the best assets that become legacy-building opportunities, allowing clients to let go of investments requiring excessive time and energy to maintain.
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1031 Delaware Statutory Trust
DST is designed to give investors a new way to build wealth, with fewer limitations
and responsibilities of traditional real estate investments.
In demand high-value property that collects other investors and uses the power of pooling to achieve the best investments. These investments might otherwise be inconceivable to purchase without the pooling of quality investors.
Recieve regular distributions with a plan in place for reserves for unexpected expenses. Distributions are scheduled to beneficiaries under a planned and agreed upon time frame.
A 1031 DST will allow you to relinquish the toughest part of real estate investment, management. This option gives investors the freedom to pursue other investments or spend less time managing their DST and more time living life.
Choose more than one property to invest in maximizing your investment power. Choose multiple DST investments in various industries to protect against uncertainty of DST investments.
Traditional mortgage loan qualifications are eliminated from DST investments. Personal assets and liabilities are also not factored into these investment qualifications.
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Platinum Wealth Group
Each new benchmark reveals a new opportunity to either gain or release investments.
Our wealth management formula addresses the top five concerns most important to affluent families: Investment Consulting, Wealth Enhancement, Wealth Transfer, Wealth Protection, and Charitable Giving. We recognize that every client is unique, hence we do not believe in a streamline template solution that can apply to all. We spend an extraordinary amount of time with every single client to ensure your needs and problems to be heard and addressed fully.
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Unincorporated Business Trust (UBO) includes Statutory Trust and Common Law Trust. Delaware Statutory Trust (DSTA) was passed in 1988. It was the first legislation of its kind across the United States. It trumps the disadvantages and flaws of the Common Law Trust on various grounds. More freedom of creating a trust is safeguarded in the legislation. Although other states have followed and enacted their own versions of DSTA, the Delaware version continues to evolve and appears to take the lead. Over the years, it has gained its popularity steadfastly in the United States.
The Delaware Statutory Trust (DST) is based under Chapter 38, Part V, Title 12 of the Delaware Code. The related statutes are from 12 §§ 3801 to 3862. Contrary to most states which are still running common law trusts, Delaware is one of the few states in the United States that operates trust matters under comprehensive legislation. In brief, “common law trusts” means the legal rules and principles of trusts are produced from court cases, whereas “statutory trusts” are directly rooted from the statutes enacted by a state legislature. When conflicts arise between statutes and case law in a specific legal question, the statutes must prevail. Therefore, it is more straightforward for Trust holders to get their questions answered within a few pages of statutes than reading through hundreds of cases. In the State of Delaware, the Delaware Court of Chancery is in charge of enforcing the terms in the agreements between trustees and beneficial owners (see 12 §§ 3804).
1031 Exchange is named after the Internal Revenue Code (IRC) Section 1031. Under the section, an investor enjoys tax deferral by a like-kind exchange of real estate properties for the purpose of business and investment. The like-kind property must be located in the United States. Primary residence does not qualify. Form 8824 is the proper document to report an investor’s 1031 Exchange. The form provides further detained instructions to navigate the investor through the process. It is worth noting that in order to enjoy tax deferral under Section 1031, like-kind real estate must be identified within 45 days and acquired within 180 days after the prior property has been sold.
For someone who is not financially hefty to acquire an upscale property solely on his own, DST provides an excellent choice for him to declare fractional ownership of it. DST offers a solution of fractional ownership to allow multiple investors to gain possession of properties. Such fractional ownership entitles the investors to receive monthly interest upon the profit generated from the properties.
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Frequently Asked Questions
There many qualities that make DST’s good investments, such as their high-value & low responsibility status.
Pay close attention to the governing instrument (also known as trust agreement). It delineates almost all the critical relationships and financial nexus about the DST. Its absolute binding force can bite you later without due care and attention.
If your investment involves 1031 Exchange, there are a few statutory limitations on the properties that you can invest via DST. So choose wisely so that you can maximize your profit.
The answer depends on the need of your business goal. Overall, DST has a load of eye-catching advantages as an investment tool. It is fairly easy and inexpensive to be created. It provides great flexibility to tailor an investor’s desire through the DST Trust agreement. Because DST is a separate legal entity, it will not terminate or dissolve by beneficial owner’s affairs. In addition, any liabilities incurred under DST are solely limited within DST itself. Finally, the DST trust agreement is not required to be approved by any authority in the State of Delaware.
1031 Exchange refers to the IRS Tax Code section 1031. It allows an investor to exchange and reinvest properties within a certain period of time to defer paying capital gains tax. In other words, it preserves and maximizes the investor's financial power to reinvest other like-kind properties for larger economic growth.
REIT stands for Real Estate Investment Trust. It is an income-generating entity that invests in various properties and distributes dividends to its investors. REIT is a public entity under the governance of the Securities and Exchange Commission (SEC). The investors of REIT are not considered as the owners of the REIT properties. Hence, they cannot enjoy the benefits of the 1031 Exchange. In other words, unlike DST, REIT investors are subject to capital gains tax after each property sale. On the other hand, unlike REIT, DST is an illiquid investment. It means that the investment under DST cannot be readily converted into cash. It has a higher risk of substantial loss in value due to a lack of ready and willing investors in the market in a short term.
Apart from a drawback of DST as an illiquid investment, it is worth mentioning its renown “Seven Deadly Sins” as follows:
- DST Trustee is restricted to accept more financial contributions to the Trust after the offering is closed. It is to protect the original investors’ ownerships from being diluted.
- Because the beneficiaries of DST cannot participate in the operation of the Trust, the Trustee is prohibited to borrow or negotiate new loans which could alter the financial liabilities of the beneficiaries.
- The profit gained from DST cannot be used by the Trustee to reinvest. It must be distributed among the beneficiaries based on the agreement.
- The Trustee has limited power to spend money on maintaining the real estates property, such as standard repairs and minor non-structural changes. However, the Trustee cannot upgrade the property like an investment.
- Between distribution dates, cash retained in the DST can only be invested in short term debt obligations. In the view that the short-term debt can be converted back to cash easily for the upcoming distribution.
- An amount of cash in the DST is permitted to be retained from distribution. However, earnings and proceeds must be handed over to the beneficiaries promptly on the agreed dates.
- In align with preventing the Trustee from risking beneficiaries’ interest, the Trustee is prohibited from renegotiating the existing lease or entering a new lease, unless a tenant enters into bankruptcy or insolvency.
The profit generated by Delaware Statutory Trust (DST) must be distributed on an agreed regular basis to the beneficiaries. Such profit is subject to local state tax code. If your DST properties are located in another state, the state income tax return of that state should be filed. In general, you should receive an operating statement every year. It summarizes the profit and expenses related to the DST property. Based on this statement, you can use Schedule E to file your tax return. Again, where 1031 Exchange applies, investors can defer paying capital gains tax related to the swap of like-kind properties.
For years, our company has been helping clients work through the complexities of a 1031 exchange. We have earned a quality reputation in the industry and are happy to help you find your way!