How to get rid of a Delaware Statutory Trust (DST)?
Delaware Statutory Trust (DST) is a popular tool now for any investors who would like to invest in properties. In response to this high market demand, there are loads of articles popping out across the internet to promote all kinds of DST investment and teach people how to enter a DST step by step. Moreover, to minimize investment risks, investors are also keen on diversifying their investment portfolio by joining multiple DSTs. But what if, for whatever reason, an investor needs to pull out from a DST investment? What difficulties must he or she face? Now let us step back and go over some basics and tips on how to get rid of your DST interests.

In theory, prior to the sale date, an investor can sell or transfer his or her DST interest to any other accredited investor. However, in practice, it is extremely difficult to accomplish. As one of the few drawbacks of DST, the interests of a DST is considered as illiquid investments. In other words, it cannot be traded like stock shares in terms of method and speed. First of all, there is basically no active market for investors to buy and sell their existing DST interests. Therefore, a leaving investor does not have a platform to go to seek any potential buys. In addition, DST interests are mostly tied up with a specific property that the DST invested in. It is hard to find a purchaser who shares the same taste or financial appetite in terms of the types, locations, and ultimately the value of a DST property. As a result, it creates a higher hurdle for a leaving investor to get rid of DST interests that she or he acquired. Another potential consideration is time. When an investor decides to pull out of a DST investment, there is typically a tight deadline that he or she has to complete the process and receive the money by. It just adds an extra constraint and pressure for the leaving investor to find a buyer. With that being said, before investing in a DST, there are some valuable pieces of advice for an investor who wants to have a possible smooth path to exit. First, joining a DST containing a large number of investors. Investors investing in the same DST property must share similar if not identical tastes or financial interests. Therefore, other investors in the same DST would have a much higher willingness to buy more DST interests from the leaving one. In other words, the greater number of investors in a DST, the larger pool of potential purchasers for the leaving investor. Second, the DST sponsor could help facilitate and conclude a deal between the leaving investor and some other investors in the same DST. However, the sponsor is not accountable for any disputes relating to the final terms of such transactions. The final purchase agreement is solely between the buyer and the seller. Thirdly, certain fees in the process of leaving a DST may be applied depending on the rules stipulated in the DST trust agreement. Besides, it is worth noting that the proceeds that a DST investor gains from selling off his or her DST interests are subject to 1031 Exchange rules under certain conditions. It means that the proceeds from selling the DST interests could be used by the leaving investor to directly invest in a different DST property with the benefit of deferring to pay the capital gains taxes. But remember that the like-kind property rules must be followed in order to enjoy this tax deferral benefit.

In the case of getting rid of DST investment in its entirety, no investor has the authority to do so. It is a decision that only the DST trustee can make. It is due to the concept of separate legal personality and, consequently, the concerns of limited liability. Legally speaking, the trustee holds the sole responsibility upon the DST investment from its creation to its dissolution.

In sum, a typical investment period of a DST is between 5 to 10 years. Therefore, an investor should avoid the mentality of running a short-term investment with DST. Moreover, an investor should carefully assess his or her financial capacity and prevent from trapping all the money in the DST investment in case of an emergency.

agreement

Need more information?

please leave your email address and we will send you some of our FREE GUIDES! If you want to talk to an expert right now - don't hesitate to give us a call

 

714-627-4414

Thank you! You will receive your guides shortly!