Posted on: 13 December 2018Share
Making investments in DST 1031 properties is a common way the people and corporations try to push off their liabilities for capital gains taxes. DST stands for "Delaware statutory trust," although the company in question doesn't of necessity have to operate in the state of Delaware. It's wise, though, to get a sense of what the pros and cons of the DST structure are before you get too involved with them.
What Can Be Treated as a DST 1031?
Two things can be handled within a system of DST 1031 properties. First, there are real or intangible properties that must be managed, administered, used as investments or operated in some fashion. For example, landlords often configure DSTs to handle multiunit properties and large numbers of properties that are rented out. Second, there are businesses that engage in for-profit activities and provide benefit interest to trustors.
The structure offers a functional alternative to folks who might otherwise set up LLCs. An advantage that comes from setting up such a trust is that there are fewer required corporate activities that come with running one. The trust only needs to be registered once, and there is no need to hold annual meetings. There are also no franchise tax limits.
Illiquidity of Equity
The operating assumption when dealing with a DST 1031 exchange is that the invested capital that goes into the trust will remain inaccessible until the property itself is sold. You absolutely should not invest any money in this model of assets if you're concerned that you may need to have ready access to the cash. Decisions about the liquidation of assets and the distribution of proceeds are made by the trustees, and the point of the design of them is to make them desirable long-term investments.
A big attraction of the DST 1031 exchange is that it is ideal for many people who want to be invested in properties during their retirements. The trustees are allowed to go about acquiring new properties to add to the trust, and this can be attractive for those who want to be in the real estate game without serving in the role of a landlord or having to deal directly with property managers.
While not a strict standard, most folks do not invest in DST 1031 properties unless they have at least $100,000 to put up. Benefit payments are subsequently issued like interest.