Investor Rights and Trustees Responsibilities in a Delaware Statutory Trust (DST)
When investing in a DST, investors purchase units of beneficial interest and become beneficiaries of the DST’s operations. As beneficiaries, investors have the following rights and responsibilities:
• They have the right to receive distributions. Based on the investors’ pro-rata interests in the trust, they have the right to receive distributions from the operations of the trust, either from rental income or from the eventual sale of the property. As with any business, operations can result in profits or losses; therefore, distributions are not guaranteed.
• They do not have the responsibility of property management. DSTs are operated and managed by trustees, removing any responsibility or right for the beneficiaries to participate in the day to day handling of the property’s operation or the timing and details of the eventual sale of the property.
• They are not liable for the property. Investors do not have deeded title to the property; therefore, they are not liable for the property.
• They incur tax responsibility. Since the trust is not considered a taxable entity, all the profits, losses, etc. are passed through directly to the beneficiaries.
Now let’s take a look at the responsibilities of the trustees of a DST:
• A DST is operated and managed by a trustee. Because the trust itself holds the deed to the property, the trustee’s liability for the property is limited.
• The trustee has the responsibility to make decisions on behalf of the trust for the benefit of the beneficiaries. This includes day to day operations as well as the timing and arrangements for the sale of the trust’s assets.
• The trustee must adhere to the IRS Ruling 2004-86, which names the seven deadly sins that limit the DST’s trustee’s power.