What Is a Delaware Statutory Trust? The Complete DST Guide
16 min read · Delaware Statutory Trusts · Last updated
Key Takeaway
A DST offers passive real estate ownership with no management responsibilities. You exchange into a fractional interest in professionally managed property and receive monthly income. The convenience comes with 10-18% in fees and 5-10 year illiquidity.
After years of managing rental property — fielding tenant calls, coordinating repairs, reviewing leases — some investors want to stay in real estate without the operational burden. A Delaware Statutory Trust is one way to do that.
How a DST works
A DST sponsor acquires property, places it into a trust, and offers fractional beneficial interests to investors. Each investor owns a proportional share of the trust, which owns the real estate.
As a beneficial owner, you receive:
- Monthly income distributions based on net operating income
- Tax benefits including depreciation deductions
- Your share of proceeds when the property is eventually sold (typically 5-10 years) You do not make management decisions. The sponsor handles everything.
The IRS framework: Revenue Ruling 2004-86
Revenue Ruling 2004-86 concluded that, under certain conditions, a DST interest may qualify as like-kind replacement property in a 1031 exchange.
The "Seven Deadly Sins": DSTs must avoid activities that would make the trust look like a partnership: no new capital, no new borrowing, no renegotiating leases, no reinvesting proceeds, no new investors after closing, no major modifications, no disposing of property except in certain circumstances.
What a DST investment looks like
- Minimum investment: Often $100,000+
- Hold period: Typically 5-10 years
- Income distributions: Usually monthly, projected 4-6% annually
- Property types: Multifamily, industrial, medical office, net-leased retail, senior living
The fee structure
Total fees typically range from 10-18% of investor equity:
- Acquisition/organizational fees: 5-8%
- Selling commissions: 5-7%
- Financing fees: 1-3%
- Asset management (ongoing): ~1% annually
- Disposition fee: 1-3%
The five key risks
- Sponsor risk — they control every decision
- Property/market risk — same as any real estate
- Illiquidity — no active secondary market
- Structural inflexibility — can't adapt to market changes
- Leverage risk — most DSTs use 50-65% LTV
Ready to take the next step?
Talk to an independent advisor who can help you evaluate your specific situation. Free consultation, no obligation.
Find an Advisor →The Bottom Line
DSTs solve a real problem for investors who want to defer tax and stay in real estate without management burden. The tradeoff is fees, illiquidity, and loss of control. For the right investor, that tradeoff makes sense.
Frequently Asked Questions
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DST Eligibility: IRS Revenue Ruling 2004-86 Explained
Before 2004, the IRS hadn't explicitly blessed Delaware Statutory Trusts as 1031 replacement property. Revenue Ruling 2004-86 changed that by confirming DSTs holding real property are treated as like-kind property for exchange purposes.
The Seven Deadly Sins of DSTs: What They Are and Why Investors Should Care
DSTs must follow strict operational rules to maintain 1031 eligibility. These seven restrictions, derived from IRS Revenue Ruling 2004-86, limit flexibility but preserve the passive investment character that makes DSTs work.
1031 to DST to 721 (UPREIT): How the Path Works
A growing number of investors are using a three-step strategy: 1031 exchange into a DST, then when the time is right, contribute the DST interest into a REIT's operating partnership via a 721 exchange. This path enables tax-deferred access to REIT diversification.