Our deep dive into the Delaware Statutory Trust (DST) continues now with what we consider some of the best news about the DST structure: the perks.
If you’ve already read up on the basics, FAQs, and relatively painless regulation breakdown, you already know some of the broad benefits. Learn a little more about this powerhouse structure’s perks.
California has unique state laws and agencies that investors with interest in the state should be aware of. Your asset protection structure must be able to comply with all relevant law and regulatory measures. The Delaware Statutory Trust offers a cost-effective solution for Californians seeking an anonymous structure that defends the assets within it.
Anonymity is more or less built into the DST structure. Deeding property to the trust is a critical piece of your asset protection strategy. This is the move that gets your investment property out of your personal name. Simply not having your name on the property preserves your personal anonymity, which is important for preventing lawsuits. Investors who are successful become attractive targets for litigious types, and frankly, the only meaningful defense from this type of threat is an appropriate anonymous business structure.
Your DST is legally a separate entity from you. Yet using one conveys liability protections onto you, just as if you’d used a network of LLCs. Incorporating additional legal structures is simple, whether you want anonymous trusts as well or greater control over your estate. Adding new assets into your trust is simple, and it can indeed be incorporated into your estate plan. After all, the DST gets its special treatment in part because it is an estate planning tool.
California’s onerous Franchise Tax is well known to investors around the country, largely by reputation. Frankly, it’s the type of subject that’s only spoken about in complaint mode.
Until now, that is.
The DST is an estate planning tool rather than a traditional corporate entity, and is treated accordingly under the law.
Because of this legal difference, the DST isn’t subject to the $800 annual expense that out-of-state LLCs and other corporate structures are.
You read that correctly. It’s exempt. The DST is viewed by the state, including the Franchise Tax Board (FTB), as an estate planning tool rather than a corporation. Legally speaking, you can use the DST as both an estate planning device and an asset protection structure. In the meantime, that’s $800 that gets to stay in your pockets or business profits.
When you use a Delaware Statutory Trust structure to protect your real estate investments properly, each asset is compartmentalized. It allows you complete control, while your assets stay away from you and one another. In fact, they’re completely separate for liability purposes, which is one way the DST prevents lawsuits.
Even if an asset within one Series is threatened legally--a task good asset protection makes tough to begin with--any assets in the others are safe.
California’s notorious FTB mentioned above views the DST as an estate planning tool. Most trusts are used in this process, and your DST can be too. But its savings powers are at their greatest while you’re still very much alive.
Owners of companies, whether LLCs or S-Corps are operating entities. They will pay $800 for each one. So if you have four properties in the Golden State, sticking them in four LLCs will protect your assets. But it’ll cost you $3200 in franchise taxes alone annually to maintain this clunky, unnecessarily pricey operation. The DST, on the other hand, doesn’t incur the Franchise Tax at all.
The DST structure doesn’t just defend your real estate investments from lawsuits. Assets within your DST are also protected from creditors. While this may not be reason alone to open up a DST, it’s certainly a nice fringe benefit if you ever encounter a financial emergency. To learn which of your assets are best protected, speak to a trusted legal expert familiar with your situation.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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