Are you a real estate investor based in the state of California? If so, you should know about the Delaware Statutory Trust. Counter-intuitively, the Delaware Statutory Trust (“DST”) is a trust that is formed pursuant to the laws of the State of Delaware, but is an excellent product for Californian investors. Take a look at the image below to better understand how the DST’s structure works.
As you can see, each “child,” or Series, is a separate entity with a single corresponding asset. This set-up is ideal because it separates your assets from one another, meaning if one property ever is subject to a lawsuit, your others are safely shielded from that same legal action. If you want a totally comprehensive asset protection plan, consider pairing the DST with an Anonymous Trust. When you use this powerful combination, the DST helps you achieve total legal separation of your assets, while the Anonymous Trust helps protect your anonymity.
The Delaware Statutory Trust allows for anonymity and lawsuit protection. The Delaware Statutory Trust also works with a Series structure (just like a Series LLC), so it is infinitely scalable at no additional costs, no matter how many assets you acquire. Incorporating new real estate investments into the structure is quick and easy.
The Delaware Statutory Trust is ideal for California residents since it also avoids Franchise taxes, which at the time of this writing are $800 per year per LLC. If you own multiple LLCs, that adds up to an awful lot of money directly in Uncle Sam’s pocket.
The major advantage to the Delaware Statutory Trust is that it allows you to efficiently compartmentalize each asset. The Delaware Statutory Trust can also be owned anonymously, and each asset that is compartmentalized in the individual Series of Delaware Statutory Trust can be held anonymously.
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The Delaware Statutory Trust (DST) is a highly innovative legal structure that offers asset protection and tax benefits for your real estate business. This groundbreaking structure is the godfather of the Series LLC and pioneered the “parent-child” LLC structure. Those who are familiar with the Series LLC may already be familiar with this mechanism and its benefits.
If you’re unfamiliar with the parent-child structure, it’s a useful comparison to understanding how the DST protects your assets. The DST itself plays the role of the mother and father, rolled into one. Unlike human parents, the DST isn’t limited by time or biology and can have as many “children” as it wants. In this case, the children are referred to as “Series.” Despite the fact that the DST is its own legal entity with a single filing and tax return, each child receives the same protections as a Traditional LLC. This includes, of course, liability protections.
DSTs are a highly effective tool for lawsuit prevention. An effective structure will stop lawsuits before they even start. A well-implemented DST will kill the suit before it’s even filed by sapping any financial motivation for somebody to sue you.
This comes back to the motivation issue mentioned above. Think about it: what motivation does anyone ever have to file a lawsuit? You might think of things like indignant rage, pure spite, etc., but the only motivation that matters for attorneys is money. Or valuable assets that can be converted into money. For a lawsuit to be profitable, the attorney must be able to both secure a judgment in their favor (i.e. against you), then collect on that judgment. To collect, you need to have money or valuable assets laying around.
A smart lawyer will do their homework to make sure you’re worth suing before getting started. Using a DST to own your assets will show any attorney that you are literally not worth his/her time. The opposing attorney often gives up on clients who are employing asset protection strategies because they’re time-consuming to investigate at all.
Royal Legal Solutions offers cost-effective access to the DST with no hidden fees. The only ongoing fee is once annually for a Delaware Resident Trustee.
Royal Legal Solutions is among the few firms skilled in the nuances of using a DST for real estate investment purposes. We are one of a handful of legal practices that know how to form the Delaware Statutory Trust to avoid the onerous California franchise tax. We will also take care to ensure that the federal tax treatment on your DST is treated as a “disregarded entity,” which will save you thousands in the long run. With our system, you get the maximum protection possible while streamlining your taxes.
If you’re a real estate investor in California, the Delaware Statutory Trust (DST) is one of the most powerful tools you can employ to protect your investments. For a much more detailed explanation of the DST, learn more from our knowledge base on the DST with Anonymous Trust structure for real estate investors.
We have experience in setting up the proper asset protection and making it easy for an investor to use. Our system simplifies management structure as much as possible, and we also use common sense to ensure your needs are met. For example, just one tip we give our clients is that you don’t need multiple bank accounts as long as you have accurate accounting records. For taxation, they should stay exactly how they are now while being reported on a Schedule E of your personal return (if you’re an individual/married partners) or a partnership return (if unmarried partners).
Royal Legal Solutions offers cost-effective access to the DST with no hidden fees. The only ongoing fee is for a Delaware Resident Trustee, which costs $500 per year.
Royal Legal Solutions is also among the few firms that have taken the time to specialize in asset protection and the nuances of using a DST for real estate investment purposes. We are one of a handful of legal practices that know how to form the Delaware Statutory Trust to avoid the onerous California franchise tax. We will also take care to ensure that the federal tax treatment on your DST is treated as a “disregarded entity,” which will save you thousands in the long run. With our system, you get the maximum protection possible while streamlining your taxes.
If you’re a real estate investor in California, the Delaware Statutory Trust (DST) is one of the most powerful tools you can employ to protect your investments. Of course, the DST can be used by investors in other states, but it does provide some specific perks for California real estate investors that cannot be overlooked. DST owners are not subject to the Franchise Tax imposed on other types of businesses in the Golden State, but they retain the liability protections offered by corporations regardless.
For a much more detailed explanation of the DST, its history, and benefits, check out our previous comprehensive educational resource on the DST with Anonymous Trust structure for real estate investors.