Delaware Statutory Trust Structure With Anonymous Trusts

A proper asset protection strategy lets you sleep easy at night even if you are sued. Below, I will share with you the secrets that will have you sleeping easy at night and going about your business as usual even when you’re being threatened by a lawsuit. What will have your friends aging overnight, you’ll barely even worry about. After implementing a proper strategy, lawsuits will never even get filed and the problem is gone before it even starts.

Asset Protection for California real estate investor uses the Delaware Statutory Trust to avoid the onerous Franchise Tax imposed upon LLC’s. The California investor achieves protection in two parts:
(1) isolating the assets for liability purposes inside of a Holding Company and (2) hiding the assets from being connected to you or the Holding Company. Additionally, this company structure is scaleable at no additional costs or fees, steamlines your taxes, can be used in conjunction with traditional financing, and allows for the traditional recording keeping you are likely already using. After it is set up, you won’t even notice it’s there in your normal course of business.


The best holding company for real estate asset protection for the California investor is the Delaware Statutory Trust (“DST”). The DST allows for a Series Structure much like a Series LLC. You can think about the DST as a Parent – Child relationship. The DST is the Parent, and it can have as many children as it wants. Each child is known as a ‘Series’. Even though the DST is technically one company with one filing with the state of Delaware and one tax return, each child ‘Series’ is treated as if it were its own company for liability purposes.

Each Series is typically designated with its own letter, e.x. Series A (See the picture below). This means that if a lawsuit is filed against Series A, it cannot affect Series B, Series C, etc. A lawsuit against Series A can only affect the assets held in Series A.

In the diagram above, the REI Asset Holding DST has three Series. Each Series has only one property held by it. REI Asset Holding DST – Series A owns a single asset, a piece of Real Property located at 123 Main st. As such, since Series A only holds that single piece of real property, a lawsuit against Series A does not jeopardize the real property located at 456 Main st. or 789 Main st. Moreover, if there was a lawsuit against the owner of the parent REI Asset Holding DST, that lawsuit could only collect against the assets of the owner and not against the assets of REI Asset Holding DST. In this way, a lawsuit against the owner of the DST does not affect his or her assets.


The DST limits our downside risk in the event of a lawsuit since it limits the maximum amount we can lose, the amount held in the Series. However, limiting the amount of the lawsuit is our last result. What we want is a protection system is that stops the lawsuits before they are ever filed.

To stop a lawsuit before it is filed you have to take out one of the three essential pillars of a lawsuit. The essential pillars of a lawsuit, i.e. what you need as a litigator to make a case worthwhile, are the law, the facts, and the recovery. The law and the facts are generally easy to fabricate, and any decent lawyer can find a basis for a lawsuit that will survive summary judgment. The asset protection system I put in my place for my clients attacks the third leg, the recovery. The recovery is the ability to seize assets and get paid after you win a judgment. A judgment is worthless on its own, it is only a piece of paper. It is only as good as there are assets to seize with it. So, before a case is filed an attorney will always research whether there are assets which he can seize from the defendant in the case that he wins. If it appears that the defendant has very limited or no assets, then in all but the cases but personal
self-righteous vindication will the lawsuit be foregone.

To show the opposing side that there will be no recovery from the lawsuit we hide the assets using Anonymous Trusts. These Anonymous Trusts will ultimately hold the assets. Anyone researching the owner of the real estate asset by searching the County Clerk records will only find the name of the Anonymous Land Trust. Typically, the property owner’s name is listed on the County Clerk’s records, but in this case the owner of the property would be listed as the 123 Main St. Trust.


The key piece to any asset protection system is the tax planning. In this case, the 123 Main St. Trust will have a Grantor, a Trustee, and a Beneficiary. The Trust above will have REI Asset Holding DST – Series A as the Grantor, the client will serve as the Trustee, and the Beneficiary will be the Series. The property, therefore, is held in the name of the title holding trust at the bottom of the company and it is controlled by the company while the client receives disbursements from the title holding trust. Typically, trusts are structured so that the trustee and the beneficiary are separate people; in fact, a trust will “merge” if challenged if this is the case. The effect of a merger is that the property reverts back to the grantor, and in this case that is the Series of the DST. So in the event of a lawsuit and the trust is challenged, the property reverts back to the protected structure (the DST), and if it is not challenged we revoke the trust having the property revert back to the protected structure.


There are several things you must do to keep a the DST from being pierced or having the Series structure collapse so that the court would treat all of the Series as one, instead of separate. The DST must have a valid trust agreement, must be filed with the state of Delaware, maintain a Delaware Registered Agent, and abide by certain other rules particular to the IRS rulings regarding the DST. Those rules are spelled out in the Trust Agreement provided by my firm. To maintain the Series structure, the client must maintain an accurate accounting of which money belongs to which Series, and generally treat the money held by the Series as if it were a separate company (i.e. you cannot treat it like a personal bank account).

The recording keeping of the above structure is likely very similar to what you already do for your basic accounting of the investment. For any investment, you need to know the profitability of the particular asset purchased, so you need to have records which reflect the amount of capital invested into the asset, the amount earned buy it, etc. The DST structure above will require you to maintain the records of each Series separately just as if they were separate companies. In many cases, all this requires is for you to “tag” the entries in your quickbooks so that the entry is shown in correlation to the specific company. If you do not use quickbooks and instead use an excel spreadsheet, then be sure to add a new entry any time you add or withdrawal money from the bank account for the company. If you forget to do this a few times it is not the end of the world. You can always go back after and “catch up” on the
accounting. The Court will allow this as long as it is “reasonable”: nobody expects you to be perfect, but don’t abuse it.


My specialty is in structuring companies to protect and hide assets in anticipation of litigation. 100% of my clients are real estate investors, and I am an investor myself. Whether you are looking to protect your personal assets, set
up a self-directed IRA, or need estate planning, I can help.

Contact me at (512) 757 – 3994 or email at


***This information is not legal advice and I am not your attorney***

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