Why is the DST Ideal for CA Residents and Investors?

The reason the DST is ideal for California residents is it avoids the $800 a year Franchise Tax that California charges LLCs. Since the structure is a Trust and not an LLC, it does not trigger the Franchise tax. If you own multiple LLCs to hold multiple properties, the yearly Franchise tax adds up to an awful lot of money. Using the DST structure, you can own multiple properties in individual child Series without the need for multiple LLCs. Therefore, not only does the DST save in costs, it allows you to efficiently compartmentalize and separates each asset into individual child Series.

CA’s Franchise Tax law is very broad/vague. Meaning several situations may trigger the $800 a year franchise tax. In determining whether you should opt for a DST over a parent Series LLC, the following situations may occur:

  1. You are a CA resident looking to form a foreign LLC and own foreign property. What this means is you live in CA, but would like an LLC in another state, such as Texas, and own property outside of CA. In this situation, even though the LLC would be foreign, you is a CA resident and due to the broadness of the law, the Franchise Tax could be triggered.
  2. You are a CA resident looking to form a foreign LLC and own property in CA. What this means is the you live in CA, would like an LLC in another state, such as Texas, but will own property in CA. In this situation, although the Land Trust (under the parent Series LLC) will technically own the property, it would be good practice for you to opt for a DST because the property is located in CA and the Franchise Tax may be triggered.
  3. You are a Non-CA resident looking to form a foreign LLC and own property in CA. What this means is you live outside of CA, are looking to form an LLC in another state, but will own property in CA. Again, although the Land Trust (under the parent Series LLC) will technically own the property, it would be good practice for you to opt for a DST, or form a completely separate CA LLC to hold just that one property, because the property is located in CA and the Franchise Tax may be triggered.

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