For most real estate investors, experts recommend you consider investing through a series limited liability company (LLC). However, in the state of California, you should consider using a Delaware Statutory Trust (DST) instead. Why? Let’s take a look. The Series DST DSTs are not new. A DST is considered to be a statutory entity. As such, it is created through filing a Certificate of Trust with the Delaware Division of Corporations in addition to paying any regulatory fees required by the law. However, Delaware does not require the actual trust agreement to be filed. This means the trust’s owners, duties and responsibilities remain confidential and do not appear on any official state documents. The Benefits of a DST For California real estate investors in particular, the DST is highly beneficial. Avoid Unnecessary State Penalty Taxes: California has been notoriously uncooperative with attempts to bring outside LLCs and Series LLC into the state. In fact, while most state permit outside Series LLCs, California will charge you $800 for each series, every year. Depending on the amount of properties you invest in, or the profits or losses you incur, this sum can add up quickly. Disregarded Entity: The Internal Revenue Service (IRS) recognizes certain businesses as “disregarded entities”. To qualify, your business must abide by three rules. First, the DST must have only one owner. This is because the IRS only recognizes “sole-proprietorships” as a disregarded entity. Second, the business itself must be separate from the individual. This if for liability purposes. (We’ll talk about how this applies to a DST below.) Third, the business is taxed through your personal taxes (Schedule C). The DST abides by all three rules and, therefore, is considered to be a disregarded entity by the IRS. Unlimited Compartmentalization: For many investors, the Series LLC offers a seemingly unique opportunity to protect investments. However, a DST can offer this same protection. A series DST allows you to establish one, “parent” trust. Beneath it, you can create an unlimited number of “child” trusts as well. Most experts will recommend that you put each investment property into a separate “child” trust to ensure all liabilities are self-contained. Anonymity Assured: As stated above, with a DST, your identity is not published when the trust is filed with the Delaware Division of Corporations. (To do this with a Series LLC, you first need to establish an Anonymous Land Trust.) Asset Protection with DST You may wonder how a DST helps to protect your real estate investments from lawsuits. This is where the DST really stands out. In addition to complying with California and federal tax laws, the DST provides you with an innovative legal barrier that can prevent a lawsuit before it even makes it into court. Above, we talked about how the DST provides you with unlimited compartmentalization and anonymity. These two features inherently discourage lawsuits. When you invest in each property through separate “child” DSTs, you restrict the finances available for a court settlement. Like a Series LLC, the DST wraps each property in a liability barricade. Any lawsuit brought against one property can only take into account the value of that investment. Your personal assets, and those that are contained within other “child” DSTs, are untouchable. (As a general rule of thumb, most lawyers will not accept a real estate lawsuit that will not settle for $50,000 or more. In this sense, the DST discourages lawyers from accepting a case against you.) However, because of the blanket of anonymity created through the private nature of a DST itself, a lawyer may refuse a case against you outright. After all, to build a legal case against you, the lawyer would first need to identify who you are. The legal anonymity established with the DST makes this incredibly hard, and often, not worth the time for a lawyer to pursue. When you combine the reduced net worth of an investment owned by a “child” DST and the difficulties of an anonymous owner – the majority of lawsuits end before you ever have to step foot in a courtroom. Help When You Need It We understand how important asset protection is for real estate investors in any state. We pride ourselves in our in-depth knowledge regarding asset protection, as well as our ability to help our clients find the most cost-efficient, streamlined way to keep their investments safe. For real estate investors in California, we can help you establish a DST. We do so in a cost-effective manner, with no hidden fees. Because of our experience with tax regulations, we can help to minimize any penalties or fees and ensure the IRS treats your DST as a “disregarded entity”. If you are a real estate investor in California, contact us today to find out how we can protect your properties together.