Why a Delaware Statutory Trust (“DST”) is a Financial Planning Decision

What is Financial Planning?

Financial planning involves looking at a client's entire financial picture and advising them on how to achieve their short- and long-term financial goals. From saving for education, planning for retirement to effectively managing taxes and insurance. Financial planners develop valuable relationships with their clients to strive to provide them with confidence today and a more secure tomorrow.¹

In many situations, a client’s investment or business property may only be a portion of their overall financial life. As Financial Service professionals we make certain that conducting a 1031 exchange utilizing the DST format is in the best interest of clients, their families, and their business.

• A 1031 exchange must not only be a sensible tax and real estate strategy, but it also must be an optimal investment solution and one that makes sense in a client’s overall Financial Plan.

What is a Delaware Statutory Trust?

A DST is a special purpose legal entity in which a sponsor company conducts due diligence, acquires the property(s), obtains the financing, holds the title to the properties and acts as the trustee to the trust. The investor (you) are the beneficiaries of the trust.

DSTs allow for fractional ownership with multiple investors who share ownership in a professionally managed portfolio of properties.²

Before recommending a 1031/DST solution, we seek to ascertain other requirements that may need to be addressed initially, before a more comprehensive discussion can take place on a potential 1031 transaction.

¹ https://www.cfp.net/why-cfp-certification/career-guide/what-is-financial-planning

² https://delcode.delaware.gov/title12/c038/sc01/

A sample of important financial issues to consider before doing a 1031 Exchange.

• Life Insurance policy or premium increases
• Disability Insurance – especially for physicians
• Business expansion plans
• Business Ownership structures and agreements
• Long-term care for family members
• Education planning/saving
• Estate and Legacy planning goals
• Diversification (or lack thereof) in their taxable and non-taxable accounts
• Current cash position
• Other Liquidity Needs
• Income expectations and/or income replacement

It is also vitally important that clients understand that DSTS are illiquid. Liquidity is ONLY available upon disposition of individual properties or the Trust as a whole. Clients MUST have sufficient liquidity available if any taxes are incurred during the exchange process.

Additional Issues to Consider:

• Neither an investment in the form of a traditional 1031 Exchange or a DST is a guarantee for cashflow or appreciation.³
• Hold periods are longer than most investments (typically 5 to 10 years), which is why we encourage clients to look at their overall financial situatation before making any decisions.
• Upfront and on-going costs and fees are typically higher than other solutions
• Beneficiaries have no control or involvement in property management decisions
• No public or secondary markets exist for DSTs

³ https://www.wiggin.com/publication/1031-exchanges-and-delaware-statutory-trusts/#_ftn6

Investors who own investment or business property and who may be seeking potentially income-producing assets with possible tax-deferral, tax efficiency and estate planning benefits – a DST is potentially a viable solution for your business, family, and long-term future goals.

CYNA 1031 Advisors strongly encourages all clients to seek additional guidance from your tax professional, attorney, and investment advisor. We frequently collaborate with them as they are important voices in the process.

If you would like to have a conversation about your specific situation and how we can work together please contact us.