The Benefits of a Delaware Statutory Trust

 In Business

The state of Delaware has a reputation around the United States for being the best place to have a corporate headquarters. Many people don’t realize it is also a superior place to have a statutory Trust. The most popular is the Delaware Statutory Trust.

The Delaware Business Trust Act

In 1998, the Delaware Business Trust Act became law. In 2002, the name of the act of changed to Delaware Statutory Trust Act (DST Act). This law was designed to bypass the principles of common law trusts that created a disadvantage to trust holders. The DST Act was also written to include new provisions that provided increased contract freedom between trustee and trustor. This increased freedom covered the liabilities and types of administration of the trust.

Liability Limitations

The DST provides an increased level of protection for trustees, beneficial owners as well as trust managers. The DST gives the same level of liability protection as does the Delaware laws designed to protect the stockholders of Delaware corporations. This applies whether the trustees are physically present within the Delaware or not. DST managers are not liable personally for any acts of a third part, omissions or the DST obligations and more.

Contract Flexibility

The DST Act was written to provide the most effective freedom of contract creation as well as enforcement of trust agreements. The contract freedom policy gives the parties involved the ability to determine a number of specific matters among themselves. The economic rights of owners, management of the trust, indemnification, rights and obligations of managers as well as operational issues and more are determined by those involved in the trust and not by the law.

Separate Legal Entity

Under the laws of the state of Delaware, a DST is a separate legal entity, and each trust owner is someone who has a beneficial interest in the trust. Federal income tax liability is determined by the owners undivided fractional interest. In 2004, the IRS released a ruling that enabled a DST to obtain real estate. The beneficial interest in the trust will be acknowledged as an interest in replacement property for IRS tax purposes. The most common property purchased under a DST are dwellings with single-tenant occupancy.

Popular Advantages

The main advantage of a DST is the protection of assets from creditors. It has been used successfully to protect against everything from municipal tax liens to collateralized bond obligations, residential mortgages failures and more. It also has been utilized to obtain automobile leases and loans. A DST can be used to secure corporate bonds and notes, as part of real estate investment trusts and more. It can be used to protect lessees as well as debt investors from the chance of investor’s bankruptcy.

Legal Protection

A creditor of a DST beneficial owner can not take possession, seek any equitable or legal remedies against the property of the DST. It is common for a beneficial owner to have no interest in a specific DST property. A DST cannot be revoked or terminated by any person or beneficial owner without it being in accordance with the trust agreement terms.

Questions? Ask our Delaware and Maryland builders.

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