A Delaware Statutory Trust can sound abstract until you see how its parts fit together. At its core, a DST is a trust formed under Delaware law that holds title to income-producing real estate, with the work divided among clearly defined players: a sponsor that finds, finances, and runs the property; a trustee that holds legal title and administers the trust; and investors who hold fractional beneficial interests and collect passive income. A master-lease arrangement lets the trust stay legally passive while operations carry on, which is what preserves the DST's treatment as direct real property for 1031 purposes. Understanding the structure — who does what, what you actually own, and how the rent reaches your account — makes the difference between a DST feeling like a black box and feeling like a transparent, well-understood investment. This guide walks through the legal structure, the sponsor and trustee roles, what a beneficial interest is, how income flows to investors, and how a DST compares to LLC and TIC structures. DST interests are securities offered to accredited investors after a suitability review; verify the current rules and your tax situation with your CPA and attorney. This is educational information, not advice.
The DST Legal Structure
A Delaware Statutory Trust is created under Delaware's Statutory Trust Act, which lets a trust hold property and conduct business as a distinct legal entity, separate from its investors. The trust is established by a trust agreement (the governing document) and a certificate of trust filed with the state. Once formed, the DST takes title to the real estate, so the trust — not the individual investors — is the legal owner of the property and the borrower on any financing. Investors hold beneficial interests in the trust rather than direct title to the real estate.
This entity-level ownership is central to how DSTs work. Because the trust holds title and is the sole borrower, lenders deal with one entity rather than dozens or hundreds of co-owners, and the property can be financed, operated, and eventually sold without needing investor votes. At the same time, the trust agreement and the IRS rules under Revenue Ruling 2004-86 constrain what the trust can do — it must remain passive, following the 'seven deadly sins' restrictions — so that each investor is still treated, for tax purposes, as owning a direct interest in the underlying real property. The Delaware structure provides liability protection and administrative clarity while the federal tax rules preserve 1031 eligibility.
So the DST legal structure is an entity formed under Delaware law that holds title and borrows as a single trust, while tax rules keep it passive so investors are treated as direct real property owners. The DST legal structure — a trust created under Delaware's Statutory Trust Act, established by a trust agreement and certificate of trust, that takes title to the real estate and is the sole borrower, while Rev. Rul. 2004-86 constraints keep it passive — separates the legal entity (the trust owns the property) from the tax treatment (investors are treated as owning real property directly). The structure provides clarity and 1031 eligibility together. Understanding it frames the roles within. A DST is a Delaware-law trust that holds title and borrows as one entity, kept passive by tax rules so investors are treated as direct real property owners for 1031 purposes.
Sponsor and Trustee Roles
Two key players run a DST: the sponsor and the trustee. The sponsor is the professional real estate firm that creates and drives the investment. It sources and acquires the property, performs due diligence, arranges any non-recourse financing, structures the trust and the offering, prepares the private placement memorandum (PPM), and — through an affiliated property manager, usually under a master lease — operates the asset day to day: leasing, managing tenants, maintaining the property, and ultimately deciding when to sell. The sponsor's experience, track record, and financial strength are among the most important factors in a DST's success.
The trustee holds legal title to the trust's real estate and administers the trust according to the trust agreement and Delaware law. In a DST structured for 1031 eligibility, the trustee's role is deliberately limited and largely ministerial — the IRS rules forbid active management at the trust level, so the trustee can't renegotiate leases, refinance debt, or make major decisions that would make the trust look like an active business. Those active functions are handled by the sponsor's affiliate under the master lease, keeping the trust itself passive. So the sponsor provides the real estate expertise and operations, while the trustee provides title-holding and administration within strict limits.
So the sponsor finds, finances, and runs the property (through a master-lease manager), while the trustee holds title and administers the trust within tightly limited bounds. Sponsor and trustee roles — the sponsor acquiring, financing, structuring, and operating the property (via a master-lease affiliate) and deciding when to sell, versus the trustee holding legal title and administering the trust in a deliberately limited, passive capacity required by the IRS rules — divide the work that makes a DST function. The sponsor's quality drives results; the trustee preserves passivity. Understanding the roles clarifies who controls what. The sponsor finds, finances, and operates the DST property and decides the sale, while the trustee holds title and administers the trust within strict limits that keep it passive.
Two hands run a DST: the sponsor does the real work of buying, financing, and operating the property, while the trustee holds title within bounds so tight they're what keep the whole structure 1031-eligible.
What a Beneficial Interest Is
When you invest in a DST, what you actually own is a beneficial interest — an undivided, fractional, beneficial stake in the trust itself, not a deed to a specific piece of the property. The trust holds legal title to the real estate; you hold an equitable, proportional interest in the trust, sized to your investment. If you put in $400,000 of a $40 million DST, you own about 1% of the beneficial interests, entitling you to about 1% of the income, the eventual sale proceeds, and the pass-through depreciation. You don't own a particular apartment, suite, or square footage — you own a slice of the whole.
A beneficial interest is passive by design. Holders have no voting rights and no say in management; the sponsor and trustee make all decisions. This lack of control isn't an oversight — it's required. The IRS rules that make DST interests 1031-eligible depend on investors being passive, so granting voting power would jeopardize the trust's treatment as direct real property. In return for giving up control, beneficial-interest holders get genuine passivity, access to institutional assets at low minimums, and the tax benefits of direct real estate ownership (deferral and pass-through depreciation) without landlord duties. Many investors can hold interests in the same DST, with no statutory cap.
So a beneficial interest is a passive, undivided, proportional stake in the trust — your share of income, gain, and depreciation, with no control over the property. What a beneficial interest is — an undivided, fractional, passive stake in the DST itself (not a deeded piece of the property), entitling you to a proportional share of income, sale proceeds, and pass-through depreciation, with no voting rights because passivity is required for 1031 eligibility — defines what a DST investor actually owns. You own the trust slice, not specific square footage. Understanding it clarifies your rights and tax benefits. A beneficial interest is a passive, undivided, proportional stake in the DST that entitles you to a share of income, gain, and depreciation, with no control over the property.
How Income Flows to Investors
The income from a DST follows a clear path from the tenants to your account. Tenants pay rent to the property. Under the master lease, a sponsor affiliate operates the property and pays expenses — property management, maintenance, taxes, insurance, and debt service on any loan. What remains is the net cash flow, which the trust distributes to investors in proportion to their beneficial interests, typically on a monthly or quarterly basis. So your distributions are your fractional share of the property's net rental income after expenses and debt service.
Just as important is how the income is taxed. A DST is generally treated as a grantor trust, so the income, deductions, and depreciation pass through directly to each investor in proportion to their interest. You receive a grantor letter (rather than a K-1) reporting your share, and you also receive your proportional share of the property's depreciation — a non-cash deduction that can shelter part of your distributions from current tax. Your basis carries over from the relinquished property in the 1031 exchange, so the deferred gain remains embedded until a later taxable event. The result is regular income, partly sheltered by depreciation, with the underlying gain still deferred.
So income flows from tenant rent, through the master-lease operator who pays expenses and debt, to investors as proportional distributions — passed through for tax with depreciation and a grantor letter. How income flows to investors — rent collected at the property, expenses and debt service paid under the master lease, net cash flow distributed proportionally (often monthly or quarterly), and the income, depreciation, and deductions passed through to each investor via a grantor letter (with carryover basis from the 1031) — traces the money and the tax treatment together. Distributions are partly sheltered by depreciation. Understanding the flow clarifies what you actually receive. Income flows from tenant rent, through the master-lease operator paying expenses and debt, to investors as proportional, depreciation-sheltered distributions reported on a grantor letter, with the 1031 gain still deferred.
The rent makes a clean trip: tenants pay the property, the master-lease operator covers expenses and debt, and what's left lands in your account as a distribution — partly shielded by depreciation that passes straight through to you.
Distributions, Depreciation, and Reserves
Beyond the basic flow, a few mechanics shape what a DST investor actually receives. Distributions represent current net cash flow, and the 'seven deadly sins' restrict the trust from distributing more than that current cash flow — so a DST can't borrow or dip into capital to prop up a distribution. The trust may also hold a modest reserve for short-term needs, but it can't accumulate or reinvest cash beyond short-term requirements. These constraints keep distributions tied to the property's real performance, which is why DST distribution rates are projections that can rise or fall with occupancy, rents, and expenses — never guaranteed.
Depreciation is a quiet but meaningful part of the picture. As a fractional owner treated as holding real property directly, you receive your share of the property's depreciation deduction, which offsets part of your taxable income from the distributions. Because your basis carried over from your relinquished property in the 1031, the depreciation schedule continues from that carryover basis rather than resetting — a detail your CPA will track. When the property is eventually sold, prior depreciation can be subject to recapture unless you continue deferring through another 1031 or the interest receives a step-up at death. So depreciation shelters income now but factors into the math later.
So DST distributions reflect real current cash flow (capped at that level), partly sheltered by pass-through depreciation, with reserves limited and recapture relevant at sale. Distributions, depreciation, and reserves — distributions limited to current net cash flow (no borrowing to pad them), pass-through depreciation sheltering part of that income from carryover basis, and reserves restricted to short-term needs, with depreciation recapture relevant when the property sells unless deferral continues — govern the real economics of a DST. Distributions are projections tied to performance, not guarantees. Understanding these mechanics sets realistic expectations. DST distributions reflect current cash flow (capped there), are partly sheltered by pass-through depreciation on carryover basis, use only short-term reserves, and involve recapture at sale unless deferral continues.
- A DST is a Delaware-law trust that holds title and borrows as one entity, kept passive by tax rules so investors are treated as direct real property owners.
- The sponsor acquires, finances, and operates the property (via a master lease) and decides when to sell; the trustee holds title and administers the trust within strict limits.
- A beneficial interest is a passive, undivided, proportional stake in the trust — a share of income, gain, and depreciation, with no control over the property.
- Income flows from tenant rent, through the master-lease operator, to investors as proportional, depreciation-sheltered distributions reported on a grantor letter, with the 1031 gain still deferred.
DST vs. LLC and TIC Structures
It helps to see how a DST differs from two related structures: the LLC and the tenant-in-common (TIC). An LLC is a common way to hold real estate, but for 1031 purposes there's a crucial limitation — an interest in an LLC (a membership interest) is treated as a partnership or entity interest, not as direct real property, so LLC interests generally don't qualify as 1031 replacement property. That's why a DST can't simply act like an LLC: if a DST is forced to take a prohibited action, it can convert to a 'springing LLC,' but once it does, the interests lose their 1031 eligibility. The DST structure exists precisely to deliver fractional ownership that does qualify.
The TIC structure was the predecessor to DSTs for passive 1031 replacement. In a TIC, each investor holds a separate deeded co-ownership interest, the IRS limited it to 35 investors, each was a separate borrower, and major decisions required near-unanimous consent. DSTs improved on this by using a single trust that holds title and borrows, allowing unlimited investors, and removing investor voting — the sponsor decides. So a DST offers TIC-style fractional 1031 ownership without the investor cap, the multiple-borrower complexity, or the consent gridlock, while avoiding the LLC's fatal flaw of being a non-qualifying entity interest. This combination is why DSTs dominate the passive 1031 market.
So a DST beats an LLC (whose interests aren't 1031-eligible) and a TIC (capped, multi-borrower, consent-bound) by offering qualifying, scalable, sponsor-controlled fractional ownership. DST vs. LLC and TIC structures — an LLC interest being a non-qualifying entity interest (so it can't be 1031 replacement property, and a 'springing LLC' conversion ends DST eligibility), and a TIC being capped at 35 investors with separate borrowers and unanimous-consent gridlock, versus the DST's single-entity, unlimited-investor, no-vote structure that qualifies for 1031 — explains why DSTs prevail. The DST qualifies and scales where the others don't. Understanding the comparison clarifies the DST's design. A DST beats the LLC (non-1031-eligible) and the TIC (capped, multi-borrower, consent-bound) by offering qualifying, scalable, sponsor-controlled fractional 1031 ownership.
How Baker 1031 Helps You Understand DST Structure
Baker 1031 Investments helps investors understand how DSTs work — the legal structure, the sponsor and trustee roles, what a beneficial interest is, how income flows to investors, the distribution and depreciation mechanics, and how a DST compares to LLC and TIC structures — so you can invest with a clear picture of who does what, what you actually own, and how the income reaches you.
DST interests are securities offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors, and any recommendation follows a suitability review of your financial situation, goals, and risk tolerance. Baker 1031 does not provide tax or legal advice — your CPA and attorney handle your 1031 eligibility, the grantor-trust and depreciation treatment, carryover basis, and the estate-planning details, which are technical. We help you read and understand an offering's structure — the trust agreement, the sponsor's role and track record, the trustee, the master lease, the financing, and the projected distributions — so you understand the mechanics before you commit. When a DST is suitable, we help you access it and coordinate with your tax professionals. Distributions and returns are never promised — projections aren't guarantees, distributions depend on the property's performance, and past performance doesn't guarantee future results. Our role is to make the DST structure transparent and help you invest only when it's suitable for your goals.
Frequently Asked Questions
How is a DST legally structured?
A DST is structured as a trust under Delaware's Statutory Trust Act, created by a trust agreement (the governing document) and a certificate of trust filed with the state. Once formed, the trust takes legal title to the real estate, so the trust — not the individual investors — is the property owner and the borrower on any financing. Investors hold beneficial interests in the trust rather than direct title to the real estate. This entity-level ownership is what lets a DST have many investors while a single entity holds title and borrows, simplifying financing and operations. At the same time, the trust agreement and the IRS rules under Revenue Ruling 2004-86 require the trust to remain passive (following the 'seven deadly sins' restrictions), so that for tax purposes each investor is treated as owning a direct interest in the underlying real property. So the DST legal structure combines a single Delaware-law entity that holds title and borrows with federal tax rules that keep it passive and 1031-eligible. The trust agreement and PPM spell out the details.
What does the sponsor do in a DST?
The sponsor is the professional real estate firm that creates and drives a DST. It sources and acquires the property, performs due diligence, arranges any non-recourse financing, structures the trust and the securities offering, and prepares the private placement memorandum (PPM) that discloses the investment's terms and risks. After closing, the sponsor — typically through an affiliated property manager operating under a master lease — runs the asset day to day: leasing space, managing tenants, maintaining the property, paying expenses and debt service, and ultimately deciding when to sell. Because the sponsor controls acquisition, financing, operations, and the eventual sale, its experience, track record, financial strength, and alignment with investors are among the most important factors in a DST's success. A weak or inexperienced sponsor can impair returns even with a decent property. So when evaluating a DST, the sponsor deserves as much scrutiny as the real estate itself. Reviewing the sponsor's history, prior full-cycle results, and the offering's fees is a key part of due diligence.
What is the trustee's role in a DST?
The trustee holds legal title to the trust's real estate and administers the trust according to the trust agreement and Delaware law. In a DST structured for 1031 eligibility, the trustee's role is deliberately limited and largely ministerial. The IRS rules under Revenue Ruling 2004-86 forbid active management at the trust level — the trust must stay passive to preserve each investor's treatment as a direct real property owner — so the trustee can't renegotiate leases, refinance debt, reinvest sale proceeds, or make the kinds of major decisions that would make the trust resemble an active business. Those active functions are instead handled by the sponsor's affiliate under the master lease, which keeps the trust itself passive. So the trustee provides title-holding and administration within strict bounds, while the sponsor provides the real estate expertise and operations. The two roles are separate by design: the sponsor does the work, and the trustee's limited capacity is part of what makes the DST 1031-eligible. The trust agreement defines the trustee's specific duties and limits.
What exactly do I own when I invest in a DST?
When you invest in a DST, you own a beneficial interest — an undivided, fractional, beneficial stake in the trust itself, not a deed to a specific piece of the property. The trust holds legal title to the real estate; you hold an equitable, proportional interest in the trust, sized to your investment. If you invest $400,000 in a $40 million DST, you own about 1% of the beneficial interests, entitling you to about 1% of the income, the eventual sale proceeds, and the pass-through depreciation. You don't own a particular apartment, suite, or square footage — you own a slice of the whole trust. The interest is passive: you have no voting rights or management control, because the IRS rules that make DST interests 1031-eligible require investors to be passive. In return, you get the tax benefits of direct real estate ownership (deferral and pass-through depreciation) without landlord duties. So you own a passive, undivided, proportional stake in the trust and, through it, in the underlying real property. The PPM describes the interest in detail.
Why don't DST investors have voting rights?
DST investors have no voting rights because passivity is required to preserve the trust's 1031 eligibility. Under IRS Revenue Ruling 2004-86, a beneficial interest in a properly structured DST is treated as a direct interest in real property — but only if the trust stays passive and doesn't act like an active business. Granting investors voting power over decisions like leasing, financing, or selling would make them active participants in the trust's business, which could jeopardize that treatment and disqualify the interest for a 1031 exchange. So the lack of voting rights isn't an oversight or a power grab by sponsors; it's a structural necessity. The sponsor and trustee make all decisions, while investors remain genuinely passive owners entitled to income, gain, and depreciation. This is also part of what distinguishes a DST from the older TIC structure, which required investor consent for major decisions and proved cumbersome. So in a DST, you trade control for true passivity and 1031 eligibility. Understand this trade-off — and vet the sponsor carefully — before investing, since you can't influence decisions later.
How do I receive income from a DST?
You receive income from a DST as regular distributions of your proportional share of the property's net cash flow. The path is straightforward: tenants pay rent to the property; under the master lease, a sponsor affiliate operates the property and pays expenses — management, maintenance, taxes, insurance, and debt service on any loan; and what remains, the net cash flow, is distributed to investors in proportion to their beneficial interests, typically monthly or quarterly. So your distribution is your fractional share of the property's income after expenses and debt service. For taxes, a DST is generally treated as a grantor trust, so income, deductions, and depreciation pass through to you directly; you receive a grantor letter (not a K-1) reporting your share, and your share of depreciation can shelter part of your distributions from current tax. Your basis carries over from your relinquished property in the 1031, keeping the gain deferred. So you receive regular, partly depreciation-sheltered distributions, with the deferred gain still embedded. Distributions depend on the property's performance and aren't guaranteed.
Is a DST taxed as a partnership? Do I get a K-1?
No — a DST is generally treated as a grantor trust for tax purposes, not as a partnership, so you don't receive a Schedule K-1. Instead, you receive a grantor letter that reports your proportional share of the trust's income, deductions, and depreciation. This grantor-trust treatment is important: it's part of what lets each investor be treated as owning a direct interest in the underlying real property, which is the basis for the DST's 1031 eligibility under Revenue Ruling 2004-86. By contrast, an interest in a partnership or LLC is treated as an entity interest (reported on a K-1) and generally doesn't qualify as 1031 replacement property — which is one reason a DST isn't structured as an LLC. Through the grantor-trust treatment, you receive pass-through income, pass-through depreciation (which shelters part of your distributions), and carryover basis from your relinquished property. So a DST passes through its tax items to you via a grantor letter, not a K-1, and that treatment underpins its 1031 eligibility. Your CPA will use the grantor letter to report your share; confirm the details with them.
What is a master lease in a DST?
A master lease is the arrangement that lets a passive DST handle active property operations without violating the IRS rules. Because the 'seven deadly sins' forbid the trust from renegotiating leases or actively managing the property, the trust instead leases the entire property to a master tenant — typically a sponsor affiliate — under a master lease. That master tenant then handles all the active work: signing and renegotiating tenant leases, managing tenants, operating and maintaining the property, and dealing with day-to-day decisions. The trust simply collects rent from the master tenant and distributes the net to investors. This structure keeps the trust itself passive (preserving the 1031-eligible treatment of the beneficial interests) while still allowing the property to be actively and professionally managed. So the master lease is the bridge between the DST's required passivity and the practical need to operate real estate. It's a standard, well-understood feature of DST structures. Reviewing how the master lease is set up — and who the master tenant is — is part of understanding a DST offering, since it affects how income reaches you.
How is depreciation handled in a DST?
In a DST, depreciation passes through to you as a fractional owner treated as holding real property directly. You receive your proportional share of the property's depreciation deduction, a non-cash deduction that offsets part of the taxable income from your distributions — so some of your cash flow may be sheltered from current tax. Because you reached the DST through a 1031 exchange, your basis carried over from your relinquished property, so the depreciation continues from that carryover basis rather than resetting to the purchase price; your CPA tracks this. The pass-through depreciation is reported via the grantor letter along with your share of income. One thing to plan for: when the DST eventually sells the property, prior depreciation can be subject to recapture (taxed) unless you continue deferring through another 1031 exchange, or the interest receives a step-up in basis at death, which can eliminate both the deferred gain and the recapture. So depreciation shelters income now but factors into the tax math at sale. Coordinate the details with your CPA, as depreciation and recapture rules are technical.
What is a 'springing LLC' in a DST?
A 'springing LLC' is a contingency built into a DST's structure. The IRS rules under Revenue Ruling 2004-86 prohibit the DST from taking certain actions (the 'seven deadly sins') — like refinancing debt, raising new capital, or renegotiating leases — because those would make the trust look like an active business and break its 1031-eligible treatment. But sometimes a prohibited action genuinely becomes necessary to protect investors, for example if the property faces financial distress and the debt must be restructured. In that case, the trust agreement allows the DST to convert into an LLC (the 'springing LLC'), which can take the needed active steps that a DST can't. The trade-off is significant: once the trust converts to an LLC, the interests are treated as entity interests, not direct real property, so they're no longer 1031-eligible — meaning an investor couldn't do a 1031 exchange out of the converted interest. So the springing LLC is a safety valve for distressed situations, but triggering it ends the 1031 chain. It's a feature worth understanding when reviewing a DST's documents.
How does a DST differ from an LLC for a 1031 exchange?
The key difference is 1031 eligibility. An interest in an LLC (a membership interest) is treated, for tax purposes, as a partnership or entity interest — not as a direct interest in real property — so LLC interests generally don't qualify as 1031 replacement property. You can't sell investment real estate and 1031 directly into LLC membership interests to defer your gain. A DST is structured precisely to solve this: under Revenue Ruling 2004-86, a beneficial interest in a properly structured DST is treated as a direct interest in the underlying real property, so it does qualify as like-kind replacement property. This is why a DST can't simply operate like an LLC — and why, if a DST is forced into a 'springing LLC' conversion, the interests lose their 1031 eligibility at that point. So the DST exists to deliver fractional, passive real estate ownership that qualifies for a 1031, whereas an LLC interest does not. If your goal is tax-deferred passive ownership through a 1031, the DST structure is the eligible one; an LLC interest would not defer the gain. Confirm specifics with your tax advisor.
How does a DST differ from a TIC structure?
A DST differs from a tenant-in-common (TIC) structure in several important ways, and DSTs have largely replaced TICs for passive 1031 replacement. In a TIC, each investor holds a separate, deeded co-ownership interest in the property; the IRS limited the arrangement to no more than 35 investors; each co-owner was treated as a separate borrower by lenders; and major decisions, like selling or refinancing, typically required unanimous or near-unanimous consent. That made TICs cumbersome to finance and govern, and a single holdout could stall a sale. A DST improves on this: a single trust holds title and is the sole borrower, there's no cap on the number of investors, and investors have no voting rights — the sponsor and trustee make every decision. This makes DSTs easier to finance, scale, and administer. So a DST offers TIC-style fractional 1031 ownership without the 35-investor cap, the multiple-borrower complexity, or the unanimous-consent gridlock. That combination of advantages is why DSTs now dominate the passive 1031 replacement market over TICs.
Why is a DST treated as direct real property ownership?
A DST is treated as direct real property ownership because of IRS Revenue Ruling 2004-86, which ruled that a beneficial interest in a properly structured DST is treated, for federal tax purposes, as a direct interest in the underlying real property — provided the trust stays passive. The 'properly structured' part is essential: the trust must follow the 'seven deadly sins' restrictions that prevent it from acting like an active business (no new capital, no refinancing, no reinvesting proceeds, no major improvements, no excess cash, no over-distribution, no lease renegotiation, with a master lease handling operations). Because the trust is constrained to be passive, the IRS treats each investor as if they owned a slice of the real estate directly rather than an interest in an active business entity. That direct-real-property treatment is exactly what makes a DST interest qualify as like-kind 1031 replacement property — and what distinguishes it from a non-qualifying LLC or partnership interest. So the passivity required by Rev. Rul. 2004-86 is the reason a DST interest counts as direct real estate ownership for 1031 purposes.
Are DST distributions guaranteed?
No — DST distributions are not guaranteed. Distributions represent your proportional share of the property's current net cash flow after expenses and debt service, and the 'seven deadly sins' restrict the trust from distributing more than that current cash flow — so a DST can't borrow or dip into capital to artificially maintain a distribution. That means distributions are tied directly to the property's real performance: if occupancy drops, rents soften, expenses rise, or debt service increases, distributions can be reduced or suspended. The distribution rates quoted in an offering are projections, not promises, and actual results can be higher or lower. This is an important reality check — a DST is a real estate investment subject to market, tenant, financing, and sponsor risk, not a fixed-income product. So treat any projected distribution as an estimate, review the assumptions behind it, and size your investment accordingly. Diversifying across multiple DSTs can help smooth income, but it doesn't make distributions guaranteed. Past performance and projections don't guarantee future distributions — confirm the risks before investing.
How does Baker 1031 help me understand DST structure?
We help investors understand how DSTs work — the legal structure, the sponsor and trustee roles, what a beneficial interest is, how income flows to investors, the distribution and depreciation mechanics, and how a DST compares to LLC and TIC structures — so you can invest with a clear picture of who does what, what you own, and how income reaches you. DST interests are securities offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors, and any recommendation follows a suitability review. Baker 1031 does not provide tax or legal advice — your CPA and attorney handle your 1031 eligibility, the grantor-trust and depreciation treatment, carryover basis, and estate-planning details. We help you read an offering's structure — the trust agreement, the sponsor's role and track record, the trustee, the master lease, the financing, and the projected distributions — so you understand the mechanics before committing. When a DST is suitable, we help you access it and coordinate with your tax professionals. Distributions and returns are never promised; projections aren't guarantees, and past performance doesn't guarantee future results.
Glossary
- Delaware Statutory Trust (DST)
- A Delaware-law trust holding income-producing real estate for fractional investors.
- Trust Agreement
- The governing document that creates and defines a DST.
- Certificate of Trust
- The filing with Delaware that formally establishes the trust.
- Sponsor
- The firm that acquires, finances, structures, and operates the DST property.
- Trustee
- The party holding legal title and administering the trust within strict limits.
- Beneficial Interest
- An investor's fractional, undivided, passive stake in the trust.
- Master Lease
- The lease to a sponsor affiliate that lets a passive DST be actively operated.
- Master Tenant
- The sponsor affiliate that operates the property under the master lease.
- Grantor Trust
- The tax classification that passes DST income through to investors.
- Grantor Letter
- The annual statement (not a K-1) reporting an investor's share of items.
- Pass-Through Depreciation
- Each investor's share of the property's depreciation deduction.
- Carryover Basis
- The relinquished property's basis carried into the DST via the 1031.
- Springing LLC
- A DST's conversion to an LLC if a prohibited action becomes necessary.
- Seven Deadly Sins
- The prohibited DST actions that would break 1031-eligible treatment.
- Tenant-in-Common (TIC)
- An older, capped, multi-borrower co-ownership structure DSTs replaced.
- Non-Recourse Debt
- DST loan debt that passes through without personal liability.
Sources & References
- IRS. Revenue Ruling 2004-86 (Delaware Statutory Trusts)
- State of Delaware. Delaware Statutory Trust Act (Title 12, Chapter 38)
- Cornell Legal Information Institute. 26 U.S. Code § 1031 — Exchange of real property held for productive use or investment
- U.S. Securities and Exchange Commission. Investor.gov — Updated Investor Bulletin: Accredited Investors
Disclosures
This article is published by Baker 1031 Investments, LLC for general educational purposes for accredited investors and is not an offer to sell or a solicitation of an offer to buy any security, nor is it tax, legal, accounting, or investment advice or a recommendation. Any securities offering is made solely through a sponsor’s private placement memorandum (PPM) following a suitability determination. Securities offered through Aurora Securities, Inc. (ASI), member FINRA / SIPC; Baker 1031 Investments is independent of ASI.
Oil & gas mineral and royalty interests and DST programs are speculative, illiquid securities sold only to verified accredited investors and involve substantial risk, including possible loss of principal, commodity-price and production-decline risk, lack of control, and the risk that an intended 1031 exchange fails to qualify for tax deferral. Whether a particular interest qualifies as like-kind real property is a fact-specific legal determination that varies by state and by the terms of the instrument. Tax results depend on your individual circumstances. Consult your own CPA and attorney before acting. Past performance does not guarantee future results.
