One of the many benefits of investing in Delaware Statutory Trusts is the increased protection it offers to your assets, investments, and business holdings. This guide explains how to use a Delaware Statutory Trust to invest in real estate. It is a guide to the different types of real estate that can be purchased using a Delaware Statutory Trust.
What is a Delaware Statutory Trust?
This is a trust that holds property or money for someone else. It must be established by an agreement called a “declaration. The estate is called a “residuary estate” or simply an “estate.” for short. This legal entity can hold assets on behalf of someone else.
Guide to Buying Real Estate Using a Delaware Statutory Trust
1. Applying for a Delaware Statutory Trust
Tax laws in Delaware make it possible to invest real estate in a trust. The money and property are not taxed or subject to creditors until the trust is terminated. When the trust is created, the money and property are not considered taxable income for the person who established the trust. This allows a business to own real estate without being taxed.
A legal agreement, or “declaration of trust,” must be filed in the Delaware Secretary of State’s office. The agreement must list all of the parties involved in the trust and what assets the trust will hold.
2. Property Types
Types of property you can purchase: The two main types of property you can purchase are commercial real estate and residential real estate. Commercial real estate includes retail, office, and apartment buildings that generate income. Residential real estate includes single-family homes that you can rent out.
Types of property you cannot purchase: The property must hold some value. The land is not eligible for trust status. Therefore, you cannot buy a residential home and put it in a trust. You cannot buy undeveloped land to build on later or a vacant lot to give to someone else.
3. Trust Fund Management
Benefits of trust fund management: The trust fund management company takes care of taxes, maintenance, repairs, and other issues that come up with the property. A trust fund manager can also help you renovate the property if needed.
4. Diverse Property Options
Once you purchase the property, you can rent it for a period of time or sell it. If you choose to rent it out to tenants, then you have the option of establishing a tenant-in-common tenancy. This allows you to pass the title on to your heirs automatically at death.
5. How to Sell a Property Using a Delaware Statutory Trust
Selling an existing rental property: You can take out a loan against the property and use the loan to pay off the trust. If you need help selling your property, you can use a company specializing in renting properties to strangers. These companies can take care of the whole process. It is recommended that you select a Delaware limited liability company that does not work with the buyer.
Selling the property using cash: You can sell a property to a trust and then buy another house to live in. All transactions will be done with cash, which means you will receive all of your money immediately.
Pros and Cons Of Delaware statutory Trust
Delaware statutory trust pros and cons have to do with the main appeal of the trust; that is, that it protects your assets and does not cause you to pay taxes on money that is used to purchase the property. The major disadvantages are the costs involved in setting up a statutory trust, which for an inexperienced investor could be very expensive.
Delaware statutory trusts are legal entities that hold different types of assets. You can use it to invest in real estate. The money and property are not taxed or subject to creditors until the trust is terminated. This is a legal entity that can hold assets on behalf of someone else.
As long as the trust agreement is in place in the state of Delaware, it will be legal for anyone to open and operate a Delaware statutory trust. You do not need to register your trust for any reason.
The IRS agrees with the SEC to make it easier for investors to invest their assets without having to file complicated tax returns every year. This is a plus for most non-tax accountants.
The party in charge of managing the account can commit fraud.: A party regulates Delaware statutory trusts called the Secretary of State. The Secretary of State can close down a trust if there is a problem with the trust agreement. A person who manages a trust can also commit fraud against the party that regulates the trust. Therefore, if you select an online company or company that will not be located in Delaware, you must know that you need to check out their background before making any decisions. You will need to make sure that anyone you hire is someone you can trust.
A trust fund manager can only manage the property for a limited time.: If the person who manages the trusts changes, you must hire another manager. If you do not select a company that will be in business for a long time, it may be hard to find one down the road if your current trust fund manager decides to close its doors. It will help if you research any company before choosing them. This is not easy, but it is an important step to take when investing in real estate.
Delaware statutory trusts provide another investment option for single-family homes, apartment buildings, and retail and office buildings. The assets are not taxed or subject to creditors until the trust is terminated. You can use a trust fund manager who understands how these trusts work to help you with your investments.