A Delaware Statutory Trust (commonly referred to as a DST) is, as the name suggests, a legal entity created as a trust under Delaware state law. A DST is created for real estate investment purposes, and is especially useful in a 1031 exchange.
Under a DST, investors each own a pro rata share of the DST itself. The DST in turn holds title to various real estate interests, and distributes any income received from the properties (either through rental income or the sale of the property) to the investors in proportion to their ownership share in the DST.
The DST, via its signatory trustee, makes all decisions related to any property held by the trust, freeing up investors from this responsibility. One important thing to note about a DST is that the trust is not considered a taxable entity, so any profits or losses are passed through to the investors of the trust.
When it comes to 1031 exchanges, the IRS has determined that any beneficial interest in the DST is treated as identical to a direct interest in real estate. This means that DST-held properties fully qualify for 1031 exchanges, so long as the other requirements of such an exchange are also met.
For investors not looking for the responsibility of day-to-day management and decision-making authority related to real estate holdings, a DST may be an excellent choice.