A tool in California that asset protection lawyers use is a Delaware Statutory Trust, otherwise known as a DST. The mechanics are rather simple and set forth in the Delaware Statutory Trust Act. One erects the business structure with the appropriate documentary filings including the naming of non-California agents to act on behalf of the trust. These things together act to limit liability by having the official actors out of state. The out-of-state defendant is harder to involve in a California lawsuit.
The benefits include circumventing the standard California business tax and asset protection. In addition, a DST may be used in a 1031 exchange when structured appropriately.
Don’t let the name fool you. While called statutory trusts, a DST is a contract. The Delaware
Court of Chancery explained, “when considering the rights of persons who choose to invest in
alternative entity structures it always must be kept in mind that the express policy of Delaware
is to give maximum effect to the principle of freedom of contract.” Dieckman v. Regency GP
LP. This means that the details of the particular contract are of the utmost importance to
ensure that the DST has its intended purpose.
The particular contract needs to include numerous things required under Delaware law such
as a certificate of trust, execution by trustees, declaration of trust with governing protocols
and a Delaware trustee.
Businesses or individuals looking to explore DSTs are encouraged to enlist competent tax and
legal advisors. This is for informational purposes only.