Using Delaware Statutory Trusts (DSTs) in California
In this episode of Coffee with Carl, attorney Carl Zoellner discusses how Delaware statutory trusts can be used in California and the benefits of this strategy.
Updated January 26, 2021
Today, I want to go over Delaware statutory trusts (DSTs) from a bird’s-eye view to get a sense of how these tools work, especially in the state of California.
Oftentimes, DSTs can function in a manner similar to series LLCs. One of the biggest benefits of using a Delaware statutory trust in California is that, as trusts, DSTs are not subject to California franchise taxes, which start at a whopping $800 a month. Moreover, many California real estate investors like using DSTs as asset protection tools.
An important point to note about California is that the state does not recognize asset protection trusts, although I don’t know that I would classify a Delaware statutory trust as an “asset protection trust.” Admittedly, Delaware statutory trusts offer some asset protection benefits, but their primary benefit is mitigating the $800 franchise tax in California.
For this strategy to work, Delaware statutory trusts depend on utilizing an out-of-state trustee. By having a trustee who does not reside in California, some additional hurdles are created for any potential plaintiffs’ attorneys. By creating these hurdles, you’re essentially adding that layer of asset protection.
I do want to mention that, while DSTs are neat tools, they may receive some over-hype, especially in the state of California. This is simply due to their ability to bypass the state franchise tax. More often than not, my preference is to stick with the more widely-accepted vehicles, like LLCs and land trusts.
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Watch as Carl covers how using Delaware statutory trusts in the state of California works, and potential benefits or pitfalls to this tactic.
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