To form a Delaware Statutory Trust, you draft a governing trust agreement that meets the requirements of the Delaware Statutory Trust Act, appoint at least one Delaware-based trustee, and file a certificate of trust with the Delaware Division of Corporations signed by every trustee. The state filing fee is $500, and the entity legally exists once the Division stamps the certificate. Everything else that makes the trust actually work — the EIN, the registered agent, the annual franchise tax, the securities offering, and, for most sponsors, the strict tax-motivated restrictions on the trustee’s powers — happens around that core filing.
Start With the Trust Agreement
The trust agreement, also called the governing instrument, is the private contract that controls how the DST operates. It identifies the grantor who contributes the initial assets, appoints the trustees, defines the rights of the beneficial owners, and sets the rules for distributions and eventual wind-down. It is not filed with the state and does not become part of the public record.
Section 3806 of the Delaware Code gives drafters wide latitude here. The agreement can create different classes of beneficial interests, establish voting procedures, authorize the sale or pledge of trust assets, and set dissolution terms. It can even authorize major actions like mergers or asset sales without a vote from every beneficial owner, if written that way.1Justia Law. Delaware Code Title 12 3806 – Management of Statutory Trust Delaware courts are directed by Section 3828 to “give maximum effect to the principle of freedom of contract and to the enforceability of governing instruments,” so the terms you negotiate will generally hold up.2Delaware Code Online. Delaware Code Title 12 Chapter 38 – Section 3828 Construction and Application of Chapter and Governing Instrument
Trustee Requirements
Every DST must have at least one trustee who is either a Delaware resident (if an individual) or has a principal place of business in Delaware (if an entity such as a corporate trustee).3Justia Law. Delaware Code Title 12 – Section 3807 Trustee in State Registered Agent Most sponsors use a professional corporate trustee to satisfy this. The trust agreement should spell out each trustee’s powers, including authority to buy, sell, or mortgage trust property, and include indemnification provisions covering good-faith decisions.
Passive Owners for 1031 Trusts
If the trust is meant to qualify for 1031 exchange treatment, the agreement must keep beneficial owners purely passive. They cannot control or operate the property, participate in management decisions, or be required to make additional capital contributions after the initial investment. Granting owners too much control can cause the IRS to reclassify the trust as a business entity, which destroys the tax treatment the DST was created to provide.
File the Certificate of Trust
The DST comes into legal existence only when the certificate of trust is filed with the Delaware Secretary of State. Under Section 3810, that certificate must contain:
- The legal name of the statutory trust.
- The name and Delaware business address of at least one trustee who meets the residency or principal-place-of-business requirement.
- If the trust is to take effect on a future date rather than upon filing, that specified date.
- If the trust will include series with separately limited liabilities, a notice disclosing that fact.
Trustees can add more information at their discretion, but those are the minimum contents.4Justia Law. Delaware Code Title 12 Chapter 38 – Section 3810 Certificate of Trust Every detail should match the corresponding provision in the private trust agreement, because discrepancies invite administrative delay and later challenges.
One requirement trips up filers: the initial certificate must be signed by all of the trustees, not just one. Amendments and corrections only need at least one trustee’s signature, but the original filing demands every trustee named in the document. Each signature is an affirmation, under penalty of perjury, that the facts in the certificate are true.5Justia Law. Delaware Code Title 12 3811 – Execution
Where to File and What It Costs
The Delaware Division of Corporations handles all DST filings. The official certificate of trust form is on the Division’s website, and filings can be submitted electronically, by mail, or in person at the Division’s office in Dover.6Delaware Division of Corporations. Corporate Forms and Certificates
The standard filing fee for a certificate of trust is $500. Expedited processing is available at additional cost: priority two-hour service runs $500 per document, and priority one-hour service costs $1,000 per document.7Delaware Department of State. Division of Corporations Fee Schedule Fees can change, so check the current schedule before submitting. Once processed, the Division returns a stamped copy showing the date and time the trust became effective. Keep that stamped certificate on hand; you will need it to open bank accounts, enter financing arrangements, and prove the trust’s existence to third parties.
Setting Up Series, If You Want Them
The Delaware statute lets you create separate “series” within a single trust, each with its own assets, liabilities, and beneficial owners. A sponsor might use one DST to hold five properties, each in its own series, so a lawsuit or loan default tied to one cannot reach the assets of the others. The segregation isn’t automatic. Section 3804(a) requires all of the following before a series’ liabilities are truly walled off:
- The trust agreement must specifically create one or more series.
- Each series must maintain separate and distinct accounting records.
- Assets associated with each series must be held and accounted for separately from the trust’s general assets and every other series.
- The governing instrument must include language limiting each series’ liabilities to its own assets.
- The certificate of trust filed with the state must disclose the existence of series with limited liability.
When all five conditions are met, debts of one series are enforceable only against that series’ assets. Miss any one, and the liability wall may not hold.8Justia Law. Delaware Code Title 12 3804 – Legal Proceedings
After the Filing: Getting the Trust Operational
The stamped certificate creates the entity. A working DST needs a few more pieces.
Employer Identification Number
The trust needs a federal EIN from the IRS even if it has no employees. Form SS-4 has no specific checkbox for a Delaware Statutory Trust. The IRS instructions direct applicants to check “Other” on Line 9a and write in the entity type along with the tax return form that will be filed. The application must list the trust’s legal name exactly as it appears on the governing instrument and be signed by a trustee.9Internal Revenue Service. Instructions for Form SS-4
Registered Agent
The Section 3807 Delaware trustee requirement keeps the trust reachable for service of process. Most DST sponsors use a professional registered agent service rather than an individual resident trustee. Annual fees for registered agent services typically run between $50 and $150, varying by provider and service level.
Annual Franchise Tax and Good Standing
Delaware imposes an annual franchise tax on statutory trusts, payable to the Division of Corporations. The trust must also keep a valid registered agent on file. Failure to pay the franchise tax or maintain an agent can result in the trust being voided by the state, which creates serious complications for any ongoing investment or contract.
If the Trust Holds 1031 Property, Watch the Seven Prohibitions
The main reason sponsors form DSTs is to create a vehicle that qualifies as replacement property in a tax-deferred exchange under 26 U.S.C. § 1031.10Office of the Law Revision Counsel. 26 USC 1031 – Exchange of Real Property Held for Productive Use or Investment Revenue Ruling 2004-86 is the IRS guidance that permits this, and it imposes strict conditions on how the trustee can act. To maintain grantor trust status and 1031 eligibility, the trustee is prohibited from all of the following, known in the industry as the Seven Deadly Sins:
- Exchanging trust property for other property.
- Purchasing new assets other than short-term government obligations or certificates of deposit.
- Accepting additional contributions of money or other assets after the offering closes.
- Renegotiating the existing debt on the trust property.
- Renegotiating the existing lease with the current tenant.
- Entering new leases with different tenants, unless the current tenant goes bankrupt.
- Making property modifications beyond minor, non-structural changes not required by law.
If the trustee has the power to do any of these, the IRS will classify the DST as a partnership rather than a trust, and every investor’s 1031 exchange fails retroactively.11Internal Revenue Service. Revenue Ruling 2004-86 This is why the trust agreement has to be drafted with unusual care. One poorly worded clause giving the trustee discretion to renegotiate a lease can unravel the entire structure.
Selling Interests to Investors
Fractional interests in a DST are securities under federal law, so selling them triggers SEC registration requirements unless an exemption applies. Nearly all DST offerings rely on Regulation D, which exempts private placements from full registration but limits participation to accredited investors. For individuals, the accredited investor thresholds are:
- At least $200,000 in annual income, or $300,000 combined with a spouse or partner, for each of the prior two years, with a reasonable expectation of the same in the current year.
- Net worth exceeding $1 million, excluding the value of the primary residence.
Meeting either test is sufficient.12U.S. Securities and Exchange Commission. Accredited Investors The sponsor prepares a Private Placement Memorandum disclosing the investment’s risks, fees, and operational details.
Winding Down When the Trust’s Work Is Done
When a DST has served its purpose, usually after the trust property is sold, the trustees wind down and file a Certificate of Cancellation with the Division of Corporations. The cancellation filing fee is $200. The form requires the trustees to specify an effective date, which can be the filing date itself or a future date within 90 days.13Delaware Division of Corporations. Certificate of Cancellation of Statutory Trust Before filing, the trust must satisfy all outstanding debts, distribute remaining assets to beneficial owners, and confirm that all annual franchise taxes have been paid. Skipping the formal cancellation on a trust that is no longer operating means you keep owing annual franchise taxes to Delaware indefinitely.