Tenant-in-Common
In tenancy in common, two or more individuals share ownership of a property, with each having a specific percentage of ownership and the right to occupy the entire property. Unlike joint tenancy, tenants in common can have unequal shares and their ownership interest passes to their heirs or beneficiaries upon death, not automatically to the surviving co-owners.
Key aspects of tenancy in common:
Unequal Shares:
Tenants in common can own different percentages of the property.
Right to Occupy:
Each tenant has the right to occupy the entire property, regardless of their ownership percentage.
No Right of Survivorship:
If a tenant in common dies, their share of the property passes to their estate, not to the surviving co-owners.
Individual Transfer:
Tenants in common can sell or transfer their share of the property to anyone, including the other co-owners.
Separate Responsibilities:
Each tenant is responsible for their share of property taxes, maintenance, and expenses.
Situations where tenancy in common is common:
Family Inheritance:
Parents can pass property to multiple children as tenants in common, ensuring each receives a defined share.
Unmarried Individuals:
Friends, family, or business partners can own property as tenants in common to ensure each individual retains their separate ownership.
Investment Properties:
Tenancy in common can allow multiple investors to pool their resources to purchase larger properties.
Delaware Statutory Trust
A Delaware Statutory Trust (DST) is a legal entity that allows multiple investors to pool their capital and own fractional interests in real estate properties. It's a popular structure for real estate investment, particularly for 1031 exchanges, because it allows investors to defer capital gains taxes while acquiring a professionally managed asset. DSTs are considered "like-kind" property for the purpose of 1031 exchanges, meaning they can be used as a replacement property for the proceeds of a real estate sale.
Key Features of a Delaware Statutory Trust:
Fractional Ownership:
Investors hold beneficial interests in the trust, which is the legal owner of the real estate properties.
Passive Investment:
DSTs are often managed by professional property managers, allowing investors to benefit from property income and potential appreciation without actively managing the properties.
1031 Exchange Eligibility:
DSTs qualify as "like-kind" property, making them eligible for 1031 exchanges, a tax-deferred process for real estate investors.
Separate Legal Entity:
A DST is a distinct legal entity, separate from its beneficial owners.
Limited Liability:
Like an LLC, a DST provides limited liability protection to its beneficial owners, shielding them from personal liability for the trust's debts or obligations.
Flexible Structure:
DSTs are created under Delaware's statutory trust law, which allows for flexibility in designing and operating the entity.
How it Works:
1. DST Sponsor:
A real estate company (the DST sponsor) identifies and acquires real estate assets.
2. Trust Formation:
The sponsor forms a DST under Delaware law, defining the terms of the trust agreement.
