Delaware Statutory Trusts

The Delaware statutory trust is a limited liability vehicle first authorized under Delaware law in 1988. Practitioners
and investors may use this entity for tax deferral, asset protection and balance sheet advantages, in contexts such as
real estate, securitization and mezzanine financing. Delaware statutory trusts combine the tenet of freedom of contract
with the traditions of trust law. Parties can structure the trust relationship in a way that best suits the relationships
and expertise of the parties and the risks and objectives of the project.

The Delaware statutory trust provides liability protection for the trustee, asset protection for the beneficial owner,
and ability for the delegation of management. There is a single initial registration with the State of Delaware, yet
none of the conventional compliance burdens present in other entity solution contexts (e.g. corporations). For example,
there is no need for annual meetings, there is no franchise tax, there are no limits on the number of investors who
may participate, no restriction on the ability to indemnify active constituents, recognition of separate series, some
published, albeit limited, ruling approving its use in tax-deferred exchanges of real estate. A Delaware statutory trust
may, at the election of the governing principals, be classified as a corporation or partnership for tax purposes, or
designed not to be a business entity at all, with the beneficial owners’ interests being treated instead as grantor
trusts.

Conventional passive investment contexts (e.g. real estate joint ventures) are a particularly appropriate context
for utilization of Delaware statutory trusts as an entity solution alternative.

Traditional notions of the duties of good faith and fair dealing imposed upon those possessing management privilege
which underlie conventional Delaware business contexts also are applicable to Delaware Statutory Trusts, with
the statute providing for a balance of those burdens and privileges against the rights of equity owners.

Attributes

Separate legal existence – A Delaware statutory trust (“DST”) is a legal entity separate from its beneficial
owners. Accordingly, it may sue and be sued.

Title holder – A DST may own property and, unless forbidden in its governing instrument (a “DST Agreement“),
may hold the property in the name of the DST itself or a trustee in its fiduciary capacity

Perpetual existence – Unless its DST Agreement provides otherwise, a DST has perpetual existence, and may not
be terminated except by following the requirements in its DST Agreement. The bankruptcy, death, incapacity,
dissolution, termination, or merger of any beneficial owner does not, by itself, result in the termination or dissolution
of a DST unless such dissolution is required in the DST Agreement.

Beneficial equitable ownership – Equitable ownership of a DST (divided into beneficial interests) is held by
beneficial owners. A DST may issue evidence of its beneficial interests by certificates, registration or as otherwise
provided in its DST Agreement.

Capital contributions – Beneficial owners may make contributions to the DST in cash, other property, services,
or promissory note. The Delaware Statutory Trust Act (“DST Act”) also permits a person to become a beneficial
owner without being obligated to make any contribution.

Liability limitation – Limited liability of beneficial owners of a DST is one of its hallmarks, in which they enjoy
a limited liability comparable to that of corporate shareholders.

Series – A DST may create one or more series whose assets are segregated from those in other series of the same DST.
As with series limited liability companies authorized by the Delaware Limited Liability Company Act, the DST Act
treats such series as legally distinct entities for liability purposes. If notice of the series is provided in the
Certificate of Trust (see below), and separate records are maintained for each, the obligations of one series may
not be enforced against the general assets of the DST or of any other series. Beneficial owners of one series
generally have no rights as to the interests of another.

Formation Requirements

Delaware trust law applies – Delaware trust law applies to DSTs, and, accordingly, a DST must meet the required
elements under Delaware law for the formation of an express trust – (i) it must be evidenced by a validly executed
writing, and (ii) must also have beneficiaries (specifically, beneficial owners) who act with the intent to form a DST,
(iii) an ascertainable corpus, to which it enjoys valid title, and (iv) a valid and legal purpose. The DST Act
imposes additional requirements for the creation of a DST.

Certificate of Trust – DSTs (A) must be registered with the Secretary of State of the State of Delaware by a
Certificate of Trust, containing (i) the name of the DST, (ii) the name and business address of the Delaware trustee;
and (iii) the future effective date of the Certificate of Trust if it is not intended to be effective upon filing
and (B) the Certificate of Trust may contain any other provisions desired by the DST’s founders.

Delaware Trustee – Like all trusts, a DST must have at least one trustee and at least one trustee must be located
in Delaware. If an individual, the Delaware trustee must be a legal resident of Delaware. An entity that serves
as a Delaware trustee must maintain its principal place of business in the state.

DST Agreement – A DST must be evidenced by a written governing instrument. A governing instrument is defined
by the DST Act as “any instrument (whether referred to as a trust agreement, declaration of trust, or otherwise)
which creates a statutory trust or provides for the governance of the affairs of the statutory trust and the conduct
of its business.” This DST Agreement may be a single, integrated document or it may be composed of more than
one agreement or writings.

Broad discretion – The DST Act gives drafters of a DST Agreement a great deal of flexibility and wide discretion
in crafting the instrument, including, per Section 3806(b), that the DST Agreement may contain any provision
relating to the management of the business and affairs of the DST that is not contrary to any provision or
requirement of the DST Act.

In conclusion – A Delaware statutory trust may be a favorable entity solution alternative to house business models
conventionally and traditionally conducted in other vehicles.