DST as a 1031 Solution

A Delaware Statutory Trust (DST) is a legally recognized trust that is set up for the purpose of business, but not necessarily in the U.S. state of Delaware. It may also be referred to as an Unincorporated Business Trust or UBO.

This type of investment structure was created in Delaware in 1947, and in 2004 the IRS issued Revenue Ruling 2004-86 which permits real estate investors to perform a 1031 exchange into and out of a DST that holds title to real estate.  Today, DSTs are used for fractional 1031 exchange investments, offering investors an alternative way to benefit from management-free ownership while still potentially deferring up to 100% of the taxes that would otherwise be due from the sale of an investment property.

DST Investments are offered as replacement property for accredited investors seeking to defer their capital gains taxes through the use of a 1031 tax deferred exchange and as straight cash investments for those wishing to diversify their real estate holdings. The DST property ownership structure allows the smaller investor to own a fractional interest in large, institutional quality and professionally managed commercial property along with other investors, not as limited partners, but as individual owners within a Trust.

DST held properties are passive real estate investments that have professional asset management firms overseeing property acquisition, due diligence, loan sourcing when financing, asset management, property management when not triple net (NNN) leased, and property disposition.

Interests in the trust can be purchased, sold and otherwise transferred without affecting title.  Allowable transfers include donations to charity and transfer to heirs as specified in wills. Also Sellers of their interests in DSTs are eligible to invest the proceeds in other real estate investments via 1031 exchange.

Interests in DSTs are also available to buyers looking to satisfy 1031 exchange requirements.  As with an LLC, DSTs provide liability protection to investors in the trust.  Each DST may own one or more properties, and up to 499 investors may invest in a single DST (though most DST trustees limit the number of investors to fewer than 499).

Investors do not have voting rights over the operation of property owned by a DST.  Instead, a DST trustee (also known as an asset manager or sponsor) maintains 100% of the managerial duties of the asset(s) held by the DST.

For more information, please contact us.

What is the “Jobs” Act?

Typically, when a company raises capital, it has to register its securities (basically the shares/interests that they are offering for sale).  Registration is expensive and takes a long time.  Most companies look for an exemption from registration. The most common exemption used by companies for this purpose is the private placement exemption, which basically meant the companies couldn’t publicly solicit or advertise.

The “Jumpstart Our Business Startups Act”, or the “JOBS Act” changed that.  The JOBS Act allows companies to publicly solicit for funds and advertise while still conducting a private offering.  However, it comes with a major catch.  The only investors allowed to invest must be “accredited investors”, and the company raising money has to verify that their investors are truly accredited investors.

A simple questionnaire is no longer sufficient – instead, companies must take further “reasonable steps” to prove their investors are accredited investors.  Failure to comply is a violation of federal laws and may subject the company to enforcement action and the obligation to return money raised.  That’s obviously bad for companies, but it’s also bad for investors who don’t know if the companies they invested in will suddenly have to return a portion of its capital to other disgruntled investors.

What is an “Accredited Investor”?

An “accredited investor” is a type of investor. Generally, sales of securities must be registered with the SEC unless an exemption is found. Some of the exemptions require sales to be made to accredited investors. Our application lists out the various categories of accredited investor.

The Securities and Exchange Commission also has a helpful page on accredited investors here: https://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-bulletin-accredited-investors

For more information, please contact Paul McIntyre at pmcintyre@namcoa.com

Supporting Therapeutic riding for challenged Children and Veterans

Stirrups and Strides Charitable Event at Jumbolair of Ocala. December 2, 2017

Kevin Zylstra, CFP, friend and avid sailor of our Naples office joins Tom at “Jammin at Jumbolair” Charitable Extravanza.

Stirrups ‘n Strides is a 501 (c)3 non-profit organization Therapeutic Riding Center for challenged children and veterans.  Over 400 people attended this event celebrated a successful year of reaching out to those in need.

For further information you may contact Betty Gray at 352-427 3569 to learn more and consider what may be  on your heart today!

 

 

What is a SMA?

Also known as a SMA (“Separately Managed Account”), is a single investment account comprised of individual stocks, bonds, cash or other securities, tailored to achieve specific investment objectives.

Your portfolio manager oversees the investments according to your specific investment objectives and in an investment style with which you are comfortable.  Put simply, a SMA is for demanding investors who:
  • Seek the comfort of professional investment guidance and a heightened level of personal service
  • Still want to take an active role in their financial life
  • Desire the flexibility to invest in different strategies or styles, while seeking the liquidity and potential tax benefits that come from owning individual securities in separate accounts, versus mutual funds
  • May want a single fee to cover ALL account costs, including trading costs and performance reporting.
  • Low-cost, transparency and 24/7 online access

For those with more than $100,000 a SMA may be the smart way to manage portfolio assets, due to lower costs, greater tax efficiency and transparency.

Why the growth in Cash Balance Plans?

The Pension Protection Act of 2006 (PPA) is long and hard to read, but it played a crucial role in establishing cash balance plans as a viable and legally recognized retirement savings option. Before 2006, cash balance plans faced frequent legal challenges. Those bringing the suits argued that cash balance plans violated established rules for benefit accrual and discriminated against older workers. The rulings on these cases were inconsistent, and many business owners were reluctant to risk establishing a plan that just didn’t have firm legal footing.

The Pension Protection Act ended this uncertainty about the legality of cash balance plans. The legislation set specific requirements for cash balance plans, including:

  • A vesting requirement: Any employee who has worked for their company for at least three years must be 100% vested in their accrued benefits from employer contributions.
  • A change in the calculation of lump sum payments: Participants in a cash balance plan can usually choose to receive a lump sum upon retirement or upon the termination of employment instead of receiving their money as a lifetime annuity. Before 2006, some plans used one interest rate to calculate out the anticipated account balance upon retirement, but, when participants opted to receive an earlier lump sum, the plan called for using a different interest rate to discount the anticipated retirement balance back to the date of the lump sum payment. This could lead to discrepancies between the hypothetical balance of the account (as determined by employer contributions and accumulated interest credits) and the actual lump sum payout, an effect known as “whipsaw”. The PPA eliminated the whipsaw effect by allowing the lump sum payout to simply equal the hypothetical account balance.
  • Clarification on age discrimination claims: A cash balance plan does not violate age discrimination legislation if the account balance of an older employee is compared with that of a similarly situated younger employee (i.e. with the same length of employment, pay, job title, date of hire, and work history), and the older employee’s balance is equal to or greater than the younger employee’s.

There are, of course, many other points included in this lengthy piece of legislation, but the takeaway is this: the Pension Protection Act of 2006 removed the legal uncertainty surrounding cash balance plans and made them a much more appealing option for small business owners. The number of cash balance plans in America more than tripled after the implementation of the PPA. Additional regulations in 2010 and 2014 made these hybrid plans an even better option, and we anticipate that their popularity will continue to grow. There are thousands of high-earning business owners out there who can reap huge, tax-crushing benefits from implementing cash balance plan – they just have to know about them first.

The best charities to give to in the wake of Hurricane Harvey

Over the weekend, Hurricane Harvey slammed into the Gulf Coast, destroying homes and infrastructure in Texas, displacing tens of thousands of people, and killing at least eight. As many as 13 million people are under flood watches and warnings.

After landfall, officials ordered several Houston-area counties to evacuate, due to fears of more flooding. Experts are forecasting up to 50 inches of rain in and around Houston, making many homes inhabitable. An estimated 30,000 people will likely need to find refuge in shelters, since flooding will linger, according to The Washington Post.


People walk down a flooded street as they evacuate their homes after the area was inundated with flooding from Hurricane Harvey on August 28, 2017 in Houston, Texas. Getty Images


Victims in Texas and Louisiana will likely need millions of dollars in aid. On Monday, President Donald Trump said he believes Congress will act swiftly to provide funding to affected areas. Charities — both big and small — will also step in.

But not all charities are created equal. Charity Navigator, a nonprofit that has independently rated over 8,000 charities, compiled a list of some of the best organizations to donate to in the wake of Harvey. Its team considers several factors when giving a charity a score out of 100. These include program expenses (e.g. how much of the donations go straight to victims) and transparency (e.g. audited financials prepared by an independent accountant).

The charities that Charity Navigator recommends for Hurricane Harvey, along with their scores out of 100, are below.

Note: Right now, it is not clear whether all these organizations will spend 100% of donations received on Hurricane Harvey relief and associated expenses. But in past large-scale disasters, high percentages of donations have directly gone to victims.


St. Bernard Project — 93.66

Founded in 2006 after Hurricane Katrina, St. Bernard Project works out of a parish near New Orleans. After disasters, the organization rebuilds homes, advocates for recovery strategies, and advises policy makers, homeowners, and business owners about resilience.

Samaritan’s Purse – 96.32

Smaritan’s Purse is a nondenominational, Christian organization that provides spiritual and physical aid to people affected by disaster and poverty around the world. It focuses on helping victims of war, poverty, natural disasters, disease, and famine.

GlobalGiving — 96.46

Founded in 2003, GlobalGiving is a funding platform that helps people find causes they care about. Users select projects they want to support, make a contribution, and get regular progress updates.

Convoy of Hope — 96.46

Convoy of Hope is a faith-based nonprofit that works to fight hunger around the world. Founded in 1994, the Springfield, Missouri-based charity also responds to disasters.

All Hands Volunteers — 96.66

All Hands Volunteers works to address the long-term needs of communities affected by disasters. Over the last 12 years, the organization has enlisted over 39,000 volunteers who helped 500,000 people worldwide.

Americares — 97.23

Since its founding in 1979, Americares has provided more than $13 billion in aid to 164 countries, including the United States. It is headquartered in Stamford, Connecticut, and specializes in fighting ongoing health crises.

Direct Relief — 100

Direct Relief is California’s largest international humanitarian nonprofit organization. It provides medical assistance to help people affected by poverty and disaster in the US and around the world.


Other local organizations

  • Houston Food Bank
  • United Way of Greater Houston
  • Food Bank of Corpus Christi
  • Houston Humane Society
  • San Antonio Humane Society

These local charities have all received scores between 85 and 100, and work in the most heavily affected areas of Houston.

Sara Nason, a Charity Navigator spokesperson, told Business Insider that choosing between donations to a local or national organization is a matter of preference. The main thing to look for is that the charity is an established and highly-rated organization.

“Local organizations will continue to work in the community long after the disaster has happened, as they have an established presence in the community. National and international organizations deal with disasters at a large scale, with an established infrastructure and coordinated teams that specifically hold a skill-set for responding to crises,” she said in an email.