DST vs. Common Trusts. Quick Comparison

DST vs. Common Trusts. Quick Comparison

April 06, 2024

Understanding the distinction between Delaware Statutory Trusts (DSTs) and Common Trusts is crucial, representing a fusion of historical legal concepts and contemporary statutory innovation.

The concept of a trust, where one party holds property for another's benefit, originated in 16th-century English Common Law. This foundation has facilitated seamless asset transfer across generations, minimizing tax burdens and ensuring security.

Common Trusts, entrenched in this historical tradition, adhere to common law principles evolving through court decisions. These trusts lack specific statutory backing, relying instead on legal precedents, which may sometimes lag behind modern complexities.

Contrarily, the Delaware Statutory Trust (DST) is a modern construct under Delaware's statutory law. Formed by filing a Certificate of Trust, DSTs operate under clear guidelines outlined in Delaware's legal code. This statutory basis offers certainty and legal security, unlike common law trusts reliant on judicial interpretations.

A notable feature of DSTs is their adaptability and robust legal protections for trustees and beneficiaries. Unlike common law trusts, which may struggle with outdated rules, DSTs can swiftly adapt to legal and financial shifts, making them attractive for modern investment and estate planning.

Furthermore, Delaware's proactive approach to trust law, exemplified by the DST, underscores the state's commitment to innovative and secure asset management structures, attracting individuals and entities seeking sophisticated solutions.

Choosing between a DST and a common trust should consider the unique needs, goals, and circumstances of the settlor and beneficiaries. The decision often pivots on factors like asset nature, desired control, tax considerations, and jurisdictional legal environment.

In practice, opting for a DST over a common trust often hinges on the need for statutory clarity, operational flexibility, and Delaware's specific advantages, including enhanced asset protection and tax mitigation strategies.

The transition from common law trusts to statutory entities like the DST reflects the legal system's adaptation to societal changes. As trust professionals, our role is to navigate this terrain, harnessing the strengths of traditional and modern structures to serve our clients' interests. The DST, with its clarity, flexibility, and security, embodies a significant advancement in contemporary asset management and estate planning.

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