What documents get signed to close on a DST interest?

The identification notice comes first, and nothing else works without it

Reg. section 1.1031(k)-1(c)(2) requires replacement property to be designated in a written document signed by you and sent before the end of the identification period to the person obligated to transfer it or another person involved in the exchange who is not a disqualified person, usually your intermediary. For a DST, name the trust by its legal name and state the interest you intend to buy.

If you close on the interest within the 45 days, the purchase itself counts as identification. Otherwise, a trust missing from that letter cannot be bought. How to identify replacement property covers the format and the three-property and 200% rules.

The subscription package is where you make the securities representations

DST interests are sold under Regulation D, so the sponsor needs your written representations before it can accept you. The package usually has three parts: the subscription or purchase agreement, which states the number of interests, the price and your acknowledgment of the memorandum's risk factors; an investor questionnaire covering accredited status and suitability; and a signature page for the trust agreement. The exact titles vary by sponsor.

Rule 502(d) expects the issuer to disclose in writing that the interests are unregistered and cannot be freely resold, so expect to confirm that you are buying for yourself and accept the transfer limits. In an offering under Rule 506(c), the issuer must also take reasonable steps to verify that you are accredited. The rule's safe-harbor methods are reviewing two years of tax forms for income, reviewing statements dated within three months for net worth, or a written confirmation from a registered broker-dealer, SEC-registered adviser, licensed attorney or CPA.

The memorandum, the subscription agreement and what to look for in each are covered in reading a DST PPM and Form D.

You become an owner by signing on to the trust agreement

A filed DST trust agreement shows the mechanism. A new owner is admitted only on 'written acceptance and adoption of this Agreement', by delivering a counterpart signature page to the manager, and transfers take effect only when recorded in the manager's ownership records. The same agreement caps the trust at 480 owners and keeps ERISA plans below 25% of the interests.

Signing that page binds you to the trust's limits on your rights. Under Rev. Rul. 2004-86 the trustee cannot renegotiate the lease or loan or accept new capital, so you are agreeing to a fixed arrangement. What that leaves you to decide is explained in who controls a DST.

Your intermediary signs to buy the interest, so the money never touches you

To keep the exchange inside the safe harbor, the intermediary must be treated as acquiring the replacement property for you. Reg. section 1.1031(k)-1(g)(4)(v) treats the intermediary as entering into your purchase agreement if your rights are assigned to it and all parties are notified in writing on or before the transfer. In practice you sign an assignment and the intermediary sends notice to the sponsor.

You then sign a funds-release request so the intermediary wires the purchase price directly to the trust or its escrow. Never have the funds sent to you first; see whether you need a QI for a DST.

Worked example: a nine-day closing on a hypothetical $400,000 interest

Hypothetical sequence; your sponsor's and intermediary's checklists govern. Day 1: you return the subscription agreement, questionnaire, trust agreement signature page and accreditation letter from your CPA. Day 3: the sponsor confirms acceptance. Day 4: you sign the intermediary's assignment and funds-release form, and the intermediary notifies the sponsor in writing.

Day 6: the intermediary wires $400,000. Day 9: the sponsor records your interest in its ownership records and sends a confirmation of ownership, which your intermediary keeps as evidence that you received replacement property.

Missing items are the usual cause of delay, so send the accreditation letter with the first package. For tight deadlines see how quickly a DST can close.