Signatory Trustee, Delaware Trustee and Sponsor: DST Trustee Roles and Who Does What

The Delaware trustee is there to satisfy the statute, and its agreement says so

Section 3807(a) of Delaware's Statutory Trust Act requires every statutory trust to have at least one trustee that is a Delaware resident or, if not a natural person, has its principal place of business in Delaware. A filed DST trust agreement appoints a corporate trust company and says it serves solely to meet that obligation. Its powers are to accept legal process in Delaware, execute and file required certificates, and act as the manager directs in writing, and it may refuse a direction that could expose it to personal liability.

The same form disclaims any duty to choose or supervise the manager and any liability for the manager's acts, while preserving liability for its own willful misconduct, bad faith, fraud or gross negligence. Its fee is whatever the manager reasonably approves in that form, a fee separately agreed with the depositor in another, and a schedule attached as an exhibit in a third. A lender's DST memo adds its practical value: it keeps the trust alive if something happens to the signatory trustee.

The signatory trustee is the sponsor's hand on the pen, and usually the manager itself

All three filed forms let the manager appoint a co-trustee to sign documents for the trust, add or replace signatory trustees at will, and name itself as the initial signatory trustee, which receives no compensation for that role. The lender memo describes the signatory trustee as managing the trust's business affairs, including loan payments and investor distributions, and says it is usually the sponsor or an affiliate.

Lenders sometimes add an independent trustee that serves the lender if the signatory trustee fails or refuses to act in the lender's interest, and they typically require the signatory trustee to keep a minimum interest in the trust. Neither of those protects investors directly; both protect the loan.

The sponsor holds the power through the depositor and the manager, and is paid through the manager

The depositor is the sponsor affiliate that forms the trust, contributes the property and owns all of it until investors are admitted, using their cash to buy down its own interest. In one form it keeps a right of first refusal on any investor's sale. The manager runs the trust exclusively, decides when the property sells and earns the trust's management fee: 1.0% of gross rents a year in the first form, and an annual fee on the money raised from investors in the second. How the master tenant and property manager layers below it are paid is at DST management layers.

Rev. Rul. 2004-86 is why the trustee side is so thin: the trustee's activities must be limited to collecting and distributing income, so operating authority sits with sponsor affiliates outside the trust.

Removal rights differ sharply between agreements, and the lender often holds a veto

In all three forms the manager can remove the Delaware trustee only for cause and appoint the successor. Removing the manager is harder, and the three filed forms show three different answers:

• First form: the Delaware trustee may remove the manager for cause only with written consent of investors holding more than 50% of the interests; cause means willful misconduct, bad faith, fraud or gross negligence as found in arbitration, and the successor must be a nationally recognized manager of Class A commercial property.
• Second form: the Delaware trustee may remove the manager for cause, defined as fraud or gross negligence causing material damage to the property, but while the loan is outstanding the lender must consent, and a removal without consent is void.
• Third form: investors holding a majority may remove the manager for cause, but removal does not take effect without the manager's consent until it and its affiliates are released from their loan guaranty and indemnity obligations, and actions taken to preserve investors' exchanges can never be cause.

Every role answers to the same sponsor, so ask about independence before you invest

Delaware section 3806(c) lets the agreement restrict or eliminate trustees' and managers' fiduciary duties but not the implied covenant of good faith and fair dealing, and section 3806(e) lets it limit their liability except for bad faith breaches of that covenant. The filed forms use those powers: no implied duties, liability only for serious misconduct, and in the first form, binding arbitration before an arbitrator the signatory trustee chooses.

Ask four questions: which roles are filled by sponsor affiliates, what each is paid and on what base, who can remove the manager and with whose consent, and whether the lender's documents override the trust agreement. Then compare the answers across offerings using the DST offering due diligence checklist and how to evaluate DST sponsors. Each clause is walked through at the DST trust agreement explained.