PLANNING FOR REAL ESTATE PROFESSIONALS
If you are in real estate business, investing, building and /or renting, your estate and asset protection planning must be flexible to allow you to borrow, sell, collaterize, lend, rent etc.
Your risk of liability comes from different aspects of what you do. If you rent, your tentats may sue you. If you build, you are neck deep in issues of OSHA compliance, safety in workplace, workers comp not to mention contractual liability, meeting deadlines and expectations, working with the DOB (or against it). Your lenders are tough and your life is stressful.
If you are investing you run the risk of exposure in creditor suits or in martial court to name a few.
Let us help. We specialize in creating flexible structures that allow you to move your holdings and protect them from creditors but at the same time, allow you to fully participate in business.
Knowing your business is our specialty and that is why we would not ask you to sacrifice certain aspects of your vested interests. We work with you, your accountants and your partners to create structures that incorporate into your business smoothly and do not create obstacles on your way to growing your business.
Many planners say that they know how to plan for real estate professionals.
When you evaluate planning options that are being offered to you, pay attention to the following five factors that are often overlooked :
1. Partner’s “outside basis,” is a measure of the adjusted basis of the partnership interest she holds. Under Section 752 of the Internal Revenue Code, any increase or decrease in a partner’s allocable share of partnership liabilities will cause the outside basis of her partnership interest to increase or decrease.
2. A “capital account” reflects a partner’s equity investment in the partnership. A partner is permitted to have a negative or deficit capital account, resulting from her distributive share of losses or from distributions. A capital account deficit typically represents the amount of cash that the partner would be obligated to contribute to the partnership upon liquidation.
3. IRD is income that is earned by a partner who does but was not subject to income tax prior to the partner’s death.
4. The death of a partner in a two-person partnership will terminate the partnership for federal tax purposes if it results in the partnership’s immediately winding up its business (Sec. 708(b)(1)(A)). If this occurs, the partnership’s tax year closes on the partner’s date of death. There are exceptions to this rule and you have to be careful when you and your partner discuss planning.
5. Under trust and estate tax law, the transfer of property to satisfy a pecuniary bequest (i.e., one in which a specific monetary amount rather than specific property is left to a particular heir) is treated as a distribution of the property from the estate to the heir. Under Sec. 761(e), the distribution of a partnership interest is treated as a deemed sale or exchange of the interest for purposes of Sec. 708(b)(1)(B) (the technical termination rules). A specific bequest of a partnership interest to a particular heir does not cause a termination of the partnership because the transfer from the estate to the beneficiary is not treated as a distribution of the interest for estate tax purposes (Sec. 663(a)(1) and Regs. Secs. 1.663(a)-1(b)(2)).
Call us should you have any questions or concerns regarding your planning or regarding running your existing trusts or companies. We will help you create a flexible and smart plan for your real estate portfolio.
