Terminal Illness and Liquidating assets, Tax breaks?

Question

Hi everyone,

This is sort of an odd topic (and I’m not even sure this is even a possibility) but I have been conversing with an older gentleman who is terminally ill and believes he has 5-10 years left. He has 6 duplexes and wants to sell one each year for tax purposes. The money will go into a trust for his children to split once he has passed.

My understanding is that if he receives one lump sum he will pay taxes unless he uses a 1031 exchange which he doesn’t intend to do since he is liquidating. What do you think would be in his best interest if he isn’t in a rush to get all the money at once as it’s for his children? Seller financing?

I guess I’m wondering if there was to be a doctors note that states he is terminally ill, can the proceeds from a normal sale (cash, conventional loan) go into a trust without being pulverized by the irs? Going off the basis that his children are best friends and he wants to see that it stays that way after he is gone? Probably wishful thinking but I’m looking for a loophole to help him and his children save as much as possible. Thanks in advance!

Steve Morris · Answer

Why doesn't he just set up a trust now and move all the properties into it.  Make sure the kids are in WROS and then if he passes (unless Biden messes it up) they get a step-up in basis.

No probate issues and no tax consequences solely due to death.

Joe Splitrock · Answer

Account Closed it would be in his best interest to hold them in a trust until death and let his children sell them at stepped up basis, most likely owing no taxes.

That probably works against your goal of acquiring the properties. In that case, I would see if it is possible to work out some type of seller financing agreement. If they can put the properties in a trust and sell them out of the trust, that may afford them some advantages. At a minimum seller financing spreads out the income for tax purposes. The seller really needs to talk to an estate attorney. No offense, but he should not be taking advice from someone who has their own interests in mind. An estate attorney may tell him not to sell.

Farrukh Amini · Answer

Yes, he can, with provisions in the Trust language

Account Closed · Answer

@Farrukh Madaminov Thanks for the ideas. That makes most sense to me as his #1 priority is seeing they all sell and that there is NOTHING 0 for the children to fight over...although siblings always seem to find a way.

Rick Pozos · Answer

I have to agree with @JD Martin Terminal with 5 to 10 left??

We are all terminal. We are all going to die. Tax planning and estate planning should be done before you have kids and should be done on a regular basis throughout your lifetime.

JD Martin · Answer

Terminally ill with 5-10 years left? Holy cow that might describe anyone over 60. There aren't that many diseases that give you that much advance notice outside of ALS. Maybe Alzheimers. Maybe it's just my perpetually cynical nature but I think this guy is full of it and is just trying to find some free financial planning advice and strategies. If this is truly the case he needs to speak to a professional tax account and estate planner and just keep you on speed dial if the estate decides they want to sell some of the assets.

Daniel McNulty · Answer

@Kris Osborn

Generally speaking the IRS will get their cut.

Lowest tax option would be to place assets in trust and wait for him to pass, then sell assets.

Otherwise you are just doing damage control. Depending on what part or CA you are in, it may not even be any cheaper in chunk as RE prices may throw them into the top tax bracket on a single property sale.

Farrukh Amini · Answer

Not an accountant, but based on my knowledge it would be best for him to do an installment sale, take a small down payment upfront and hold the note on the balance and get payments over time thus reducing his tax liability within each year. The best way would be to put all the properties in a trust before closing so in case he passes they don’t go to probate.

Account Closed · Answer

@Steve Morris I agree that that would be the easiest route however he doesn’t want to leave any decisions to them once he’s gone. Can he put all his properties in a trust now with his children as the beneficiaries and still maintain 100% control until he passes?

Terminal Illness and Liquidating assets, Tax breaks?

Most Popular Reply