All Forum Posts by: Gary Johnson

I believe a generational trust or generation skipping trust has to do with contribution of assets to a trust for the benefit of your heirs.   That is different than what I’m trying to accomplish which is an installment sale to a trust whose beneficiaries are related parties for the purposes of deferring capital gains tax to into the future.  

I’ve since talked to a very experienced attorney and have been advised that this will not pass muster with the IRS. 

Tonyp, I sent you a privet message but the short answer is I’m not interested in an. MIS.  

Thank you for your interest. 

Gary

Forgive me but I find the MIS is difficult to understand.  You say there is no cost but as an example if I sell a property for 1m, it all goes to the dealer and I receive a loan from a financial institution for 950,000.  Then (ignoring other costs of the sale), there is a 1% origination fee and 0.5% setup fee for a total of 1.5% deducted from the 950,000.  950k x 1.5% = 14,250.  So my 1,000,000 sale nets me only 935,750 to reinvest (1,000,000 - 50,000 - 14,250 = 935,750).  That's about a 6.5% 'cost' to me.  Am I misinterpreting something?   

Dave and Thomas, I appreciate your comments. Yes, I expect to pay taxes at ordinary tax rates on interest income. Depreciation recapture (or not) is presented both ways by various parties on the internet. The argument that makes most sense to me is that only tax on straight line depreciation recapture can be deferred. Accelerated depreciation cannot. Have you heard this? I've looked at both monetized installment sale and the Deferred Sales Trust (DST) and decided not to go with them for a couple of reasons (cost being one). This plan is similar to the DST but differs in small but significant ways.

My goal is to cash out and not reinvest into real estate.  I will be satisfied with a 5% to 6% low risk return on the invested proceeds.  But this return rate is only acceptable if I can defer tax on capital gains.

Dave mentioned that my financial planner and his investment company may not be acceptable as being the trustee of the trust.  This is a big concern.  How can I confirm if this is true?

Gary

Trying once more.  This roof is not flat.  It is slightly peaked on top

Here's one

I am ready to cash out of a highly appreciated property.  My attorney put together a plan he is confident will work but I believe this is the first time he has done this so I am reaching out to all of you for critique.  I've done my due diligence and can't find anything preventing this but I'm a bit nervous.  This is part of an overall estate plan to ulitmately benefit heirs.  Here's a brief summary of the plan.

Husb/wife (Holders) own property in a LP. A new LLC is created which is owned by a newly created non-grantor trust. The trustee is a true third party (likely our financial planner/investment advisor). The beneficiaries will be our children or their trusts. Ownership is transferred to the LLC/trust in exchange for a long term interest-only installment loan. Term is for 15 years but may be extended at option of Holders. Interest rate is set to the long term AFR (~3%) but I may decide to set it higher. The trust immediately resells the property to a 3rd party buyer for cash. The cash is invested in equities, bonds, commodities, etc. by the trustee. The investment generates a cash flow that equals or exceeds the payments on the loan to the husband/wife (or their LP). Since the husb/wife sold the property on an interest-only installment note, there is no income tax or capital gains tax due. Since the trust resold the property at the same price it acquired it from the husb/wife, there is no taxable event. No capital gains tax is due from the husb/wife until principal is repaid to them. It is anticipated that over time, the net worth of the trust will increase. I may be designated as manager of the LLC (but not an owner/member) so I can oversee the appropriateness of the equity investments.  I see this as a way to provide a larger income stream to husb/wife while beginning to build assets for heirs.

Comments are appreciated.  Do you think this will work?  If not, why not?  Please cite a code section or IRS ruling to support your dissent if at all possible.

Thank you,

Gary