Leave Your Heirs With Assets Not Liabilities

With the right advisor in your corner, you can plan for success.

Sparacino Realty wants to help you get real about the future of your commercial real estate properties. Thinking about what will happen to your investments post-mortem is never an easy conversation, but it’s a necessary one.

For your heirs, inheriting a rental property can be a bit of a blessing and a curse, depending on what prep work you have in place. On the one hand, you’re leaving them with a profit windfall from instant equity in the property. On the other hand, if they handle inherited real estate the wrong way –– they’ll be left with a gargantuan tax bill that takes a painful chunk out of the profits you thought you were leaving them.

But with the right advisor in your corner, you can plan for success. At Sparacino Realty, we’ve seen it all. We tailor solutions to each of our clients’ unique obstacles and advantages to ensure the future of their commercial properties unfurls exactly as they want it to.

There’s no single “right” answer when it comes to passing down investment properties. For example:

Scenario 1:

Let’s say that on the date of her death, a woman owns a piece of commercial real estate with a market value of $5,000,000. The property is then purchased for $2,000,000. Her son receives the property through her will. Because the son gets the property with a stepped-up cost basis equal to the fair market value, his cost basis is $5,000,000.

If he chooses to sell the property for $5,000,000 immediately, he will not earn any capital gains or incur any capital gains taxes. If he holds the property and sells later, he will only recognize gain for the amount greater than her original $5,000,000.

So, if he sells the property for $6,000,000, he will owe capital gains taxes on the $1,000,000 gain. However, he could also consider the option to defer the capital gains taxes sustained as a result of the sale and complete a 1031 exchange by replacing the inherited real estate for like-kind real property.

Scenario 2:

A commercial real estate mogul becomes realistic about his age and has the choice to hold his assets in a trust, a corporation, or LLC ownership structure with his heirs. He chooses an LLC to provide an extra layer of legal protection and allow for an incredibly easy transfer of the assets after his death.

Scenario 3:

A man –– we’ll call him Jim –– dies, and his children are the beneficiaries of his trust. They get the property without having to go through probate, and now they have the freedom to do what they like with the asset because Jim was wise and planned ahead with Sparacino Realty.

If you’re ready to have an honest conversation about the future of your CRE properties, shoot us an email today!

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Life is 10% what happens to you and 90% how you react to it. It does not matter how slowly you go as long as you do not stop. Confucius.

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