What would you think if you owned a profitable investment property for years, were counting on it for your retirement income, and one day the city it resided in sent you a notice that they were going to take it by exorcising eminent domain?
They felt they'd like to develop your land and the surrounding land as a city project! That's exactly what happened to a client of mine. To top it off, the money they offered was far below what she could sell the property for on the open market. She had to hire an attorney to negotiate a more reasonable price. This not only cost a lot of money, but during the 8 month battle, the tenant on her property left and the positive cash flow stopped. She was left with an empty building, a mortgage payment and a stack of growing debt.
It sure doesn't seem fair, but it was something totally out of her control. The challenge was to make the most of what she has left.
We were able to structure a Private Annuity Trust that will assure her a lifetime income (granted, a bit less than what she had planned on should she still own and operate the asset), enough cash out (with taxes due) to pay off the bills she is accruing while supporting her now vacant asset, and to give her a bit of a cushion and extra income for the first year.
Without researching her options, this great lady would have had to pay a huge lump sum of capital gains tax and recaptured depreciation and extra income tax. Her retirement asset would have been depleted to the point she would have to remain working well past her normal retirement age and possibly have to reduce her current lifestyle to retire at all.
We can't always control what life throws our way, but we can control how we deal with the hands we are dealt.
It is a privilege to be able to make someone's life just a little better than it was when you met them.
Happy Holidays and All the Best,
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
Friday, December 16, 2005
Tuesday, December 06, 2005
Holiday Wishes
Another year is fast approaching. 2006 is bringing a lot of exciting changes.
Keep checking out http://www.savegainstax.com. I am adding a qualifying questionnaire. It will allow you to find out if you are a good candidate for saving capital gains tax and only take a couple minutes to fill out.
Also look for audio snippets and a series of interviews with the experts. I am doing an interview with a tax professional, sponsor company exec, qualified intermediary and senior trust officer. You can get in on the initial calls or sign up for the replays. You will truly have information to help you make your best decision!
I am a bit overwhelmed with the technology involved, but it will truly be worth it. I am excited and look forward to a fantastic new year. I'll be sure and keep you up to date.
If there's anything you'd like to see added, drop me a line. Education is the key to informed choice.
Warmly,
Paula Straub
askpaula@savegainstax.com
Keep checking out http://www.savegainstax.com. I am adding a qualifying questionnaire. It will allow you to find out if you are a good candidate for saving capital gains tax and only take a couple minutes to fill out.
Also look for audio snippets and a series of interviews with the experts. I am doing an interview with a tax professional, sponsor company exec, qualified intermediary and senior trust officer. You can get in on the initial calls or sign up for the replays. You will truly have information to help you make your best decision!
I am a bit overwhelmed with the technology involved, but it will truly be worth it. I am excited and look forward to a fantastic new year. I'll be sure and keep you up to date.
If there's anything you'd like to see added, drop me a line. Education is the key to informed choice.
Warmly,
Paula Straub
askpaula@savegainstax.com
Monday, November 28, 2005
Holiday Savings
Thanksgiving is past and we are in the Holiday Season. I found myself out on Black Friday trying to get a bargain on a new computer system. It's all about saving money.
Why pay more if you don't have to? My main goal for all of my clients is to help you hang onto as much money as possible.
Check out the article on TIC's by Eva Rosenberg on Marketwatch.com in the tax section. Eva will be one of my guest interviews when I begin my series of "interviews with the pros" in December.
It's important to understand all the aspects of either a 1031/TIC exchange or Private Annuity Trust so that you are completely comfortable with the process and are confident that it is the solution for you and your savings of Capital Gains Tax.
There are a lot of exciting changes in process. Check back often to http://www.savegainstax.com as I will be adding additional information, web offers and personal touches. It's going to be an exciting time and of great value to you.
Happy Holidays!
Paula Straub
Why pay more if you don't have to? My main goal for all of my clients is to help you hang onto as much money as possible.
Check out the article on TIC's by Eva Rosenberg on Marketwatch.com in the tax section. Eva will be one of my guest interviews when I begin my series of "interviews with the pros" in December.
It's important to understand all the aspects of either a 1031/TIC exchange or Private Annuity Trust so that you are completely comfortable with the process and are confident that it is the solution for you and your savings of Capital Gains Tax.
There are a lot of exciting changes in process. Check back often to http://www.savegainstax.com as I will be adding additional information, web offers and personal touches. It's going to be an exciting time and of great value to you.
Happy Holidays!
Paula Straub
Wednesday, November 16, 2005
Article on General 1031 exchanges
The Skinny on 1031 Exchange: Maximizing Profits by Minimizing your Tax Liability by Dan Johnson
A 1031 exchange refers to Section 1.1031 of the Internal Revenue Code which was passed in 1990. Normally, when you sell all real and personal property, the tax code requires the payment of the Capital Gains Tax. That is to say, when you sell your office for $100,000 more than you bought it for, you must pay the gains upon those earnings. However, after the passing of a 1031 Exchange that is no longer necessarily the case.
What types of Property Qualify?
A 1031 Exchange allows sellers of some real and personal property the opportunity to avoid paying capital gains taxes (which are 15% plus state taxes) by “exchanging” their sold property for newly purchased property. However, certain restrictions apply. The most important restriction is that only business property and investment property applies. So, an exchange under a purely residential home does not qualify, whereas exchanging a property that your business has used for its office, or even one used simply for investment diversification does.
But simply selling your office isn’t enough to qualify you for a 1031 exchange. Rather, the code also requires that that you simultaneously buy a property of “like-kind.” This does not mean that if you are selling a 2000 sq. ft. office you must buy a 2000 sq. ft office. Rather, the term is interpreted very loosely to mean virtually any real estate held for productive use in a business or for investment, whether improved or unimproved can be exchanged for any other property to be used for productive business or investment purposes. So, if you sell and unimproved lot of land and purchase an improved one or visa versa, this still qualifies, just as selling industrial property and buying rental resort property does. The point here is that while “like-kind” is an important restriction, it has been interpreted so broadly as to give individuals a lot of free reign.
The Exchange
When most owners envision a 1031 exchange they envision a provision whereby they must buy and sell the two properties on the same week or even the same day. But that is not the case. A tax-deferred 1031 exchange allows up to 180 calendar days between the sale of the first property and the purchase of the second. But no matter the time between sale and purchase, a 1031 exchange is required by the Internal Revenue code to have a “qualified intermediary” to manage the exchange.
A Qualified Intermediary
The requirement of a qualified intermediary is intended primarily to prevent individuals engaged in the exchange from using the time in between the sale and purchase of property to their financial gain. Although the seller has up to 45 days to set up the intermediary, the exchange is designed so that the seller should not profit from the use of the money before the purchase of the new property is made. An intermediary serves the judicial purpose of ensuring this. But it is important to remember that the qualified intermediary charges fee for this. While these services can vary in cost depending on the additional advisory services provided by the Intermediary, individuals interested in a 1031 exchange should expect to pay somewhere in the vicinity of $500 to $700 for the first exchange and $200 to $400 for each additional property.
Dan Johnson enjoys writing about 1031 exchange. Visit http://www.1031exchangelowdown.com/ to learn more.
Article Source: http://www.articledashboard.com
A 1031 exchange refers to Section 1.1031 of the Internal Revenue Code which was passed in 1990. Normally, when you sell all real and personal property, the tax code requires the payment of the Capital Gains Tax. That is to say, when you sell your office for $100,000 more than you bought it for, you must pay the gains upon those earnings. However, after the passing of a 1031 Exchange that is no longer necessarily the case.
What types of Property Qualify?
A 1031 Exchange allows sellers of some real and personal property the opportunity to avoid paying capital gains taxes (which are 15% plus state taxes) by “exchanging” their sold property for newly purchased property. However, certain restrictions apply. The most important restriction is that only business property and investment property applies. So, an exchange under a purely residential home does not qualify, whereas exchanging a property that your business has used for its office, or even one used simply for investment diversification does.
But simply selling your office isn’t enough to qualify you for a 1031 exchange. Rather, the code also requires that that you simultaneously buy a property of “like-kind.” This does not mean that if you are selling a 2000 sq. ft. office you must buy a 2000 sq. ft office. Rather, the term is interpreted very loosely to mean virtually any real estate held for productive use in a business or for investment, whether improved or unimproved can be exchanged for any other property to be used for productive business or investment purposes. So, if you sell and unimproved lot of land and purchase an improved one or visa versa, this still qualifies, just as selling industrial property and buying rental resort property does. The point here is that while “like-kind” is an important restriction, it has been interpreted so broadly as to give individuals a lot of free reign.
The Exchange
When most owners envision a 1031 exchange they envision a provision whereby they must buy and sell the two properties on the same week or even the same day. But that is not the case. A tax-deferred 1031 exchange allows up to 180 calendar days between the sale of the first property and the purchase of the second. But no matter the time between sale and purchase, a 1031 exchange is required by the Internal Revenue code to have a “qualified intermediary” to manage the exchange.
A Qualified Intermediary
The requirement of a qualified intermediary is intended primarily to prevent individuals engaged in the exchange from using the time in between the sale and purchase of property to their financial gain. Although the seller has up to 45 days to set up the intermediary, the exchange is designed so that the seller should not profit from the use of the money before the purchase of the new property is made. An intermediary serves the judicial purpose of ensuring this. But it is important to remember that the qualified intermediary charges fee for this. While these services can vary in cost depending on the additional advisory services provided by the Intermediary, individuals interested in a 1031 exchange should expect to pay somewhere in the vicinity of $500 to $700 for the first exchange and $200 to $400 for each additional property.
Dan Johnson enjoys writing about 1031 exchange. Visit http://www.1031exchangelowdown.com/ to learn more.
Article Source: http://www.articledashboard.com
Wednesday, November 09, 2005
Case Study #5- Charitable Remainder Trust
"John Doe" enjoys a situation most of us would envy. He has something in common with people like Oprah Winfrey, Bill Gates and Warren Buffett. He has amassed an estate that will provide for him and his family comfortably for the rest of their lives. It's not exactly on par with Bill G., but secure none the less.
Mr. Doe now can plan to help others less fortunate. He can create one or more Charitable Remainder Trusts.
Let's say John has an office building that he owns outright. It will sell for 10 million dollars. If John or one of his pass through corporations sell the building, huge amounts of capital gains tax and recaptured depreciation would be immediately due on sale.
John, however, would like to give as much of the proceeds from the sale as possible to his favorite charity, The Red Cross. While he is alive, he would like to use the income to make further contributions to other worthwhile causes.
John sets up a Charitable Remainder Trust and has the trust take possession of the office building. The trust sells the building and proceeds are now earmarked for the Red Cross when John passes away. John, however (and spouse) can receive payments from the trust which amount to the interest generated by the principle for the rest of their lives. The principle received for the building is removed from John's estate and the charity will not owe capital gains tax at John's Death. John also receives a deduction on his taxes in the year the CRT is established and funded.
Since John doesn't need the money, he can donate it to whatever other causes he chooses while alive. If he is healthy, he can even use the income to purchase a life insurance policy and at his death, another charity (or beneficiary of his choice) can receive a tax free death benefit of the face value of the policy. This is also a method used by someone less wealthy than John to still leave their heirs the same amount as the principle received and do a good deed for charity as well.
The Charitable Remainder Trust does have it's place in estate planning. Usually when compared side by side to a Private Annuity Trust, the PAT wins for flexibility and additional benefits.
Paula Straub
askpaula@savegainstax.com
http://www.savegainstax.com
Mr. Doe now can plan to help others less fortunate. He can create one or more Charitable Remainder Trusts.
Let's say John has an office building that he owns outright. It will sell for 10 million dollars. If John or one of his pass through corporations sell the building, huge amounts of capital gains tax and recaptured depreciation would be immediately due on sale.
John, however, would like to give as much of the proceeds from the sale as possible to his favorite charity, The Red Cross. While he is alive, he would like to use the income to make further contributions to other worthwhile causes.
John sets up a Charitable Remainder Trust and has the trust take possession of the office building. The trust sells the building and proceeds are now earmarked for the Red Cross when John passes away. John, however (and spouse) can receive payments from the trust which amount to the interest generated by the principle for the rest of their lives. The principle received for the building is removed from John's estate and the charity will not owe capital gains tax at John's Death. John also receives a deduction on his taxes in the year the CRT is established and funded.
Since John doesn't need the money, he can donate it to whatever other causes he chooses while alive. If he is healthy, he can even use the income to purchase a life insurance policy and at his death, another charity (or beneficiary of his choice) can receive a tax free death benefit of the face value of the policy. This is also a method used by someone less wealthy than John to still leave their heirs the same amount as the principle received and do a good deed for charity as well.
The Charitable Remainder Trust does have it's place in estate planning. Usually when compared side by side to a Private Annuity Trust, the PAT wins for flexibility and additional benefits.
Paula Straub
askpaula@savegainstax.com
http://www.savegainstax.com
Friday, November 04, 2005
Q&A- Can property owned by a LLC be placed in a Private Annuity Trust?
I have received many questions about different types of property ownerships, and whether they can be split and placed in a Private Annuity Trust.
First, I must say that I am not an attorney. That is why I work with competent legal professionals who can answer individual case situations properly.
Let me give you an example of how a LLC transfer might work. Let's say Joe Black is a 25% shareholder in an LLC that owns a 1 million dollar building. The shareholders wish to sell the building and Joe does not want to pay capital gains tax at time of sale.
It is possible that Joe can sell his 25% interest in the building to a Private Annuity Trust that is created for him. The trust will become a shareholder of the LLC. Just before the sale is completed, the Trust takes ownership of the 25% share (250K) interest, and receives the cash from the sale. An "annuity" is exchanged for the cash and Joe will be guaranteed an income for the rest of his life from the trust. The exact amount of payments is based on his age, when he wishes to begin receiving payments and over how long a period of time, the amount of cash received and the current Federal Mid-Term rate.
The trust will be responsible for paying out whatever tax would have been due at the time of sale, but it will be spread out over many years.
Each case is very different, but there is often a solution that will save a great deal of money. Why pay huge sums upfront if you don't have to?
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
First, I must say that I am not an attorney. That is why I work with competent legal professionals who can answer individual case situations properly.
Let me give you an example of how a LLC transfer might work. Let's say Joe Black is a 25% shareholder in an LLC that owns a 1 million dollar building. The shareholders wish to sell the building and Joe does not want to pay capital gains tax at time of sale.
It is possible that Joe can sell his 25% interest in the building to a Private Annuity Trust that is created for him. The trust will become a shareholder of the LLC. Just before the sale is completed, the Trust takes ownership of the 25% share (250K) interest, and receives the cash from the sale. An "annuity" is exchanged for the cash and Joe will be guaranteed an income for the rest of his life from the trust. The exact amount of payments is based on his age, when he wishes to begin receiving payments and over how long a period of time, the amount of cash received and the current Federal Mid-Term rate.
The trust will be responsible for paying out whatever tax would have been due at the time of sale, but it will be spread out over many years.
Each case is very different, but there is often a solution that will save a great deal of money. Why pay huge sums upfront if you don't have to?
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
Monday, October 31, 2005
Q&A Can my primary residence be placed in a PAT?
I had a conversation with a 70 year old woman. She and her husband had purchased their home in 1980 for 100K. Today it will sell for somewhere in the neighborhood of 800K. Her husband passed on several years ago and the house has become too big for her. Since she qualified for a 250K capital gain exclusion, she would be left with paying capital gains on 450K. Here in California, that would be somewhere in the neighborhood of 109K. For a 70 year old retired widow, she would perhaps never be able to save 109K in the remainder of her lifetime. It's a big deal.
She has no debt on her home.
A very viable option we are exploring is to put the entire 800K in a Private Annuity Trust upon sale. We haven't crunched all the numbers yet, but she would begin receiving monthly payments of probably in excess of 6K/mo for the rest of her life.
With this income, she can rent a place just about anywhere she desires, and not have to worry about upkeep, property tax, or replacing expensive items like roofs, appliances, pipes, etc. She can sock away any extra monies for trips, gifts, or future medical care. She can have a good emergency fund as a cushion against whatever life may hold. A good long term care policy is another consideration to protect the rest of her savings from depletion in case of serious illness.
She has one child, and two grandchildren. Any monies left in the trust on her death will pass to them.
This is a far superior option to something like a reverse mortgage.
With proper planning, she will have peace of mind and an income stream most retirees could only hope for.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
She has no debt on her home.
A very viable option we are exploring is to put the entire 800K in a Private Annuity Trust upon sale. We haven't crunched all the numbers yet, but she would begin receiving monthly payments of probably in excess of 6K/mo for the rest of her life.
With this income, she can rent a place just about anywhere she desires, and not have to worry about upkeep, property tax, or replacing expensive items like roofs, appliances, pipes, etc. She can sock away any extra monies for trips, gifts, or future medical care. She can have a good emergency fund as a cushion against whatever life may hold. A good long term care policy is another consideration to protect the rest of her savings from depletion in case of serious illness.
She has one child, and two grandchildren. Any monies left in the trust on her death will pass to them.
This is a far superior option to something like a reverse mortgage.
With proper planning, she will have peace of mind and an income stream most retirees could only hope for.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
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