Estate Planning

If you already have a real estate portfolio how do you manage it as you get closer to retirement?

1. Trusts- As we grow our states we need to look at planning vehicles like living trusts to ensure the our legacy to our areas is preserved with as little intrusion by our government through taxation as possible. A relatively simple way to do this is to assign your personally held interest to a trust that allows you to dictate the exact terms as to how it will pass to your heirs. Although the federal government has increased the minimum estate value to avoid inheritance taxes, a trust, is still an important vehicle to preserve your estate and to rack your bequests while avoiding probate. I strongly suggest reviewing this vehicle with your CPA and or estate planner.

2. Sales- A simple way to provide for your needs and your retirement would be to simply sell off any investment properties that you hold at the time of the ultimate sale there will be taxes due depending upon your state and your federal tax liabilities the taxes could be significant. However, if you have developed your portfolio well, you will have sufficient cash not only to pay the taxes but to augment your retirement income.

3. Exchanges- The Internal Revenue Code under section 1031 provides that any person owning the simple real estate may exchange for other fee simple real estate at any time. What this allows us to do is to plan for your retirement. Let’s look at it at an example of a person to that owns a $1 million apartment building at age 60, and is considering retirement at age 65. We might suggest selling the $1 million building prior to retirement and exchanging into three $350,000 properties under section 1031. This would allow the investor to sell off one of the buildings at time, and only being liable for the gain on that particular portion of the sale or roughly 1/3 of the overall $1 million. After the investor retires they can then sell each of the properties separately during different tax years and minimize the overall tax on each sale as their income has declined after retirement.

4. Gifting- We need to be cautious and careful with gifting. IRS limits the amount of cash or value in property they can be given to an air during any calendar year without creating a taxable event for the recipient. I would suggest that you evaluate mechanisms available in your state that won’t create a taxable event. One possibility that is used fairly regularly in the state of Arizona is called the beneficiaries be this particular vehicle can put an error on title immediately after the death of the owner.

5. Living on the rental income- There are no requirements for doing any of the above once you own your rental real estate you can quite simply just sit back and enjoy the income as it comes in take care of any expenses that are necessary and live on the rental income that you have developed over the last 30 years. You can use any of the above in combination with this but there’s really no requirement that you do so. I do have clients that have amassed their real estate and we’ll just leave it to heirs to figure it out.


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Updated: 14th August, 2019 8:02 AM.