PACTrusts help!!! - Posted by Fred

Posted by Ed Garcia on January 21, 2001 at 16:46:36:


I’m going to be making a post here shortly about Mr. Gatten and the PACTrusts.

So stay tuned.

Ed Garcia

PACTrusts help!!! - Posted by Fred

Posted by Fred on January 21, 2001 at 14:14:25:

I need help with the ins and outs of a PACTrust. If anybody has knowledge of how this can benefit several multifamily deals, I would appreciate any help that you could provide. I would also like to see a sample of a working PACTrust. Thank you very much.


Re: PACTrusts help!!! - Posted by Bill Gatten

Posted by Bill Gatten on January 21, 2001 at 18:21:42:

By placing a multi-family (up to 4 units) into a PACTrust™, you could make each tenant (or some of them) a resident beneficiary in the trust, giving each one an ownership benefit. You would, thereby, have vested each of them with all the same possessory and tax benefits they’d have in a condo, co-op, town house or PUD of their own.

'Works like a co-op in that the parties can sell or rent out their own units (assuming your contract says so), but the entirety can’t sell without the consent and direction of all the beneficiaries.

This, of course, enables higher rents, and saves a ton on permits, party walls, separate metering, etc. This arrangement could be treated (maybe likely to be treated) by the courts and by the IRS as a homeowner’s association, particularly were the trustee to be the one collecting payments and making disbursements. As you know, HOA’s are taxed as corporations that could be seen as a downside of doing it this way (double taxation).

In such a scenario, I’d suggest that each tenant beneficiary hold it’s own interest in a 2 party LLC to best shield the property from litigation and liens by outside judgment creditors.

If the property is more than 4 units and the lender’s alienation provisions are not of major concern (or the lender has given permission to hold the property in a land trust), then you could safely have up to nine resident beneficiaries (and one settlor beneficiary). Anything above 10 and you’ll be treated by the IRS as a corporation, and probably be running afoul of S.E.C. regulations (limit on members should the courts characterize the transaction as a partnership).

Bill Gatten