Brice-
interestingly I had a similar sit not too long ago.we had 80% first in place and was going to buy an annuity that would endow “tax free” proceeds and give him 200k,over his asking, over 15 yrs.He was 72. however when his estate atty-acct did the cap gains he would incur he couldn’t see the forest thru the trees. he came back trying to structure an 80% seller held first and have a second from other. my client rebuffed him. think about it. has your seller seen the realized gains he is going to pay?? he may have a stroke- it should be about 45%.
go the annuity route term life is not the answer for the grandchildren an annuity can be passsed tax free it can also lessen the tax burden.
you might also try to swing a lease option and get a second then when he passes cash the grand kids out, they would be taxed less especially if he put the center in to a trust of some kind.
get some good pros on your side.
Good luck
Matt
Have a seller with a nice commercial strip (no anchors)$1.9MM - due diligence shows around 18 cash-on-cash. Seller is 62 and has been told to divest of his real estate holdings. Own’s property free and clear (ie no basis in deal and will get killed on sale). Seller wants to use proceeds as endowment for grandchildren but not interested in carrying paper.
Can I put a new 1st on the piece and buy a paid-up term life on this guy? The proceeds will be greater than his asking price, less cost to me, and tax free to his estate? Does he pay tax on the premium?
Even if you pile debt on the center, he will still face the same tax bite when he conveys it. His basis for tax purposes has nothing to do with the amount of equity in the property.
This guy needs some professional tax planning, like NOW! (Actually he needed it 20-30 years ago, but that’s another story…) I am not a professional tax planner, nor a CPA, so I don’t feel too qualified to recommend solutions. But a few ideas that crossed my mind are…
If he conveys the property in his will, after death, the heirs would get a stepped-up basis to market value at the date of death. If they later decided to sell, that would lessen - if not eliminate - the capital gains hit. Of course, the estate tax would be another concern.
Could he perhaps put the property into a trust or family limited partnership and give shares to the grandkids?
If he has to sell this, why not do a 1031 exchange into another property and then put that in the trust? You said he has been “instructed” to sell his real estate. Why? and By Whom?
Re: Thoughts or comments please - Posted by Cal, Balto
Posted by Cal, Balto on July 10, 2002 at 22:39:51:
Hello:
Enjoyed your post. Is there somewhere I can educate myself about the advantages to the seller of structuring deals that way. Seems like it would be very lucrative to the right seller. Thanks for any input or advice on where to find that kind of info.