July | 2022 |

Estate Planning for Commercial Real Estate

How to maximize these complex opportunities

As compared to residential real estate, the complexities of commercial real estate (CRE) investments give rise to more complicated estate planning. On the plus side, this allows some unique ways to meet your goals and provide for your beneficiaries.

CRE includes apartments, office buildings, restaurants, shopping centers, hotels/motels, grocery stores, parking garages, and theaters. In contrast, industrial properties typically include factories, warehouses, and other properties used for large-scale business purposes.

While there are similarities with residential real estate issues (e.g., cash flow and value), certain challenges in CRE are more prevalent and consequential. Let’s look specifically at those areas:

Real Estate as a Gift Asset

CRE can be a tremendous estate planning opportunity, especially if you have lifetime-support goals for your many beneficiaries. It is a uniquely advantageous asset for gift and estate tax planning purposes because it can be divided and given away. When CRE is fractionalized, the value of it can possibly be discounted for gift tax purposes. Effectively, a property can be shared among family members at a lower cost than the combined property value; further, different types of trusts can be created to hold fractional interests.

Working with Partners

Since CRE can require significant financial investments and may involve complicated tax structures, it is common for investments to be held through multiple entities, frequently involving unrelated partners. Joint venture, limited partnership, and operating agreements should be reviewed for various provisions (i.e., control, selection of a successor general partner or manager, right to terminate, etc.).

Keeping the Properties Running

A key aspect of estate planning for CRE is anticipating and mitigating the impact of the trustor’s death upon business continuity. You’ll want your tenants and all operational issues to be minimally impacted.

With your attorney, it is important to plan for the ramifications of a death event, so that not only can these business interests continue without a hitch but also so that beneficiaries can be actively involved as much as they would like (and has been planned prior to the trustor’s passing), with all of the rights and responsibilities accredited to the trustor. Keep in mind that there may be several management companies for the various properties. It is healthy to have introductions made in advance if possible; some trustors bring alongside their designated beneficiary years in advance for a specific property in a co-management capacity, in order to prepare for the eventual transition of ownership.

Your Advisory Team

An important CRE issue is preparation of beneficiaries for the challenges of handling a complex CRE portfolio. For example, it is not unusual for a wife to be out-of-the-loop of her husband’s CRE business and its daily management, then is “thrown into the fire” as a widow without proper preparation. In this or similar situations, it is ideal to proactively identify and prepare professionals (attorney, accountant, real estate property management, etc.) who can easily transition into necessary roles after a death event. If that hasn’t occurred and you’re in the midst of handling CRE after the passing of your loved one, keep in mind that many commercial real estate properties are overseen by professional property management companies with advanced business education and years of experience, so don’t feel overwhelmed, just call upon your advisory team to help.

Liquidity

Liquidity is needed for continuing support of survivors and, in many cases, death taxes. However, CRE investors should not assume that properties can be quickly sold or refinanced to satisfy an estate’s liquidity needs, due to changing market conditions (and to avoid a “fire sale” selling price). Talk with your attorney about other options to manage liquidity needs.

Dealing with Lenders

Existing mortgages should be reviewed to determine the impact of a trustor’s death on loan agreements. In some cases, the death of a key principal or a guarantor is an “event of default” which could allow a lender to apply pressure on the trustor’s estate.

Experts in Estate Planning for Commercial Real Estate

While it is complex, commercial real estate can be a tremendous asset for your beneficiaries. To maximize these opportunities requires proper planning and Mortensen & Reinheimer, PC is ready to help. We’ve worked with clients for decades in addressing their commercial real estate planning goals. Please contact us at (714) 384-6053 to make an appointment, or use our online contact form. Our website is http://www.ocestateplanning.net.

About the author:
Tamsen R. Reinheimer, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization). She has significant experience in all aspects of estate planning, trust administration, and probate. Contact Tamsen at tamsen@ocestateplanning.net.

Now Available – Thread Liftsfor the Body and Face

Summer is here. Help your patients enjoy it with a revitalized look.

Are your patients ready for non-surgical options to rejuvenate the face and body?

FACIAL REJUVENATION MADE EASY

For those who want to avoid surgery for their face, a popular option is Infinity Plus molded threads, made by NovaThreads.

Key benefits: Smooth skin texture, immediate results, and a non-surgical procedure.
How do they work? The threads are made of absorbable material. They are placed underneath the skin to reposition overlying tissue to a more favorable location, while maintaining a natural appearance. As the threads absorb over time, new collagen is formed which will tighten the skin.
Where can they be used? While threads can be placed almost anywhere, particular areas of concern for aging patients include the lower face, jaw and neck. Other applications include: lifting the brows and cheek; and to soften fine lines, stimulate collagen, and tighten skin on forehead, around the eyes, and lips.
More info: Results last approximately 8-12 months. No incisions are required. The procedure is performed in our office. No anesthesia is required.

NOW AVAILABLE – BODY THREADS

Body thread lifts brings the same thread lift technology as non-surgical facelifts to enhance the body. As such, body threads offer similar results, timing and procedural steps.

Key benefits: A body thread lift is an excellent option for those seeking a tightened or lifted look that is often acquired through surgery, yet without a surgical procedure. This technique can be combined with other cosmetic enhancement alternatives to give the body and skin a rejuvenating boost.
Where can they be used? Typical problem areas that are great applications for body threads include elbows, knees, upper chest, abdomen, and neck.
Is there any downtime? There is generally a quick recovery time and usually a patient can expect to return to his/her routine as usual, with less swelling and bruising versus a surgical procedure.

MAKE AN APPOINTMENT TO LEARN MORE

We invite your patients to schedule a consultation to discuss the best options for their personal goals. Dr. Zeineh seeks to provide advanced cosmetic and reconstructive techniques combined with compassionate, personalized care for each patient.

Dr. Zeineh personally performs these procedures on her patients to achieve and maintain a youthful, refreshed, and natural appearance.

Ready to proceed? I am safely seeing patients in the office, following CDC guidelines. I am also available for telehealth phone consultations (657-722-1400) and photos and communication via HIPAA secure email at DrZ@DrZeinehPlasticSurgery.com.

Please let me know of any questions or concerns that you may have.

Thank you so much.

Sincerely,

Linda L. Zeineh, MD, FACS

Estate Planning for Residential Real Estate Is value the key issue?

Estate Planning for Residential Real Estate

Is value the key issue?

If you own residential real estate, especially if possessed for many years and possibly with multiple properties, you likely have major estate planning steps to address.

Residential real estate consists of single-family houses, some multi-family houses, townhomes, condominiums, and land parcels zoned for residential use.

In this article, we’ll evaluate some of the key considerations that trustors encounter in estate planning for residential properties. Let’s dive into those factors:

Who Should Get It?

Besides any issues of fairness/equitable distribution (see our June 2022 issue), bequeathing residential real estate brings a number of concerns, including:

In considering your overall portfolio, who should receive the real estate component(s)?
Does the beneficiary really even want it? Or does he/she have very little interest or competency in property management (or even hiring a firm to do it)?
Who will live at the property? Family? Renters?
Expertise in property management – does the beneficiary have the business sense?

How Might It Be Used?

While this may be an additional layer of complexity that you may hesitate to delve into, if you are looking at fair/equitable distribution then usage should be evaluated. Will the beneficiary:

Reside at the property (beneficiary or related family members)?
Rent to third parties (tenants), in order to generate income (i.e., income property)?
Sell it (to generate cash and/or invest in another asset)?
Hold as investment (especially raw land)?
Use it occasionally by family members (e.g., vacation home)?

Cash Flow

Income potential is another key factor and is particularly relevant considering the possible use of properties. Consider if you have three properties to pass-on: a family vacation home (negligible or no income); an income-generating duplex; and the “family home” that is getting passed on to a child who was taking care of the parents while living with them, and is destined to inherit the home as a residence. Add to this another layer of complexity if there are different levels of debt on each property.

Fortunately, financial professionals can help in calculating reasonable cash flow potential for given properties, which is especially valuable when comparative analysis needs to be done between multiple property options. Also, in certain tax situations, a property that generates negative cash flow on a tax basis can actually help to offset taxation on income-generating properties in a portfolio, so this can actually be valuable to some beneficiaries.

Maintenance, Ongoing Management

You might find that ongoing maintenance of a property is an issue in your estate situation. For example, your vacation home in the mountains (which requires year-round maintenance) is near to only one child, while your other children live several time zones away. Or your portfolio of single-family rental homes is spread across several states (with different tax laws, local ordinances, and property managers). Real estate requires maintenance in order to simply maintain value.

Value

Before reading this article, you might have thought that value was the main issue when assessing who should get which property. However, after building upon the above considerations (who gets it, possible use, cash flow, and maintenance), value is still important but just one of many factors. As to valuation, this is a field in which you may want to rely upon a team of advisors – real estate appraisers, tax professionals and attorneys – in order to develop a plan that covers possible estate taxation as well as providing the information needed to meet your distribution goals.

Next Articles?

In future articles, we’ll discuss Commercial Real Estate, as well as an overall analysis of title, financing, risk, taxation, and transition strategies for real estate.

Experts in Estate Planning for Real Estate

At Mortensen & Reinheimer, PC we’ve crafted estate plans that have involved literally thousands of real estate properties! Let us put that experience to work for you in simplifying what can be a very complex process. We look forward to helping you! Please contact us at (714) 384-6053 to make an appointment, or use our online contact form. Our website is http://www.ocestateplanning.net.