Schwabe, Williamson and Wyatt's.


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Condo Building Owners. Walk 8, 2006. Seattle, WA. 2. Critical NOTICE ... business substance determination, and bequest and progression getting ready for entrepreneurs. ...
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Schwabe, Williamson & Wyatt\'s Real Estate and Business Seminar Series Tax Saving Strategies for Apartment Building Owners March 8, 2006 Seattle, WA

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IMPORTANT NOTICE To agree to IRS directions, we are required to educate you that this presentation, in the event that it contains guidance identifying with government charges, can\'t be utilized with the end goal of keeping away from punishments that might be forced under elected duty law. Any expense guidance that is communicated in this presentation is constrained to the duty issues tended to in this presentation. On the off chance that guidance is required that fulfills relevant IRS controls, for an assessment sentiment proper for evasion of government duty law punishments, please contact a Schwabe lawyer to orchestrate an appropriate engagement for that reason.

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Our Goals Today Learn a few duty sparing systems Understand why and how every technique functions Know the upsides and downsides of every methodology Learn to keep away from or minimize danger of IRS review

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Overview of Current Tax Regime Federal Estate Tax

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Overview of Current Tax Regime Federal Gift Tax

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Overview of Current Tax Regime Washington State Estate Tax

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Jake Julie Mary David Mark Jennifer Jason Justin Eva Alex Emma Claire Harry and Sally\'s Family Tree Harry Sally

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Harry and Sally\'s Assets

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Harry Dies Harry\'s Share $5 Million Sally\'s Share $5 Million Simple Will Sally Dies Sally\'s Estate $10 Million Case #1 No Tax Planning (Simple Wills) Harry and Sally\'s Estate $10 Million (all subject to charges)

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Harry Dies Harry\'s Share $5 Million Sally\'s Share $5 Million Fed Credit Shelter $1.5 Mil State Credit Shelter Trust $2 Mil Marital Trust $1.5 Mil Sally Dies 1/3 Jake\'s Share 1/3 Jennifer\'s Share 1/3 Julie\'s Share Case #2 Basic Estate Tax Planning Harry and Sally\'s Estate $10 Million

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Case #2 Basic Estate Tax Planning Pros: Cons: Saves considerable duties Ensures first life partner\'s home goes to expected beneficiaries Do not have to set up trusts amid lifetimes of both mates Must be incorporated into Wills before first life partner\'s passing Somewhat more costly to get ready Wills with Credit Shelter Trusts Requires trust organization

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Harry half Sally half Apartment A, LLC Case #3 Family LLC Structure Member and Co-Manager Member and Co-Manager

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Case #3 Discounts of LLC Interests Lack of attractiveness 30% to 35% Lack of control 44% ( Trusts & Estates ) ¼ surpassed 60%! Rev. Administering 93-12 IRS "quits"

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Sally half Harry half Apartment A, LLC Apartment A $3 Million Owned by Harry and Sally Jointly Case #3 Family LLC Strategy Discounted Value @ 35% $1,950,000 All three flats Total: $9 million All three LLCs Total: $5,850,000

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What, me stress?

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Family LLC Strangi Than Fiction $11 million exchanged to FLP Strangi passed on two months after the fact Heirs guaranteed 40% rebate RESULT: Taxed on the full $11 million! WHY?

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Family LLC Strangi Than Fiction Waited too long (two months before death) Transferred an excessive amount to FLP (did not hold enough for Strangi\'s needs) FLP paid Strangi\'s bills FLP did not lead any dynamic business THE "SNIFF" TEST: Did the gatherings really do what they said they would do?

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Family LLC Tips to Avoid an Audit Don\'t hold up until you are in sick wellbeing Do what you say you mean to do Don\'t contribute individual use resources Keep sufficiently out to address individual issues Respect the type of element (separate books, state and government filings, and so forth.) FLLC is not your own checkbook Distribute money master rata Don\'t be ravenous!

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Case #3 Family LLC Pros: Cons: Requires that business conventions are taken after (separate books, gatherings, reports, government forms, and so on.) Cost of set up and organization Lender assent might be required Some review hazard, if not done effectively Saves considerable bequest charges Limits proprietor obligation Efficient administration Keeps business in family Makes it simple to exchange fragmentary premiums Distributions tax-exempt to degree of premise No land extract charge

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Children and Spouses Up to $12,000 each every year Grandchildren\'s Trusts Up to $12,000 every year, per recipient Sally half Harry half Apartment A, LLC Case #4 Family LLC With Gifting Program

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Case #4 Year 1 Gifts

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Case #4 Year 4 Gifts

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Case #4 Family LLC With Gifting Program More Cons: More Pros: Cost of examination Pro rata disseminations can affect income Some review hazard, if not done accurately Further duty funds (blessing charge rejections and rebates) Allows beneficiaries to start cooperation in business Avoids confusions of co-occupancy Spendthrift insurance Provides a system for pooling speculation resources

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$195,000/yr To H & S Jennifer 33% Sally half Harry half Jake 33% Julie 33% Apartment B, LLC Apartment B, LLC GRAT 10 Years Value: $1,950,000 Value: $ 3,570,000 Case #5 Grantor Retained Annuity Trust (GRAT) Gift charge exception utilized: $1,070,000

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Case #5 Grantor Retained Annuity Trust (GRAT) Pros: Cons: Retains identifiable income Transfers noteworthy thankfulness to beneficiaries Saves generous assessments No review hazard, on the off chance that you agree to statute Requires that Grantors survive the term of the trust Requires current utilization of Gift Tax exclusion Does not encourage exchanges to grandchildren (GST absolved exchanges) Requires trust organization

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Note to H & S $110,000/yr Sally half Harry half Jennifer 33% Jake 33% Julie 33% Apartment C, LLC Apartment C, LLC IDIT Sale 60% Case #6 Intentionally Defective Income Trust Harry and Sally hold 40% LLC premiums Harry and Sally contribute $117,000 in "seed cash" Harry and Sally reclaim a 15-year completely amortizing note

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Case #6 Intentionally Defective Income Trust Pros: Cons: Requires trust organization for term of note Limited review hazard, if legitimately esteemed and archived Retains identifiable income Saves significant expenses Does not require current utilization of Gift Tax exception Transfers critical gratefulness to beneficiaries Facilitates exchanges to grandchildren (GST excluded exchanges) Does not oblige Grantors to survive term

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Schwabe, Williamson & Wyatt\'s Real Estate and Business Seminar Series Questions? Much thanks to you.

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Dennis A. Ostgard is a 1978 graduate of Harvard Law School, and pioneer of Schwabe, Williamson & Wyatt\'s land and business rehearses in the Seattle office. His practice underlines business land exchanges, renting and improvement ventures, business deals and acquisitions, and business element choice. Susan L. Peterson is a 1987 graduate of Harvard Law School, who centers her practice in the zones of land, business exchanges, and business substance arrangement, including business land exchanges, business deals and acquisitions, business element determination, and home and progression getting ready for entrepreneurs. About the Presenters

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