Trying to help parents manage estate planning

[argentstache]

My parents are in their 70s.  Their primary nest egg is some commercial rental property, which has had very stable tenants on the order of 30 years and 50 years, respectively.  My dad is is no longer able to manage the financial side of the business (he has dementia) and my parents are trying to decide what to do.  They think that they may face very significant capital gains taxes if they sell the properties. They have owned them forever.  I have suggested that they just hire a manager to deal with the financial side, b/c I cannot imagine it would take more than a few hours a month.  My mom is also starting to look into estate planning.  Is there any benefit to putting this into a trust or some other vehicle?  i think the answer is no., but I have not done the requisite research.  If anyone has any thoughts or ideas of things we need to be thinking about, I would appreciate it.  They live in Louisiana.

[secondcor521]

If you and your parent's other heirs (if any) would be interested in owning the company after your parents pass away, then you could have them place the rental property into a business structure which has shares - either a corporation or perhaps some sort of partnership.  Each state has somewhat different types of business structures, so check with the Louisiana secretary of state's office to see what your options might be.  It may already be in a suitable structure.

Then, each tax year they could gift you and each of the other heirs enough shares to equal $15,000.  $15K per year can be excluded from gift taxes and estate taxes.  Furthermore, there are no capital gains - you and the other heirs get the original cost basis and holding period.

If the commercial rental property is worth a really whole lot of money (multiple $M) and/or there aren't that many heirs, then this strategy won't make much of a dent in the problem.  In that scenario, if your last surviving parent dies at an inopportune time, you might have to sell the property to pay the estate taxes.  If this is a concern, you may want to look into an ILIT to buy a second-to-die policy on your parents for enough to cover the estate taxes.

After they pass away, if you and the other heirs have managed to retain ownership of the rental property through this strategy, you could look into doing a 1031 exchange into rental property that is more to your liking (an apartment complex, individual rentals, a couple of duplexes or 4-plexes).

To do this will require spending some money on a CPA and maybe consulting an attorney to get the business structure set up properly.

[cool7hand]

I think you are thinking of a Miller Trust. They can be a great estate planning tool.

https://www.medicaidplanningassistance.org/miller-trusts/

Be sure to work with a well-respected professional. Elder law and estate planning is a niche practice requiring a professional who keeps up with the frequent changes in both state and federal tax codes.

[secondcor521]

I think you are thinking of a Miller Trust. They can be a great estate planning tool.

https://www.medicaidplanningassistance.org/miller-trusts/

Be sure to work with a well-respected professional. Elder law and estate planning is a niche practice requiring a professional who keeps up with the frequent changes in both state and federal tax codes.

I had not heard about a Miller Trust before.  Reading about it at the link you provided, it sounds a great deal different from what I was describing.  I'm not sure of the formal name of my strategy, and haven't heard it mentioned in perhaps a decade.  Maybe it has a name, maybe not.  Maybe it no longer works as a strategy for some reason; if so I'm not aware of it.

I do agree with your last paragraph though, especially if the property in question is worth enough to where estate taxes may come into play.  I think any professional worth their salt would be aware of the strategy I outlined and be able to determine if it's applicable and/or a good idea for OP.

[cool7hand]

I used to work in the industry, but this was not my specialty.

[SimpleCycle]

There's a lot of missing information here, and honestly this is probably a situation where an elder care attorney should walk you through their options.  There are a bunch of things at play - how much cash flow the real estate is providing and if they depend on it for income, how likely it is your dad (and mom) will need paid care and how they plan to pay for that, the tax and other implications of holding the real estate versus selling it, and whether the goal is to take care of their needs or also to provide an inheritance.

If it's providing income that they live off, it does seem like hiring a property manager is the most straightforward solution.  But if your dad needs care beyond what that income can pay for, they may need to sell the property to pay for that.