Recently, I met with a new client to discuss various strategies to divest some of his properties. With three grown children now in the family business, the separation of assets was starting to become a nuisance with cross management issues. Keeping business and family matters segregated is often difficult, but like anything, it requires a clear plan and with families it must be robust with fairness.
Each of the children had begun building their own portfolios and was anxious to stake a claim for dad’s assets. When I brought up the potential exposure to capital gains tax, both state and federal, and recapture of previously taken depreciation, the zest to make changes cooled. I insisted that the legal title to each property be examined to be sure of the correct owner. We soon discovered that there were inconsistencies between the ownership and the tax reporting that had to be corrected. Getting the ownership issues resolved required a direct exchange of two properties. Once this was accomplished, we went to work on equalizing the values. Since there wasn’t any desire to sell any of the properties in the next two years, this could be facilitated as an exchange between related parties. Both individuals had to agree to hold their new positions to avoid inadvertently triggering tax.
I asked them to consider receiving properties from dad until after his passing to take advantage of a step-up in basis to the then current market value. We examined the basis of each asset and then ranked them for tax exposure. This analysis provided a succinct plan for the near-term and long-term plans of the family. Exchanges are a powerful tool when all of the options have been weighed; let Newbridge Exchange assist with your plan today.
As the year draws to a close, it’s time to take one last look at any opportunities to lessen your individual tax burden. While the best laid plans are done far in advance of the actual event, it may not be too late to initiate a plan to save some serious money.