Hello again:
I just wrote the answer to your followup question under the earlier
posting, but I'll briefly summarize it here.
I'm not aware of any prohibition on one of the five beneficiaries
being the buyer, but my conclusion is they must pay all cash to the
trust, rather than a down payment and note for the balance. That may
not be too much of a problem for them--it just means they have to
obtain bank financing (the way most buyers of residential property do)
rather than giving their note to the trustee/seller.
The reason for that is, if they don't give the trustee all cash for
the purchase, then the trustee will end up owning their promissory
note as an asset of the trust. And as cited in my prior answer, QPRT
trusts generally aren't allowed to own such things--they're only
allowed to own personal residences:
"A personal residence trust is a trust the governing instrument of
which prohibits the trust from holding, for the original duration of
the term interest, any asset other than one residence to be used or
held for use as a personal residence of the term holder ...). "
Treasury Reg. 26 CFR 25.2702-5
http://tinyurl.com/v3c
I also concluded that the beneficiary-buyer shouldn't relinquish his
rights, because doing so would be a taxable gift by him to the other
4.
I realize that what you're driving at is that since he's going to
receive 20% of the trust for free 8 years from now, he might be just
as happy to give up that right and pay 80% of the purchase price in
cash, rather than keep that right and pay 100% of the purchase price.
My suggestion is that he should be able to do it in 2 steps.
Step 1: Pay 100% of the purchase price and buy the property from the
trust.
Step 2: Sell his 20% remainder interest to the other 4 beneficiaries.
To avoid a taxable gift in one direction or the other, the purchase
price for that remainder interest should be its fair market value, but
in this case I'd say that 20% of what he's paying for the property is
the right price.
The IRS will probably not complain that he's getting paid too much for
the remainder interest (even though he's getting it's full value now,
while the buyers will have to wait 8 years to realize the benefit from
what they bought). In other contexts, the IRS has fought to make sure
that people don't pay too little in transactions of this sort, so I
don't think they'll question it here.
IRS Rev. Rul 98-8 Dispositions of Certain Life Estates
http://www.irs.gov/pub/irs-drop/rr-98-8.pdf
One caution (and this applies to my earlier answer too). These
answers do not constitute legal advice, nor does an attorney-client
relationship exist between us. You should only use these answers as
general information, and certainly neither you, the trustee nor the
beneficiaries should take any action in this highly technical area
without consulting a qualified attorney who will have the opportunity
to review the trust instrument, the real estate deeds, the law of your
state, and all the other things that I have no access to.
So please note, THIS IS NOT ADVICE THAT YOU CAN RELY ON. Now, take
your questions to a local, qualified attorney, and let him or her give
you proper advice!
Sincerely,
richard-ga |
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