Sobelman

Long-term, passive real estate investments are typically sought out by those looking to plan for their heirs. Normally, the principal owner is a sophisticated real estate investor who wants to simplify asset holdings for the future.

Moreover, beneficiaries may be better served by owning an asset that provides a steady income stream along with the benefits of owning real estate. But estate planning can be complicated, and the transfer of assets to an estate must be handled by a qualified professional who is familiar with state and federal tax laws.

“Those looking for safer assets for their beneficiaries should be cognizant of various factors,” says Benjamin Hanan, shareholder at Sarasota law firm Abel Band Chartered. “Using net leased investments as an estate planning tool can be highly beneficial to both the investor and their beneficiaries.”

Should a particular investor purchase and maintain their net leased investment until death, the investor’s estate will receive a step-up in basis to its fair market value as of the date of the investor’s death, thereby eliminating all of the deferred income tax on that investment. Thereafter, the investor’s beneficiaries receive the following benefits: a real estate investment; an income stream; and an asset in which they possess a relatively high basis such that if they sell the asset in the future, they can minimize the taxes paid in connection with a sale (or, if properly structured, such taxes can be deferred through a 1031 exchange).

However, the passive nature of the investment is always seen as a benefit to the heir(s). Typically, this ideology is taken because the beneficiaries are not as savvy as the investor and, therefore, the burden of management-intensive real estate is perceived as a secondary or tertiary option for the investor. When planning an investor’s estate, the net lease investment is typically seen as a sign of thoughtfulness and consideration for the benefit of future generations.

John Maceovsky, senior manager of Clearwater CPA firm Kirkland Russ Murphy & Tapp PA, has seen clients acquire large portfolios of real estate assets over a lifetime who are faced with the decision on how to pass on their success with minimal financial impact. Maceovsky stated that “utilizing net leased investments in conjunction with family limited partnerships and a suitable gifting strategy, an individual can transfer appreciated assets to the next generation.”

While net lease investments have been an option for decades, they have only been in the forefront of the investment community over the last dozen years. During that time, few have deemed it a viable asset class for estate planning advisors and professionals. By not only looking at the intrinsic real estate value of an asset or the creditworthiness of a tenant, individual investors are looking beyond their years in an effort mitigate as much effort as possible for their legatees.

The views expressed here are those of the author and not of Real Estate Media or its publications.

David Sobelman is executive vice president of Calkain Companies Inc. and a member of Real Estate Florida’s editorial advisory board. He can be reached at dsobelman@calkain.com.