Tangible Assets historically have proven to be great hedges against inflation and today you hear Gold and other precious metals being touted for this characteristic. Beyond precious metals we’d like you to consider land and anything that comes out of land… We’ll consider these assets to be Real Investments!

Throughout history ownership of land has symbolized power… Wars are fought over it and the wealthy accumulate it. Unlike stocks, debt free real estate cannot disappear!

Today, we are in a market where stocks have for the most part rebounded, Gold is at near record highs, Real Estate is still bouncing around near the bottom, the world is filled with financial turmoil, interest rates are near record lows and inflation is knocking at the door… It appears to be a great time to again look at Real Property!

LoopNet Commercial Real Estate Blog

Multifamily and Residential Land REO’s play big role in distressed market sales

Posted: 13 Dec 2011 04:43 PM PST

Distressed properties remain a hot topic in commercial real estate and the number of REO sales continues to increase. In fact, REO sales have accounted for nearly 16% of all sales comps recorded by LoopNet in 2011 with Multifamily and Residential land really standing out as the category to watch.

The chart to the right provides a summary of the 2011 REO sales by property type (Jan – Nov 2011).

A few highlights include:

§ Multifamily and Land/Agriculture accounted for 85% of the REO sales in the market

§ The Duplex/Triplex/Fourplex subcategory accounts for 83% of the Multifamily REO sales

§ Residential Land/Agriculture REO sales account for 58% of the Land/Agriculture Sales

§ Duplex/Triplex/Fourplex combined with Residential Land/Agriculture accounted for 61% of all the REO sales

What’s your prediction for 2012?

]]> http://www.1031guru.com/blog/ira-advantage-newsletter-12-11/feed/ 0 http://www.1031guru.com/blog/interest-rates-for-commercial-real-estate-are-at-a-historical-all-time-low/ http://www.1031guru.com/blog/interest-rates-for-commercial-real-estate-are-at-a-historical-all-time-low/#comments Thu, 01 Dec 2011 07:53:36 +0000 Bob http://www.1031guru.com/?p=722 Lenders are easing their credit guidelines and not requiring recourse or reserves in certain circumstances.  Call me today if you would like to discuss interest rates and current Cap Rates in the Willamette Valley.

ESTATE WISE PLANNING TM
SINCE 1979
By: Doug H. Moy
Consulting Specialist in Estate and Gift Taxation and Planning
Member, National Association of Tax Professionals (NATP)
___________________________________________
Published by: Doug H. Moy, Inc., P.O. Box 254, Lake Oswego, OR 97034 (503) 636-5855
___________________________________________
Vol. VII, No. 10. October 2011
___________________________________________

Doug Moy teaches CPE at Portland Community College (at the CLIMB Center
on SE Water near OMSI). CPE is available for life insurance and accounting
accreditation. All classes are also open to the public.
Here is a link to registration information (please copy and paste to your
browser): http://www.pcc.edu/career/documents/ceu-insurance-tax-acct-fall2011.pdf

UNUSED EXEMPTION AMOUNT PORTABILITY—UPDATE:

As I reported in the December 2010 issue of ESTATE WISE PLANNING,™ at page 4 of 8, any federal estate tax exemption amount unused by a decedent spouse who dies after December 31, 2010 (the “deceased spousal unused exemption amount”), generally, is available for use by the surviving spouse as an addition to the surviving spouse’s exemption amount [§303, 2010 Tax Act; IRC §2010(c)(2)]. Recently, the IRS issued guidance on electing portability of the deceased spousal unused exemption amount [Notice 2011-82,2011- __ I.R.B. _]. The Notice reiterates that the deceased spousal unused exemption amount is available to a surviving spouse only if an election is made on a timely-filed United States Estate (and Generation-Skipping Transfer) Tax Return (Form 706) of the predeceased spouse’s estate on which the exemption amount is computed, regardless of whether the estate of the predeceased spouse is otherwise required to file a Form 706 [§303(a), 2010 Tax Act; IRC §2010(c)(5)(A)]. Alternately stated, if the predeceased spouse’s estate is not required to file Form 706, nevertheless, a Form 706 must be filed to elect portability of the predeceased spouse’s unused spousal exemption amount! The Form 706 is required to be filed even if the value of the predeceased spouse’s gross estate is less than the federal estate tax exemption amount (currently, $5.0 million). Thus, for example, assume that the value of the surviving spouse’s gross estate, at the time of the predeceased spouse’s death, is $4.0 million and the value of the predeceased spouse’s gross estate is $2.0 million, if the predeceased spouse would want the surviving spouse to use the predeceased spouse’s unused exemption amount (e.g., $2.0 million), then, the personal representative (PR) of the predeceased spouse’s estate would be required to file a Form 706.

Thus, by timely filing a properly-prepared and complete Form 706, the estate of a predeceased spouse will be considered to have made the portability election without the need to make an affirmative statement, check the box or otherwise affirmatively elect on the Form 706. Until such time as the IRS revises the Form 706 to expressly contain the computation of the deceased spousal unused exemption amount, a timely-filed and complete Form 706 that is prepared in accordance with the instructions for that Form will be deemed to contain the computation of the deceased spousal exemption amount, thereby, satisfying the requirements in IRC section 2010(c)(5)(A) for making an effective election. My services are available to prepare the Form 706 for the predeceased spouse’s estate. The earliest due date for Form 706 of the estate of a decedent who died on January 1, 2011, was October 3, 2011 [IR-2011-97 (Sept. 29, 2011)]. For estates of decedents who died on February 1, 2011, or later, which have not obtained an automatic six-month extension to file the Form 706, a Form 4768 should be prepared and filed immediately.

Not filing a timely Form 706 will prevent the making of the portability election. However, if such an estate is obligated to file a Form 706 because the value of the predeceased spouse’s gross estate exceeds the exemption amount, or files a Form 706 for another reason, the decedent’s PR must follow the instructions for Form 706 which will describe the necessary steps to avoid making the election.

Naming a Guardian for Minor Children: Since the enactment of the $5.0 million federal estate tax exemption amount ($5,120,000 in 2012 with a unified credit equivalent of $1,772,800), estate planning for many people has taken a backseat at the expense of nontax reasons for estate planning. The story you are about to read is true—only the names have been changed to protect the privacy of the parties—and involves the future for 4-year old Gemma Montgomery. This story points out the importance of naming a guardian in a Last Will or revocable living trust for minor children. Recently, Gemma’s 37-year old mommy, Grace Montgomery LaFrance, died from a mysterious cause.  Substantial reason supports the notion that Gemma’s “step-dad,” Martin LaFrance, contributed to Grace’s untimely decease. Gemma’s story continues to unfold as I write. Gemma was born to Grace out of wedlock. It is believed that Curtis Weber is the lawful, legal father of Gemma; however, Grace and Curtis never married. Gemma was given her mother’s maiden name (Montgomery). Soon after Gemma was born, Grace married Martin LaFrance—Grace and Martin later had one child, Luke LaFrance, now age 2. Harry Montgomery and Olive Montgomery are Grace’s parents; Warren LaFrance and Bette LaFrance are Martin’s parents.

Grace had been admitted to the hospital with what doctors initially believed was an asthma-related issue. In an attempt to perform a tracheotomy, the doctor was unable to create an airway into Grace’s trachea—she died during the attempted surgery. Everyone in her immediate family knew that Martin had a history of choking Grace when he became angry. Unfortunately, her parents, Harry and Olive, were so overwhelmed with grief for the loss of their daughter that no one thought to consider the possibility that Martin’s repeated choking of Grace may have contributed to the scar tissue in her trachea which prevented the doctor from performing a successful tracheotomy. It should be noted that Gemma’s biological father, Curtis Weber, never took responsibility for Gemma and had no meaningful contact with her after her birth. Following Grace’s untimely decease, Martin sought b permission to adopt Gemma; however, Martin failed to inform Curtis that Grace had died. Not questioning why Grace, herself, had not sought Curtis’s consent for Martin to adopt Gemma, Curtis gave his consent to Martin and signed adoption agreement papers to that effect.

Grace’s parents, Harry and Olive Montgomery (Gemma’s biological grandparents), want to legally adopt Gemma. Martin’s parents, Warren and Bette LaFrance, want to adopt Gemma but not their own blood-line grandson, Luke (remember, Warren and Bette LaFrance are of no blood-line relation to Gemma). Presently, Harry and Olive, have filed suit to adopt Gemma and to have Martin declared unfit to parent her because of his history of domestic abuse. Curtis has filed suit to prevent Grace’s parents and Martin from adopting Gemma. Warren and Bette LaFrance have filed suit to adopt Gemma. To date, the judge in this story has declared that Curtis, in effect, doesn’t have a “dog in this fight,” meaning that Curtis doesn’t have a voice in who will adopt Gemma. While all the wrangling is going on, Gemma is in the care of Martin and his parents, Warren and Bette LaFrance, while Martin is working for a janitorial service.

If only Grace had died testate (with a Last Will) and had nominated and appointed a guardian for the person of Gemma, perhaps the raising and “parenting” of Gemma would be less conflicted. Moreover, if, in nominating a guardian, Grace had revealed in a Last Will her concerns about Martin raising and “parenting” Gemma and what she would want for Gemma regarding where she was to live, the manner in which she was to be raised, and so forth, a court would have been better informed of Grace’s concerns for Gemma. But, of course, Grace failed to nominate and appoint a guardian—a legal right that should never be overlooked when minor or incapacitated children (or adults) are involved. Indeed, estate planning for nontransfer tax reasons remains critically important when children’s lives are at risk. [Note: Although this story is nonfiction, the names, characters, places and incidents are the product of this writer’s imagination or are used fictitiously; and any resemblance to actual persons, living or dead, business establishments, events or locales is entirely coincidental].

EMPLOYER-PAID DEATH BENEFIT: Occasionally, an employer will provide a death benefit for a decedent employee’s surviving spouse. If the death benefit takes the form of a life insurance death benefit on the life of the employee, provided by the employer, the death benefit is income tax-free to the employee’s spouse. However, if the death benefit is not funded by life insurance, then, it is income taxable to the employee’s spouse. For example, a decedent employee’s former employer paid a lump sum amount and transmitted a payment to the IRS to cover any federal taxes due on the lump sum (a tax gross-up). The decedent employee’s spouse learned that she must include in her gross income the lump sum and tax gross-up payments. Decedent’s spouse believed that the lump-sum payment should be considered a form of life insurance payments and, therefore, excluded from gross income. Gross income does not include amounts received under a life insurance contract, if the amounts are paid by reason of the death of the insured [IRC §101(a)]. Because the payments to and on behalf of the decedent’s spouse were not made pursuant to a life insurance contract, she must include them in gross income in the year of receipt. Formerly, the Code excluded from the gross income of beneficiaries certain death benefits not exceeding $5,000 if paid by or on behalf of an employer and by reason of the death of the employee [Former IRC §101(b)]. In 1996, Congress repealed this exclusion effective for decedents dying after August 20, 1996. The IRS must apply the law as enacted by Congress. Only Congress can change the tax treatment of payments made to beneficiaries by reason of the death of an employee or former employee [INFO 2011-0012 (Jan. 18, 2011].

MARITAL DEDUCTION REDUCED: The language “it is my desire” or “it is my wish and desire to” is language that requests, recommends or expresses a desire for action (i.e., precatory) and usually nonbinding. Decedent was survived by his wife and children. Article III of his Last Will provided in its heading that it is a “statement of intent” concerning certain assets and states as follows:

To the extent that I own any equity interest at my death in any of the following closely held
investments, i.e. [Assets], it is my desire that such equity interests be retained and that each of
them be distributed so that all such equity interests are ultimately owned in equal shares by
[Children]. If any of them are deceased, it is my desire that the decedent’s share of such equity
interests be owned equally by such decedent’s children. [Emphasis added]

Article X of the decedent’s Last Will created a Family Trust for the benefit of the decedent’s children. Article X uses the language “‘I give all of the rest, residue and remainder of my property. . . .’” Decedent’s surviving spouse does not have an interest in the Family Trust. Article IV and Article V of Decedent’s Last Will contain specific bequests to Spouse. Both articles use the language “‘I give, devise and bequeath to . . .’”, “‘I request, but do not require . . .’” and “‘I further request, but do not require. . . .’” Article VI makes a bequest to Spouse using the language “‘I give. . . .’” Article VII makes specific bequests using the phrases “‘I give’”, “‘I give . . . to use during [Spouse’s] lifetime’”, “‘I give, devise and bequeath’” and “‘I direct’”. Article VIII disposes of tangible personal property not otherwise disposed of under the Last Will and uses the language “‘I give’” and “‘I direct.’”

The IRS was asked to determine whether the language “‘it is my desire’” included in Article III of Decedent’s Last Will is mandatory or precatory. If the language is mandatory, Article III is a specific bequest of Assets to Decedent’s Children. If the language is precatory, assets will pass under Article X as part of the residue of Decedent’s Estate. Decedent’s estate includes substantial debt obligations owed by Decedent at death, and the rules of abatement in the statutes of the State of the decedent’s residency are applicable. Under these rules, if the language in Article III constitutes a specific bequest, the amount that passes to Spouse will be reduced, together with the amount of the Decedent’s estate tax marital deduction. On the other hand, if the language is precatory, assets will pass under the Article X residuary provision. Under state statute, the debt obligations will eliminate the residue and the remaining debt will be counted against the specific bequests. Under these circumstances, the estate tax marital deduction will be greater.

The IRS acknowledged that it is true that some words in their ordinary meaning are precatory while the same words are often construed as mandatory when used in a Last Will or when it appears from the context of the entire document that the words are an expression of the testator’s intent to dispose of property. State law has long recognized that such words as “wish” and “desire” evidence the intention of a testator to dispose of property and may be given mandatory construction. To pass title, a testator need only use language sufficiently clear and unequivocal to show an intention that the property designated pass to the beneficiary named in the Last Will. In this case, Decedent’s Last Will is replete with expressions of various directions and commands. That Decedent knew how to use clear and express language to effect Decedent’s intentions is demonstrated throughout Decedent’s Last Will.

The Service was not asked if and/or to what extent extrinsic evidence is admissible under State law to clarify Decedent’s intent. The Service expressed its belief that the language within the four corners of Decedent’s Last Will “is clear and speaks for itself. Extrinsic evidence cannot alter language in a [Last] [W]ill and the intent of the testator must be found from the words in the [Last] [W]ill.” Accordingly, the Service ruled that, “The language ‘it is my desire’ in Article III of Decedent’s Will is to be given mandatory construction as passing the described property interests to the Decedent’s children as specific bequests, thereby reducing the marital deduction under §2056 and increasing the taxable estate, taking into consideration the rules of abatement under Statute in regard to Decedent’s debts and obligations” [TAM 201126030].

The importance of clear and convincing language to express a testator’s intent, whether in a Last Will or trust, is essential to the successful operation of the instruments governing the disposition of a Decedent’s estate. If the Decedent intended to benefit his spouse, then, his intent in this regard should have been clearly, succinctly and consistently expressed throughout his Last Will.

Note: Technical advice memoranda (“TAM”) contain guidance or advice as to tax laws, regulations and rulings with respect to a specific set of facts furnished, at the request of an IRS district or appellate office, in response to any technical or procedural question that develops during the audit or appeals process [Treas. reg. §601.105(b (5)(i)(a); Rev. Proc. 88-2, §4.04, 1988-1 C.B. 21]. A TAM issued with respect to a taxpayer is generally afforded the same effect as a letter ruling on a closed and completed transaction [Saltzman, IRS Practice and Procedure (Warren, Gorham & Lamont, 1981) ¶3.03[1]; Rev. Proc. 86-15, 1986-1 C.B. 544, §7.01(4); Sheldon I. Banoff, “Dealing With the ‘Authorities’: Determining Valid Legal Authority in Advising Clients, Rendering Opinions, Preparing Tax Returns and Avoiding Penalties,” 3 Financial and Estate Planning (CCH) ¶24, at 27, ¶26,851, (Jan. 1989)]. I am well-acquainted with the use of TAMs, having defended a decedent’s estate in the National Office of the IRS in Washington, D.C., and the Appeals Division in Dallas/Ft. Worth, TX, in the Service’s issuance of TAM 9214010. See Doug H. Moy, “Deferring the Payment of Federal Estate Tax Under §6166 in View of TAM 9214010,” 18 TAX MGMT. ESTATES, GIFTS AND TR. J. 107 (July-August 1993)].

QUESTION OF THE MONTH: If I convey title to my interest in a closely-held business to the trustee of a revocable living trust, and such business interest otherwise qualifies for an IRC section 303 stock redemption to pay death taxes, will the fact that the legal title to the business interest is in the name of the trustee render the value of the business interest includable in my gross estate ineligible for the stock redemption to pay death taxes, funeral and administration expenses? Answer: No. [Treas. reg. §1.303-2(f); Ltr. Ruls. 8813047 and 8621030]. Although the redeemed stock must be included in determining the decedent’s gross estate [IRC § 303(a)], the stock need not be owned by the decedent’s estate in order to qualify for exchange treatment. Thus, a qualifying redemption may be made of stock included in the gross estate because it was property over which the decedent had a general power of appointment which the decedent has previously transferred subject to retained dispositive powers (e.g., to the trustee of a revocable living trust) or which was held by the decedent as a joint tenant [Treas. reg. §1.303-2(a), (b), and (f)]. Exchange treatment applies to the distribution only to the extent that the interest of a shareholder is reduced directly or through a binding obligation to contribute toward the payment of the death taxes, funeral and administrative expenses [IRC §303(b)(3); Doug H. Moy, Living Trusts: Third Edition, John Wiley & Sons, Inc. 2003. Copyright © 2003 Doug H. Moy. All rights reserved, at 292-293].

AFR: The October 2011 Applicable Federal Rate, under IRC Section 7520, for determining the present value of an annuity, an interest for life or a term of years or a remainder or reversionary interest is 1.4 percent [Rev. Rul. 2011- 22, 2011-41 I.R.B.1, Table 5]. The November 2011 AFR is 1.4 percent [Rev. Rul. 2011-25, 2011-45 I.R.B.1, Table 5]. This bodes well for the grantor retained annuity trust (GRAT), charitable lead annuity trust (CLAT), charitable transfer of remainder interest in residence or farm and private annuities but not well for the qualified personal residence trust (QPRT), grantor retained income trust (GRIT) and charitable remainder annuity trust (CRAT). Lower AFRs have no impact on grantor retained unitrust (GRUT), charitable remainder unitrust (CRUT), charitable lead trust (CLT) and pooled income funds.

Note: In the case of transfers to a CRAT for which the valuation date is after April 30, 1999, if an election is made under IRC Section 7520 and Treasury Regulation Section 1.7520-2(b) to compute the present value of the charitable interest by use of the interest rate component for either of the two months preceding the month in which the transfer is made, the month so selected is the valuation date for purposes of determining the interest rate (i.e., the AFR) and mortality tables [Treas. Reg. § 1.664-2(c) (Jan. 5, 2001)]. In other words, one may choose the lowest AFR of either of the two months preceding the month the CRAT is funded in order to obtain the maximum tax deduction for the present value of the remainder interest.

[Note: Section 6110(k)(3) of the Code provides that letter rulings may not be used or cited as precedent; however, they may be cited as authority. The United States Supreme Court has cited private letter rulings as authority in Rowan Companies v. United States, 452 U.S. 247 (1981).].

Copyright 2011 by Doug H. Moy. All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of the author and copyright holder of this material. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor Doug H. Moy, Inc. and/or employees is/are engaged in rendering legal or accounting services. If legal advice or accounting assistance is required, the services of a competent professional should be sought.

Circular 230 and Other Notices – Whether or not you have received this message in error, nothing in it, including hyperlinks to other sources and any attachments, is tax advice; and it has not been written or edited for use (and cannot be used) by any person or entity: (1) for the purpose of avoiding any tax or penalties that are referenced, assessed, levied or imposed under the U.S. Internal Revenue Code or other legislation; or (2) for the purpose of promoting, marketing or recommending to another party any tax plan or approach that may be discussed or referred to herein.

CONTACT DOUG H. MOY FOR:
- Second opinion
- Referrals — always welcome
- Initial consultation appointment
- Updating or reviewing an estate plan
- Preparing Estate Tax Return Form 706
- Preparing individual State estate tax return
- Client questions and concerns
- Speaking/teaching opportunity
- Estate/Will/Trust contest litigation support
- Estate/gift tax support to counsel before IRS

Doug H. Moy, President
Doug H. Moy, Inc.
PO Box 254
Lake Oswego, OR 97034-0030
Telephone: (503) 636-5855
Fax: (503) 697-7749
dougmoy@msn.com
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or call Doug H. Moy at (503) 636-5855.

If you have a retirement account with over $200,000 and are looking for cash flow, more stability, and a secure retirement portfolio you need to attend our upcoming free seminar.

Tuesday, November 15, 2011

7:00-9:00pm

Phoenix Inn, 850 Franklin Blvd, Eugene

To Register Call: (541) 987-2232

 A key to buying commercial real estate successfully in this market is with low leverage.  The cap rate has to be about 2% in excess of the current interest rate that would be charged for the new loan on such property.  If you are obtaining a loan the lender’s require a Debt Coverage Ratio of about 1.3 so you need to be attentive to that too.

To ensure that you are buying a quality investment you should carefully study the past three years of:

1.  Year-End Property Manager’s Operating Statements; and,

2. Owner’s Schedule E’s for the same years

The operating expense should be about 40% to 44% of the actual rental income received. If it is less than that, then be cautious in using the resulting Net Operating Income for your valuation.

Good luck and let me know if you have any additional questions!

Apartment demand continues to gain steam and strong demand is emerging. It’s a great time to buy!

1.   Conventional Apartment Market: The conventional apartment market continues to remain strong in the Willamette Valley along the I-5 Corridor. There is also a strong regional interest in federally assisted apartment complexes.

 Tertiary markets off the I-5 Corridor are experiencing a lesser level of demand, but still remain strong.

2. Major Campus Apartment Market: The University of Oregon and Oregon State University campus markets are performing very well with a very strong tenant appeal and an extremely low vacancy factor. The recession has brought a heavy student enrollment, and that enrollment substantially exceeded the supply of student dorms and on-campus housing.

New Design Phenomenon: Those campus markets have experienced a quantum leap in apartment design:… “For Rent by the Bedroom”.

The newest apartment complexes have been built as three, four and even five bedroom units, and then are rented out individually by the bedroom. In some instances the rents approach $685 per bedroom. Four years ago, campus rents were more in the range of $650 to $800 per unit.  

The students share a common kitchen, living room and generally two full bathrooms. Several developers have experimented by adding flat screen TV’s and IPod docking stations in each room, together with plenty of high speed internet connectivity. Observation: Those complexes designed as five bedroom units have experienced lower appeal. The unrented bedroom is locked off and taken out of production.

3. The Buyers: Most of the market action is occurring with experienced investors who are generally well capitalized, and capable of covering the required 1.2 to 1.3 debt coverage ratio required of the apartment lenders. Action is moderate to strong by those taking advantage of 5% fixed interest rates.

4.   Apartment Loans: Interest rates on long term apartment financing have tightened a bit over the past six months. However, the change has not been as much as I would have anticipated. Interest rates to a near historically low level.

It is a great time to either buy apartments using moderate leverage, or refinance an apartment complex. You can fix the low interest rate  for at least 5 years, and even 10 or more years in certain situations.  You will look like a genius in the not too distant future.

Check back for my next blog on “The Benefit of Buying an Older Apartment Complex”.

To disucss your real estate needs don’t hesitate to call me Bob Nelson, CCIM  at (541) 485-8100.