Wisconsin rentals owned in LLC, how to pass to kids

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steffen707
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Wisconsin rentals owned in LLC, how to pass to kids

Post by steffen707 » Wed Sep 13, 2017 12:32 pm

I want to go with my parents to an estate planning attorney, but before I do, i want to get some more knowledge about our particular problem.

My parents are relatively healthy. We're not thinking either will die soon. My parents have 4 rentals that are owned by their LLC. He and my mother are the only members of this LLC. They live in wisconsin, all 4 properties are in wisconsin and were bought after 1990 (i think 1986 was a magic date for retitling in wisconsin).

I have 2 siblings. My parents wish to pass on these rentals to ME if they died simultaneously (if just my father died, its likely my mother would not want to continue owning the properties by herself), and have MEpay my siblings an equal 1/3 share of the equity that my parents had in the property whenever they pass away. What is the best way for me to "pay" my siblings? Just with a gift and that would count against my lifetime exclusion of (currently $5.3 Million)?

1. If my father passes away first, will my mother get a step up in basis on all the properties held in the LLC because Wisconsin is a marital property state? ( i think i read its a double-step-up state).

2. If my mother wanted to get rid of the properties after my father's death because she doesn't want to deal with them, would it be better for me to buy them from her, or for her to gift them?

3. If they want to shelter these assets from a nursing home, i've heard they could create a modified income trust, place the whole LLC into the trust and if they sit there for 5 years, and then had some kind of nursing home stay, the nursing home wouldn't be able to get at the properties. Is this right? If the LLC is inside the trust for 5 years and then my father dies, does my mother get a double-step-up in basis?


Any help would be great. I want to help them do this right, the first time of course.

steffen707
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Re: Wisconsin rentals owned in LLC, how to pass to kids

Post by steffen707 » Fri Sep 15, 2017 8:16 am

Anybody got any advice?

alex_686
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Re: Wisconsin rentals owned in LLC, how to pass to kids

Post by alex_686 » Fri Sep 15, 2017 8:30 am

For thhe legal points I would talk with the lawyer.

I will say that I find it a bit odd that you will get the properties but your siblings each get a 1/3 slice. To my eye it is a clumsy way of handling it. It is confusing and entangling which tends to breed feelings of unfairness and inequity. Divided up your parents assets in 1/3 and do it as cleanly and transparently as possible.

LLC is independtaly appraised and everybody aggress on the value. You buy out their share in the LLC. Hopefully there are sufficient assets in the other parts of the estate. If not they you take out a mortgage. Maybe the mortgage is through a bank, maybe you just make mortgage payments to your siblings.

However, make sure everybody is on board with this. Don't pressure anybody to do something they don't want. I know more families then I care to count who no longer talk to each other because of relatively small matters of inherentence. Better to sell on the open market.

steffen707
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Re: Wisconsin rentals owned in LLC, how to pass to kids

Post by steffen707 » Fri Sep 15, 2017 8:34 am

They get 1/3 the equity my parents had in the properties, I get the properties and take out a mortgage for 2/3 of it. They live out of state and don't want the headaches.

I'll ask the attorney about the llc, but i'm more concerned with the step up in basis and how to best maximize that. Family is already on board with the idea, just need to figure out how to best implement it.

mnnice
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Re: Wisconsin rentals owned in LLC, how to pass to kids

Post by mnnice » Fri Sep 15, 2017 10:57 am

You basically need to do a generational succession plan. As a rule it works better when you start sooner, get professional help planning, and either have capital or access to capital to buy out the uninterested parties.

I hold no legal expertise or practical knowledge on how to do it in a tax efficient manner.

denovo
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Re: Wisconsin rentals owned in LLC, how to pass to kids

Post by denovo » Fri Sep 15, 2017 11:05 am

How can you be sure that at the time they pass, you have the 2/3 equity needed to pay them? It's not that easy to do cash-out refi's on investment properties if that's the route you are going....

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zzcooper123
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Re: Wisconsin rentals owned in LLC, how to pass to kids

Post by zzcooper123 » Fri Sep 15, 2017 11:13 am

The deposition of the assets will be determined by the Operating Agreement of the LLC. What does this say?

renue74
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Re: Wisconsin rentals owned in LLC, how to pass to kids

Post by renue74 » Fri Sep 15, 2017 11:18 am

What does the LLC operating agreement say about a member's death? Most of the time in the event of a member's death, the member's ownership share goes to a beneficiary or custodian of the estate. The operating agreement needs to spell out this part.

Ask your attorney (or better yet, a qualified accountant) about how the LLC "outside" basis should be handled after your parent's death. That's what you're most interested in.

Sometimes with real estate like this, it seems hunky dory now...and everybody is in agreement that you get X and they get Y in the will, but what happens if your parents hit a bad spell and they liquidate most of their portfolio to be for long term care.....leaving only the LLC/real estate and a small amount of savings? And they forgot to change the will.....all of a sudden you're getting a larger X than expected and they get only a little Y.

The best advice is to plan now for the future, be transparent as much as possible, and to be fair. If done correctly now, the estate planning will be long living, leaving nothing up to future circumstances.

steffen707
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Re: Wisconsin rentals owned in LLC, how to pass to kids

Post by steffen707 » Fri Sep 15, 2017 11:21 am

renue74 wrote:
Fri Sep 15, 2017 11:18 am
What does the LLC operating agreement say about a member's death? Most of the time in the event of a member's death, the member's ownership share goes to a beneficiary or custodian of the estate. The operating agreement needs to spell out this part.

Ask your attorney (or better yet, a qualified accountant) about how the LLC "outside" basis should be handled after your parent's death. That's what you're most interested in.

Sometimes with real estate like this, it seems hunky dory now...and everybody is in agreement that you get X and they get Y in the will, but what happens if your parents hit a bad spell and they liquidate most of their portfolio to be for long term care.....leaving only the LLC/real estate and a small amount of savings? And they forgot to change the will.....all of a sudden you're getting a larger X than expected and they get only a little Y.

The best advice is to plan now for the future, be transparent as much as possible, and to be fair. If done correctly now, the estate planning will be long living, leaving nothing up to future circumstances.
Thanks! That's why we're trying to get this all sorted out now. Want to be fair, transparent and leave as little to uncle sam as possible given tax law constraints.

I'll find out about the "outside" basis, and we'll revisit the LLC operating agreement as well.

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