DB Tracks - 2/17/2019 11:24
Boone & Crockett - 2/17/2019 03:35
Charitable remainder trust is one, and prolly the best way to avoid recapture. It’s not a total loophole though, as a formula will be utilized to determine a remainder amount for charity. But it’s still a wonderful tool. Another would be to keep it and rent it to you, inheriting it in the end, receiving stepped up basis. After all, he should want retirement income, and you want cheap payments, so good for both. Figure out a point where he has collected enough in rent, you no longer owe it anymore. You may need to allow for time value of money. I’ve found 8% of the current value of a piece of equipment is kinda the sweet spot. After 12 1/2 years, he will have received 100 % of the original value back in rental payments. After that, he’ll need to decide if not having the use of his money up front for over twelve years is worth an extra payment or two, or to cut the payments a year or two short because he owed no tax. It’s simply a point to negotiate. If there are other heirs, a succession plan spelling out the terms and conditions is necessary to protect your interests, as well as the other heirs in case he dies prematurely. Feel free to shoot me an email for more clarification if you wish.
Dan, don’t have much time today, but in a nutshell, renting would be non material participation income to you, You haven’t sold it, so no recapture. Let him inherit the property and equipment and recieve stepped up basis.
So yes, you have a sound plan. If you are healthy, you could/should get an amount of life insurance in place in conjunction with a buy sell agreement in an amount that your son could qualify for bank financing to buy his siblings out upon parents passing. He should be the owner, and could pay all or part of the premiums, you could gift him some or all the premium. Unless you’re really old and/or you and your wife are uninsurable,
(this would be a second to die policy
) this is by far the cheapest way I’ve seen for coming up with the cash necessary to fund the purchase.
Interesting; As I’m working through plans with my son taking over. Mines a bit more complicated as I’m 50/50 with my brother. We are incorporated each own 50% of shares. Been thinking of renting my half, land, equipment, bins, shop, sheds, cattle barns, to Son for % of gross, with him getting equipment at the time of my passing, with shares of land, buildings divided up between farming Son and his siblings equally, and he will have full control of land for renting or buying at a reduced rate as long as he is still farming. Or would this not be a good plan?
Dan
Do you pay income taxes?
