EFTA00991366.pdf

From: "Jeffrey E." <[email protected]> To: Ada Clapp Subject: Re: Purchase of townhouse Date: Thu, 05 Jun 2014 23:24:41 +0000 alans idea is right On Thu, Jun 5, 2014 at 5:15 PM, Ada Clapp < > wrote: Hi Jeffrey, Eileen, Rich and I had a call today with Alan to discuss the purchase of the new townhouse. We discussed who should buy it: • If we think the townhouse is a good investment that will appreciate over time, then it makes sense for a trust to buy it. o Alan felt that we could take the same approach regarding Leon's use of the residence that we do for the art (that is, as long as Debra is a beneficiary and they are married, Leon can live in the townhouse and not pay rent). We are however concerned with the cumulative effect of taking this position and see merit to Leon paying rent (including the transfer of the rent $$ to the trust transfer-tax free). There is flexibility to go either way. • Alan raised an alternative suggestion: a split interest purchase. He has used this technique in the past and thinks it would be a good fit here. It works as follows: Leon would purchase a life estate directly from the seller and the trust would purchase the remainder interest directly from the seller. What Leon pays would be calculated under IRS tables based on his life expectancy (about 1/3S of the purchase price). The trust would pay the balance. Leon would live in the townhouse as the life tenant and pay all regular day to day maintenance expenses. Capital improvements are split between Leon and the trust based on his life expectance at the time the funds for capital improvement are expended. On the upside: ■ Leon could live in the residence for his lifetime (even if Debra predeceased or divorced him) without paying rent. ■ On Leon's death, no portion of the residence should be included in his estate On the downside: EFTA00991366  ■ Leon has to use the residence as a personal residence, so he could not say, use the first floor as a gallery for commercial sales. ■ The trust has a smaller basis in the residence as a result of the split purchase (but you don't have an estate tax to pay either-so maybe not a downside). ■ Leon would have to own the life estate individually and not in an entity (the trust could acquire the remainder interest in an LLC). Alan is putting together some slides to illustrate the technique which he will send me tomorrow. Alan-please correct any misstatements on my part. Thanks! Ada Clapp Elysium Management LLC 445 Park Avenue Suite 1401 New York, New York 10022 Direct Dial: 646-589-0303 Fax: 646-589-0330 Email: IRS Circular 230 Disclosure: Pursuant to IRS regulations, I inform you that any tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used, by any person or entity for the purposes of (i) avoiding tax related penalties imposed by any governmental tax authority, or (ii) proposing, marketing or recommending to another party any transaction or matter discussed herein. I advise you to consult with an independent tax advisor on your particular tax circumstances. This communication and any attachment is for the intended recipient(s) only and may contain information that is privileged, confidential and/or proprietary. If you are not the intended recipient, you are hereby notified that further dissemination of this communication and its attachments is prohibited. Please delete all copies of this communication and its attachments and notify me immediately that you have received them in error. Thank you. EFTA00991367  please note The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of JEE Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to [email protected], and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved EFTA00991368