1031 Exchanges—a long time staple of the real estate investment world. Many investors have successfully utilized this tax code to buy, sell, buy, sell, and so on in order to improve their real estate portfolio. However, for many investors, this tax strategy seems to be the bane of their existence! Why is that? It’s because the 1031 Exchange requirements can be very restrictive. 1031 RESTRICTIONS ELIMINATE THE NEED FOR 1031 EXCHANGES USING A COMPLEX SPENDTHRIFT TRUST
How can this problem be solved? How can one reduce the stress of 1031 exchanges? The answer is simple but the process
The investor must identify properties within 45 days. Hopefully, they will find something that they like and not be forced to settle, which is often the case. They must close the identified property within 180 days. If the deal falls through and the investor is beyond 45 days, the exchange is going to fail and the taxes must be paid the following year. Depending on market conditions, exchanges fail 40%-60% of the time. Not great odds. Because debt has to be replaced with equal or greater debt, investors often find themselves in a "pickle" because they do not qualify to replace the full amount of debt of the relinquished property.
is complicated. Many attorneys throughout the U.S.
have drawn documents for trusts that provide a combination of tax mitigation as well as solid asset protection.
The non-grantor, irrevocable, and spendthrift provisions generate solid asset protection. As Rockefeller once said, "The key to success is to own nothing but control everything." That is what this trust does for the investor. It is very solid asset protection. It is much better than LLCs, which are pierced in state and federal courts, on average, about 40% of the time. The complex, discretionary, and spendthrift provisions provide great tax mitigation. For the sake of staying on topic, it can defer capital gains taxes for 100s of years and eliminate the need for 1031 exchanges.
PROVISIONS IN MANY OF THESE TRUSTS ARE:
• Non-grantor • Irrevocable • Complex • Discretionary • Spendthrift
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