After a career spent building a real estate portfolio, investors of a certain age start thinking about legacy. You can’t take it with you, but it’s not enough to trust that the next generation will take care of itself.
This was the topic of the Mortgage Bankers Association’s recent breakfast panel, “Generational Real Estate.” Tax and estate planning advice was provided by Ken Weissenberg of EisnerAmper and Glenn Kurlander of Morgan Stanley, who delved into umbrella partnership REITs, intentionally defective grantor trust and parking transactions — an often-overlooked deal structure totally unrelated to vehicle storage, which Weissenberg compared to “diamonds on the beach.”
But there’s more to a legacy than avoiding taxes.
Norman Sturner of Murray Hill Properties cautioned attendees to keep an eye on “the humanity of the situation,” and to remember to be good parents. “The genius is not necessarily in treating them equally, but fairly,” said Sturner, who has two sons, only one of whom is in the family business.
In situations like the Sturners’, where control of a family business needs to be separated from an inheritance, the best thing to do is to start early accumulating wealth outside of the company, Kurlander said. But he also acknowledged that this is easy to say and rarely happens in practice.
“If we’re going to be fair, we have to give kids who are not in the business interest in our real estate company, and that’s hard,” he said. Separate classes of stock can help, and Kurlander advocated for parents to leave behind “escape valves” in the partnership between inheriting offspring. Get options that allow any party to dissolve the partnership at a personal cost can help keep the peace long after mom and dad are gone. “As human beings, when we don’t have control we feel we have to do something to feel in control,” Kurlander said. “Sometimes, the mere presence of these safety valves keeps the system in equilibrium.”