- Diversification & Liquidity Management: A Private Real Fund can pool multiple
properties into a single investment, which diversifies risk and can offer better liquidity
management options than holding individual assets. The fund structure can allow beneficiaries to receive cash distributions from the fund rather than being forced to manage or liquidate individual properties. - Professional Management: A fund structure often involves hiring professional managers,
which can streamline operations, improve asset performance, and maximize value over
time.
This is particularly useful if heirs are inexperienced in real estate management. - Tax Efficiency: Real Estate Funds often offer tax advantages, such as the ability to defer
capital gains taxes through fund structures.
Also, individual properties could be transferred to an irrevocable trust that would claim a
stepped-up basis on the properties’ capital gains. The trust would then sell all the properties
together as a package to the private real estate fund, thereby streamlining the transfer of
ownership for the original owners or their estate, while dramatically reducing selling costs
to the trust, and ultimately its beneficiaries.
Additionally, tax-efficient structures within the fund (like REITs or LLCs), may help
mitigate some tax burdens on the estate or beneficiaries. - Estate Planning and Control: A Private Real Estate Fund allows the original owner to set
specific guidelines for distribution, control, and management of assets after his/her death.
This could help prevent disputes among heirs and ensure the assets are managed according
to the original owner’s wishes. - Easier Transition of Ownership: Setting up a fund makes it simple to transfer ownership
stakes rather than dealing with the complexity of transferring each property separately.
In addition, beneficiaries can inherit shares in the fund, which can be more straightforward
than dealing with individual titles and ownership documents.
Conclusion
A Private Real Estate Fund can be a viable solution for estate planning if liquidity
management, professional oversight, and tax efficiency are key priorities.
However, it might not be ideal if beneficiaries need immediate access to cash or if the
real estate portfolio consists of highly diverse assets that require individualized
management or sale strategies.
Therefore, any decision should consider the specific needs and financial situations of the
heirs, as well as the structure and goals of the estate.
Sources:
1. Real Estate Finance and Investments by William Brueggeman and Jeffrey Fisher
2. Estate Planning by Stephan Leimberg
3. American College of Trust and Estate Counsel (ACTEC)
4. Private Equity Funds: Business Structure and Operations by Lederman
5. Chartered Financial Analysts (CFA) Institute
6. Institutional Limited Partners Association (ILPA)
7. National Association of Real Estate Investment Trusts (NAREIT)
8. Urban Land Institute (ULI)
9. McKinsey & Company
10. American Bar Association (ABA) Disclosure: Not legal, tax, or financial advice. Please consult your own legal counsel, tax or
financial advisor