Part 3 | Valuations, Real Estate & Advanced Tax Strategies

And so when it comes to real estate, the first item here on the slide, we talk about the concentration. It tends to be larger concentration of an individual's portfolio. And you may not think of it like, "Hey, I invest in a REIT," but it may be your home, it may be a newer condo, it may be a beach house, something like that. And so because it is such a highly concentrated asset, it tends to have a lot of issues attached to it. So there's illiquidity attached to it because you can't just go and sell the roof of the house without selling the whole property. Also, trying to break up the property between individuals might not be the easiest thing to do either. They might not want to be co-owners, so you may have some family concerns. Also, if it's a piece of operating property, you're going to have to consider the management and the continuity of the business.

And then all of this is encompassed within the coordination. And so we have different experts. So Neil does the real estate appraisal. I may work on the valuation component. We'll get into that later, but then you're going to have a tax expert, you're going to have an attorney for the estate planning and the estate structure, and there may be some other experts, wealth management in there as well, dealing with life insurance. And so all of these experts need to coordinate, and we're going to cover a little bit of that today. So that's top side, what we're going to be addressing today and what we're going to be looking at. I'm going to pass it over to Neil.

Neil Axler:Thank you. Thank you, Joe. And that's right. Joe's group and my group work together often on these assignments, and it's really a turnkey where we talk to a client, we try to understand the scope, and we work initially to serve the client best with the business appraisal side and the real estate side. So for real estate, the methodology is very important in estate planning and estate administration. You need to have a defensible valuation framework for transfer decisions, for tax reporting, fiduciary administration, and beneficiary outcomes. So that's really why it's important. Two contexts, often when we are doing this type of work, when you're doing, it could be for estate planning or it could be for estate administration. For the estate planning, people are still alive and whereas estate administration, somebody has passed away. For estate planning, it's perspective and transaction focused. It traditionally supports gifts, trusts, structuring, succession, liquidity planning, and it does allow time to resolve documentation and property right issues before the transfer.

So it can be pretty orderly if it's done well working with your trust and estate attorney and the accountants to make sure the estate planning has everything, all the ducks in a row before you do the actual evaluation. For estate administration, that is when someone passes away. So the value will be retrospective unless you're doing the appraisal as of currently the date when someone passes. So the valuation date will be the date of death for estate administration purposes, but for estate planning purposes, you can have an agreed upon date, whatever you want. So that's important to make sure that when you are doing the date of death valuation, that you're pulling market data and everything for the property as of nothing more current after the date of death date. Estate administration does support probate inventory, tax filing basis, distributions and sale decisions. So it's really important to have an independent record supporting fiduciary decisions because oftentimes family members, as Joe knows, they don't always get along and you want to make sure that there is a third party valuation professional that will provide an independent record of what the property's worth and people can make some decisions after.

So the common core is you have to have a clearly defined assignment when you're starting. Is it for estate planning purposes? Is it for administration? You need to have appropriate market evidence, applicable valuation approaches, and you need to be well supported.

So the methodology begins with defining the valuation assignment. So again, you need to talk about the intended use, the purpose, what is it for, the effective date? Is it the transfer date? Is it the date of death? Property interest? Is it fee simple? Is it leasehold? Understand what is going on in the property. It could be much different if it's a primary residence versus an income producing property that has tenants. What is your standard of value? Fair market value is more typical, but you need to explain it to the reader what it is. And then very important is what is the scope and how are you reporting it? How are you going to talk about what information you were able to obtain to do this? Did you or did you not do an inspection? What type of analysis, what type of assumptions you needed to make and discuss it in the report and be transparent and not misleading to the reader of the report, which would be ultimately IRS.

So methodology, again, you start with your due diligence, possibly you'll inspect the property, you'll review the legal, you'll review zoning, you'll look at the physical attributes of the property, you'll look at the ownership, how long has the property been owned by the current owner and what is going on in the property. And then if there are leases, you will look at the leases and review them appropriately. Next, you're going to look at the location and understand the market framework. What's the location, what's the economic conditions, supply and demand, what's market rents, how are the expenses, comps and transactions and so forth? Number three is really the most important foundation of the appraisal is determining the highest and best use of the property. It's possible that the current use is not the highest and best use and you need to analyze that and how does that affect the value?

So to do a highest and best use, we'll dig into this a little more in the next slide or next couple slides, determine is it legally permissible, what's physically possible, what's financially feasible and maximally productive. And then you tie it together with the valuation methodology. You'll consider a sales comparison approach, you'll look at an income capitalization approach and a cost approach and determine which one or all three are relevant for that property type.

So highest and best use, number one, what's legally permissible? You would need to look at the zoning. You need to look at any deed restrictions, easements, what kind of codes, what's allowable on that site? Number two, what is physically possible? What can you put there? How big is the lot? Is it rectangular? Is it irregular shape? Does it have a topography? Is the topography good? Is it bad? What can you physically develop on that property that's legally permissible? Number three, what's financially feasible? And that's really important because what's going on with the real estate market in today's world with the last year or two with tariffs and uncertainties and with the war, there's a lot of changes on a daily basis. So you need to really understand the market what is financially feasible to build on that site. And then you compare all the uses.

You say, well, what is maximally productive? Does it make sense to tear down the building and put something else up? Does it make sense to keep it as is? And what is the one that has the highest value of return? Joe, I'm getting a little feedback from you there.

Thank you. And then lastly, that all culminates in the highest and best use of the property, which is a reasonably probable use that's legal, possible, feasible, and maximally productive. And it's the foundation for the value. And you also need to value it as if it's vacant. So if there's a property currently on there, we understand the property's been a, say it's a owner user and it's been on there for 50 years, they've been manufacturing something on that site, but you need to say, well, if it was vacant, what would it be worth? And you need to compare that as well. Next slide. What are the approaches to do the value? And there's the sales comparison approach, the income approach, and the cost approach. The sales comparison approach is when you pull comps, these are similar transactions of properties that have sold that are similar to the subject property.

And then what you do is you make adjustments to account for any differences of how this property could be worse or better than your property, and you come up with a value that way. Income capitalization approach, that is an approach that's used when it's an income producing property and the value is really a function of what kind of NOI can you pull off the property and so forth. And then the cost approach is an approach saying what would the value of the land be and then what would the value of the building to replace the building and then depreciate it for obsolescence, physical and functional and economic obsolescence. And they're all used different ways and there's no one methodology that should be used for every type of property. Oftentimes for residential, you wouldn't use an income capitalization approach if it's a single family residential or a cost approach, but it really depends on the property type and how market participants are valuing and buying properties and what's the most appropriate approach.

So there's a statement here that the appraiser considers all applicable approaches and reconciles the evidence according to the relevance, reliability and property specific facts.

Again, sales comparison, you're going to look at recent sales, similar properties. Some of the adjustments that you would make to the sale comps would be for location, if the location is better or worse than the comps location to the subject. The size, is the property bigger, smaller or similar to the subject property? What's the condition? Is the subject property brand new and in great condition and all the comps are very old or the other way around? And again, here, what's a really good statement is a sales approach is the best approach when there's a lot of transactions going on in the market. So again, that's very property specific, location specific, how is that market doing? And if there are a lot of sales, you need to consider the sales that are out there. Income approach, what it does is it capitalizes the NOI into a value estimate.

It uses market derived cap rates, discount rates, and it is best suited for rental properties and other properties that have income components to it. And again, the cost approach, the replacement cost of improvements, is there any depreciation? How old is your property? You got to value the land. It's most reliable for properties that are special use. Maybe there's not a lot of similar properties out there. There's not many transactions. There's not really any good rental comps or rental market. So the cost approach is very appropriate for that and it's used a lot. And the problem with it a lot of times is depreciation. It's difficult to estimate depreciation, but you need to consider it when appropriate. Okay, we have our second polling question. So we have 60 seconds to do this. This question is, there's no right or wrong answer. It's a personal question. What percentage of your client's net worth is typically represented by real estate?

A, less than 25%, B, 25 to 50%. C, 51% to 75%, and D, most of your clients above 75%. Joe, what's your guess here?

Joseph Cercere:I would guess B, that's typically what I see. How about yourself?

Neil Axler:I'm going to say D, because I think everyone loves real estate. We'll see the results shortly. That's what keeps us exciting. We don't know what's going to happen, right, Joe?

Joseph Cercere:Yeah. This is going to be audience by audience.

Neil Axler:Okay.

Joseph Cercere:Hopefully everyone's had a chance to respond to the poll.

Neil Axler:Yeah, it should pop up. We want to make sure people have this chance because if you don't answer three out of the four questions, you don't get credit and then what are you going to do?

Neil Axler:We're excited to see these results. Thank you. Okay. What are some limitations of the sales comparison approach? This is pretty important with the market, how it's been and with a lot of uncertainty out there, oftentimes there'll be a property that you're going to look at that may be very unique type of property or a property that's in a market that just does not have a lot of transactions of similar types of properties. So therefore the sales comparison approach is less reliable. There could be too few comparables. Again, if it's a special purpose, unusual or a rural property, there may be not many sales at all. So it's going to be too few to have really a statistical credible conclusion when you're doing adjustments. You're going to be making oftentimes adjustments that are too subjective if the properties are really not that much like each other and not similar in size, not similar in condition.

Locations are really not similar at all.

It's going to be more based on opinion of local market participants, but not as supportable. So that's another problem when there's not many comparables. And again, it's going to be less of a extracted paired sales analysis that relies on multiple transactions. And some of the sales may be old. And that's something, unfortunately, when you're in a market that doesn't have a lot of comparables, you are going to have to go back in time and then with market conditions that makes that less reliable as well. So as your appraiser that you hire and you submit this for this purpose, just make sure that it's addressed in the report accordingly so it's being transparent with the reader of what's going on with that. I am going to see here. Okay, we got the results. You were right, Joe.

So Joe, who's going to win the Yankees game tonight? Let's go Yankees. Okay, good deal. So it is 25 to 50%. Excellent. So again, responding to thin market limitation, what's going on when there is, you need to... Initially, if there are no comps, and that happens often, the valuation professional needs to expand, maybe go beyond the local market. We're doing a lot of very high-end residential properties throughout the country that are really not typical for the local market. There's nothing that sells anything close to these price in some of these towns. So our staff has to then research into other submarkets and other buyer pools, but they need to understand that it's less comparable that way. So you need to, again, describe it in the report. When there's less sales, it's not as easy to verify the sales. There's less sources, less brokers and attorneys to speak to about the sales, so that makes it difficult.

So what you need to do is you need to, in addition to doing the sales approach and talk about some of the weaknesses, you need to then maybe put more of an emphasis on an income approach or a cost approach that would be appropriate in that case. And then lastly, just make sure you're transparent and disclose any information that would help the reader understand that there are no good sales and you did what you had to do and you made sure you documented it appropriately.

Okay, so this next one is why it matters. So when you're doing the transfer strategy, when you're doing for the purpose for planning, you do want to make sure you get an independent valuation professional to quantify the value before you're doing any gifts, before any funding, any trusts, any restructuring and successions. Again, to make sure you're doing the right thing and making sure that maybe avoiding litigation amongst partners down the road to show that, look, this is an agreed upon valuation of the property. It does provide a documented fair market value foundation for tax reporting, and that's really what it's used for all the time. So the fact that the fair market value is concluded upon and in a report is supported, that's very, very important. When you're doing liquidity, when you're maybe insurance, when you're doing financing, asset sales, what do you need to do to fund that liquidity?

Again, it's good to get a realistic idea of what this property would be worth to a willing buyer, a willing seller as of the date that's happening. That's really important. Family governance, again, economic value. Joe and I have worked with many families that own a lot of real estate and often generationally there could be properties that were the crown jewel and everyone thought was so valuable. And sometimes we are the bearer of bad news that that's not the case and it's maybe not worth as much as they thought. So for family governance, it's very important. And then to make sure you're ready for the execution, that you can do what you need to do quickly. It's very important to have that certainty and be ready to execute.

Okay. Again, date of death value is the retrospective benchmark that is used. So it's a date that is often always prior to today. You can't do a date of death valuation in the future because then you'll have some criminal attorneys you'll need to be talking to. So you don't want to do that. Probate and inventory, it's really important. You need to document the value of the real property that's included in the estate. You're going to need to inventory this and it's very important to get the valuation professionals to do that. Of course, tax basis, that's so important because these properties have been inherited and what's the basis going to be and talking to the accountants to understand the ramifications of what our conclusions are. When Joe and I do the work, we're not doing it as a CPA, we're doing it As valuation professionals. So we give the results and then the tax people and the attorneys have to move that forward.

Distributions and buyouts, again, what's an equal distribution? What's beneficiary buyouts? To have it on the table, what you're going to do with it to understand from a third party what these assets are worth. And it's a fiduciary record. I mean, this is something that should be done by an independent professional. So the executors, the trustees know that everything is being done the right way. And that's so important for this. So key takeaways from the workflow when you are embarking on one of these assignments, these adventures, you're going to engage the right professional. You're going to define the property rights, the rights of the... Is it again for planning? Is it for date of death administration? That's the purpose and the date. The date is very, very important because if it's a date of death was a year ago and the market has changed significantly, you need to make sure it's clearly identified that the date is not today, it's a year ago and so forth.

Next, you gather the documents that are going to be needed for the valuation professionals. They're going to need as much as they can get, whether it's copies of tax returns and leases and rent rolls to understand as much about the property as they can to do the analysis. If an inspection is going to happen, you'll have to schedule the inspection. The valuer will then analyze the market, will conclude on the highest and best use. They'll apply the appropriate methodologies. They'll reconcile what is the best methodologies to rely upon, put it into a report and then send it to the advisors. And throughout this process, what Joe and I have done with his group and my group is as we are getting values, then Joe can take our conclusions for his partnership interest valuations, which he'll be talking about. And then best practice here on the bottom is pretty important.

It needs to be a coordinated effort with the lawyers, with the tax, the accountants, the wealth advisors, insurance professionals, and then business valuation people like Joe. You were going to jump in on this one, right, Joe?

Joseph Cercere:That's a great lead off.

Absolutely. So Neil, when you're coming along, so Neil gets engaged to value the asset, the real estate. And then I get involved to value the actual business that may hold the real estate, two different things. The nice thing that when we work on projects together is we're working congruently. When we're receiving documents, we're receiving it, one party receives it and then Neil will oftentimes tell me, "Hey Joe, this is important to know about the property. This is going to impact your valuation and vice versa." Additionally, and Neil, we run into this a lot where there may be risks or situations that we were just talking about the double dip, where a property, we don't want to over affect a property or over discount a property on the appraisal side as well as on the business valuation side. And I think that's really important. And so it is nice to work together.

Neil's also got a pretty good sense of humor, so that makes it more fun too. So now this slide here is important to bifurcate between valuing the real estate, valuing the asset, and then also valuing the business. They're not the same thing. And so typically the asset is a 100% interest in real estate. Separately, if that piece of real estate was held by an LLC or C Corp or LP, then you would actually need a business valuation to value that business. And so let's just say, hypothetically speaking, the estate owns a 20% interest in a business and its only asset is a piece of real estate, you would need that real estate to be appraised first, that's step one. And then the business's balance sheet would be marked to market and then we would come in as business evaluators and we would value the securities, the 20% that's being transferred or the 20% that's in the estate.

That's the key difference. And this next slide really highlights that where we have, it's not always pro rata. I think people might like this think, oh, I know the value of the real estate and so if I own 50% of it, it's just half of the value of the real estate. And that's not always the case. You have different interests, you have different sizes, different legal ownership. And so typically when we get the real estate appraiser, it's the value of just the real estate and it's 100% fee simple interest. And then potentially the next number two down, it may be owned indirectly as a tenant in common. A tenant in common is a different type of ownership or it's a fractional ownership in the property itself. That is not always pro rata. There may be rights or restrictions associated with that interest that might not make it dollar for dollar or 50%.

The next level over, number three, again, if the asset, if the real estate's held in an LLC, an operating business, a 20% interest may be subject to further discounts. It might not be 20% times the asset value. Additionally, there could be other items that the LLC holds, for example, debt, maybe other securities, maybe an operating business. Cash is the most common one. And so you need to aggregate all of these assets together, calculate the value of the security, the interest that you're valuing, and then maybe if it's applicable, take discounts on that interest. And then one step even further removed is a 1% GP or manager interest. These are commonly developer interests. So they might not have any value in the underlying property or the underlying business. Their economics may simply be performance based, like carrier or promote interest. So those are valued completely different.

And so again, the primary asset in all of these entities that we're looking at on the screen, it's all the same. It's all the same piece of real estate, but it's a different legal structure, it's the different economics, and it's the different sizes that all make the different values that come out of it.

Neil Axler:Joe, I'm going to give you a quiz back to that last slide. What percentage of your work is what on that? So one, two, three or four, what do you do most? It's probably 90% is

Joseph Cercere:Going to be number three. That's the most common and that's the most commonly used in the state tax plan. It's number three. It's going to be a minority, non-controlling, non-marketable interest in a family held LLC. That is typically the most common that I see. Now, your team will give me number one, and that's what I need to value the value of the interest. But because without that, we can't use book value, we can't use historical costs. There's meaningless numbers. We need to know, hey, what's the value as of the date of the transaction or the date of death?

Neil Axler:Okay, thanks.

Joseph Cercere:So we should have had a polling question on that. The next one, so the valuation supports as is exactly what Neil was talking about earlier is this valuation, it's got to be defensible because it's going to be used to support typically tax compliance, planning or state tax return, gift tax return, or it's going to be an arms length deal. And that's ultimately, not only does the business valuation have to be defensible, as Neil mentioned, the appraisal gets scrutinized as well. So it's important to have really strong, supportable real estate appraisal and the business valuation combined. Because if the valuation gets challenged, guess what? They're going to look at the underlying real estate as well. That's not going to slip by. And it's very important to grab reliable experts that do this regularly. Look at that. We're right to a polling question. Which issue most often creates confusion when transferring real estate interests?

Number of answers here establishing. So Neil, I know what you would say on this polling question. Managing family succession. Yeah.

Neil Axler:It's a tough one. Yeah. So the polling questions are getting more difficult as the hour goes by. I'm starting to see that.

Joseph Cercere:We've got A through E. Yeah. We could have given these guys some true false, but no, we decided to go...Let's give them some time.

Neil Axler:You grade on a curve, right?

Joseph Cercere:Again, there's no wrong answers. All right. So I guess the last one, which one do you think on poll three here is going to get the most? What's the most confusing out of all of these?

Neil Axler:I would say D. What are these accountants talking about, right?

Joseph Cercere:Yeah. I always think it's Ag.

Neil Axler:We've got a lot of tax people on the call here. People think they know what it's

Joseph Cercere:Worth, right? People think they know what the real estate appraisal's worth and then they come in and then you say, "Hey, I'm sorry." Or you say, "Hey, good news. Here's what it is." All right, let's keep moving. I think we can continue going. All right. All right. Now we're getting to the fun piece, the valuation. Just so you know, we did cover a lot of the valuation process in the first presentation. So anything we recover, I'm going to go move very quickly over. If you have any questions, feel free to reach out to us after the presentation, but we can just keep continuing and see if we have results of the pull out of the next one. So when we look at the business valuation, again, we take the piece of real estate, we mark to market the balance sheet, and then we value the individual securities that's being transferred.

If that security is a minority interest, if it doesn't have control rights, we can discount that for lack of control for tax purposes. Additionally, we're talking about non-publicly traded private stock, private interest in small companies. And so if the company, again, a 20% interest in an LLC without a public market, it's going to be hard to find a buyer.

That additional time it takes to find the buyer, the restrictions to transfer that interest, the approvals, the time it takes, the cost of liquidity, all of that's helped support a discount for lack of marketability. And so these two discounts are useful in estate tax planning because as we mentioned before, we're not taking a pro rata interest in the real estate. We're going to take our value of the business, our interest in the business, and then we're going to take discounts on that, discount for lack of control and discount for lack of marketability where it's applicable. So let's see, here's the poll. This is pretty split. Here's the poll questions are up. Let's see the responses. Boy, I'll tell you what, the lowest response was coordinating tax reporting. So the highest, managing family control and succession. I think that definitely creates the most confusion. And then establishing the property there too.

So it's pretty well split.

Neil Axler:No, this is interesting. Yeah. Okay. Yeah, I think the family control and succession is a big one.

Joseph Cercere:Yeah. Now, one step further into the discounts, and this is what was not covered in our first presentation, part one, is when we talk about discounts, we are always talking about a business, an LLC, a limited partnership, a legal tax structure. There's another type of structure out there where it's a direct property interest. It's not an ownership interest in an LLC or a partnership. It's a direct, it's called a tenant in common or a direct fractional ownership interest in a piece of property. So here, this example, Neil would come in, value the real estate. Now, instead of an LLC holding that real estate, that real estate may be held as a tenant in common between two or more owners who own the property directly. Now, what this causes is it's a unique thing of it almost like a joint venture where you have multiple owners in a property, but it creates problems.

It creates control issues. It also creates marketability issues. And one of the ways to sort of get out of your ownership interest as part of trying to find a buyer for a partial interest in a piece of property is to actually go to court and you file what's called a partition action. And it's a legal proceeding when you try to compel the court to either make the other buyers buy you out, that's one remedy, or maybe another remedy was sell the whole property, but the court has to get involved. So you're going to incur legal expenses. It's going to take additional time. You don't know what the outcome is. You don't know what the property value's going to ultimately sell for. There's a longer holding period. And these are really similar to the discounts for lack of control and marketability we talked about before. But this is separate.

It's a different sort of type of discount. But similarly, as a holder of a tenant in common, you can still take discounts. And so this is sort of another avenue when you think about estate planning is you want to think about the ownership, who owns it, how is it owned? Is it a tenant in common ownership? Is it a minority non-marketable ownership in an LLC? And it's really important because when planning, if you're making a gift and you can take some discounts on that, that's important. So let's keep moving forward.

And here, I did briefly already cover what the tick or the tenant in common interest is. This is a little bit more detail on it. Again, in my practice, we see this a lot with the residences and the vacation homes, but we've also seen it for farm property as well. Here what we want to do is, now that we've talked about the background, maybe we can just quickly, because I know we're running a little tight on time, I want to quickly just walk through a quick example of a couple of estate planning tools in action up on the screen. And when I'm explaining this to some of the clients, the way we like to think about it is if you're transferring, it's a hot potato or a balloon. If the balloon is inflated and you try to pass it out of your estate, you're going to pass a large asset out.

And in this case, the balloon is the piece of real estate. So what can we do to deflate that balloon to pass it out of the estate and so that it can grow on the outside? So in a grant, we can cover this really on piece one, but the grant or intentionally defective grantor trust, what gets contributed to the trust, whatever appreciates, whatever grows inside of that trust, the growth, the appreciation that's outside of your estate. So that stays with the beneficiaries of the trust, but the principal asset will return back into the primary estate. And so sometimes what we see is because real estate has so many different types of property, you have income producing and land, maybe non-income producing, but for a good income producing property, if we were just to transfer that whole asset outside of the estate, again, the balloon might be too big.

And so there's some things that we can do to get around that. And so maybe step one is we put that into an LLC and then what we could do is we could take out debt against that income producing property. So loan to value ratios, if you think about it, maybe we could chop that asset down by 80%. And then if we distribute those proceeds of cash and the owner of the graph would hang onto that cash, not to get too technical, but they could use those cash proceeds to pay taxes in the future on the income produced by the trust. But essentially, again, if you think about it, we've deflated the balloon by taking on debt and taking the net asset value and shrinking it down. And then when we would transfer it to trust, potentially we could transfer it to two trusts or three trusts and take discounts on those contributions.

Again, deflating that balloon, deflating the gift even further. And so then it goes out of the estate into... And now it's on the outside. Think on the other side of the fence, we put the balloon there and now it's going to start inflating because how is it going to keep growing? Well, the owner is going to be paying taxes on the income. There may be market appreciation of the property. Additionally, as we mentioned before, we took out debt. And so the income that's generated by business, generated by the asset is going to help start repaying that debt. It's going to start inflating that balloon on the outside. And so that additional upside, that appreciation happens on the outside. It's going to go to the beneficiaries and ultimately the principal of the asset comes back. Similarly, for a gift, it's the same concept. You want to take as many discounts and use strategically the least amount of your lifetime exemption to pass the assets out of the estate.

We're really running low on time, so if we just could move over the QPRT very quickly where essentially say mom and dad live in the home or the beach house, rather than transferring the entire beach house to the kids, they could utilize a CUPER, qualified personal residence trust, and you would statistically look at and say, "Hey, we're going to live in the property for an additional 10 years." So mom and dad would stay in the property. They would still have ownership over the next 10 years. And then after that or some other determined period of time, then the remainder piece of that value gets passed. And so what you've just done is you've chopped down the value of that real estate and chopped down the value of that gift. Now, there are certain rules here where if they pass away before it's completed, it would come back into the estate.

So there's definitely some risk here, but there's ways to even accelerate the gifting. Again, if we bring in, now we have tenants in common, so now you have mom and dad as tenants in common, you might be able to take a discount on that property that gets transferred. And so now in addition to the remainder that's transferred, you might be able to take a discount on that additional remainder. And so it's another powerful way to move these large liquid assets out of the estate. And so the more assets that get passed out, potentially if you're in a taxable estate, the less estate taxes you would pay.

And here, starting to wrap it up a little bit, but it's important to understand that for estate planning in general, this is why it takes several CPEs to get through. This is that you have your attorneys, your wealth advisors, your tax accountants, you have your relaxers of the world, you have your real estate appraisers, you have your business valuation professionals and other wealth and insurance advisors, and it takes all of these people in sync. Now here at EisnerAmper, we have most of those except for the attorneys. And so we can really cover a lot of your team under one roof. Neil and I work together all the time and that just helps streamline the process, helps streamline documents. And again, obviously for EisnerAmper, we have a large, very strong tax department who help lead the way as well as wealth advisors. Hey, another poll question just in time.

Which real estate transfer strategy do you encounter most frequently? Direct gifts, LLC transfers, a tick transfer, or you just have limited exposure? Let's give people some time to respond. Neil, I think, I mean, I could tell you from my experience, it's usually a mix of A and C. It's going to be gifts of an LLC or a family limited partnership interest. That's going to be nine times

Neil Axler:Out of 10. You got to choose one. You don't get to

Joseph Cercere:Choose both. I know. So I would say C,

Neil Axler:I guess.

Joseph Cercere:Yeah.

Neil Axler:All right. Yeah, I think now you're right. C is more appropriate, more common.

Joseph Cercere:Can we go to the next slide? Okay. All right. We're on the takeaways and then we can see the results after the takeaways. We've got five minutes left. Neil, from your piece, what's the key takeaway you want people to come home with?

Neil Axler:I like the third bullet point. Do not assume the discounts because that makes your job difficult when they say, "Well, everyone says 30% or whatever." Find out there's a market for

Joseph Cercere:It or something.

Neil Axler:Yeah. And I see that the real estate portion is a little more black and white. There's a little more quantifiable. Some of the data, I think for you, there is a range with the discounts and you have to really support it the best you can or it gets flagged and you don't want to get an audit.

Joseph Cercere:Exactly, exactly. And the discounts vary on each engagement. It depends on the governing documents, the type of interest, the security.

Neil Axler:Exactly. Joe, there is a question here, and if you know this, if you want to opine on it, in what instance would it be best to do a tick versus a partnership? What have you seen or what's best practice for you

Joseph Cercere:In your experience? Well, a partnership can be a holder of a tick, but it's hard to say what's best. What's best is always what is best for the owner or for the beneficiary or for the person making the transfer. That's what's best. If they want to keep control, then that's what matters to them. In my opinion, just ease for me, that makes my life easier. It's just an LLC, straight interest. I have governing documents. The data's more readily available. Where with a tick, it's a little bit more subjective. You're relying on as much available statistical information that is out there, which isn't much. And I tend to have to make more subjective decisions, whereas with the LLC interest, there's a lot more information and studies out there to support it. So that's what I prefer. I don't know if I answered your question, but...

Neil Axler:No, no, I think that's good. I mean, and obviously what you're seeing more of would show that it's more popular as well. Do we have the poll results? There we go. There

Joseph Cercere:We go. So let's see. It's pretty well

Neil Axler:Split.

Joseph Cercere:All right, LLC.

Neil Axler:Yeah, I think you got it again.

Joseph Cercere:Getting an A+ today.

Neil Axler:I think let's go Yankees. There you go. You got to go to Yankee Stadium now.

Joseph Cercere:So we've got two minutes left for questions. I know we're not going to cover everything, but most importantly, you can reach out to Neil and myself directly, or if you're already working with someone at EisnerAmper, you can reach out to them and they can touch base with us if you have any questions. So very happy to help clients or to help people with their questions. Neil, do you see any other questions popping up?

Neil Axler:No, we really don't have time for that. So is there any administrative things we have to wrap this up?

^{Transcribed by Rev.com AI}