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Simply Multifamily Episode 8: The Importance of Estate & Tax Planning for Investment Property Owners

Hear from Heath Goldman of Icon Wealth & Legacy Partners on the importance of estate and tax planning for owners of investment real estate, including major areas of concern such as changes to capital gains taxes and estate taxes.



Kiran Dhillon, SIG Commercial:

Hi, everyone. Welcome to our series called "Simply Multifamily." My name is Kiran Dhillon, I am a Broker-Associate at KW Commercial, specializing in multifamily sales. I work with buyers and sellers of apartment and multifamily properties all throughout the greater Los Angeles and Inland Empire areas. The purpose of this series is to highlight issues and introduce strategies that affect and benefit owners of multifamily properties. Today, we're going to be speaking with Heath Goldman of Icon Wealth and Legacy Partners on the importance of estate and tax planning for owners of investment real estate.


Welcome Heath, it's great to have you.


Heath Goldman, ICON Wealth & Legacy Partners :

Thanks for having me. Great to see you.


Kiran Dhillon, SIG Commercial:

Of course. So can you give the listeners a little bit of a background on yourself professionally, as well as the services that your firm provides for real estate families?


Heath Goldman, ICON Wealth & Legacy Partners :

Absolutely. So a number of years ago, I started working almost primarily with real estate families. We focus on the personal planning needs of these families. The stuff that oftentimes they will tell you is not fun. You know, the estate planning, asset protection, succession, wealth transfer, tax mitigation. The fun stuff is doing deals and the fun stuff is taking care of your family. But the important stuff is the personal planning stuff that we focus on. You know, because I am insurance licensed, I am securities licensed, I have to have a little bit of a disclaimer here. Securities are offered through my broker dealer, World Equity Group, which is a member of FINRA and the SIPC. Now that that's behind us, we can get to the fun stuff.


Kiran Dhillon, SIG Commercial:

Okay, great. So share with us what your thoughts are on how to create a multi-generational real estate business.


Heath Goldman, ICON Wealth & Legacy Partners :

I always say my clients never plan to fail, they just fail to plan. And they were so busy building their portfolios, doing deals, traveling the world, taking care of their family, raising kids, grandchildren, whatever it may be, that there are aspects of the planning process that have been avoided, neglected, kicked down the road, all of the above. And if these pieces aren't taken care of properly, that could be devastating to a family's portfolio because all of a sudden you now welcome the IRS and the government in as your 50/50 partners a lot of times with regards to planning. So, I always tell people the most important thing you can do is to create a plan that makes sense today, probably tomorrow, and flexible enough in the future to be able to modify it or amend it when necessary.


Kiran Dhillon, SIG Commercial:

Got it. And there's been a lot of talk about capital gains recently. When should a client start focusing on capital gains planning for the sale of their real estate?


Heath Goldman, ICON Wealth & Legacy Partners :

I think as you and I both know, it's not often that real estate owners that want to hold real estate will sell something, but there are times where they want to take some chips off the table. And 1031 may not be appropriate. The timing of a 1031 may not be appropriate, or maybe they want to use some of the liquidity for something else, family vacation, sending their children, grandchildren to college or to graduate school, whatever it may be. So tell people, if you've got an idea that you are going to sell something, give yourself at least a year runway. It opens up a lot more opportunities and strategies available to you to deal with the tax mitigation or elimination.


Kiran Dhillon, SIG Commercial:

Got it. And that would be a good time for them to reach out to somebody like you to talk about those various strategies.


Heath Goldman, ICON Wealth & Legacy Partners :

If I can be that resource, I'd love to be, absolutely.


Kiran Dhillon, SIG Commercial:

What are the major areas of concern that you're seeing with your real estate family clients?


Heath Goldman, ICON Wealth & Legacy Partners :

I think the problems that we're seeing right now are the lack of a succession plan. And so you have patriarch and matriarch that have worked their lives to build these portfolios up. They've got a son, who's a doctor, they've got a daughter who's a lawyer. And while these two kids are exceptionally bright, they're not in the world of real estate on a day-to-day basis. And the question is, what happens when patriarch and matriarch pass? Because many of them want these portfolios to continue in perpetuity. Although that's something else that we can talk about in another topic, but it is important for these families to consider what the succession looks like and how they're going to monitor that and manage it. And most importantly, what planning has to take place to avoid what we call the estate tax, which is the opportunity of the IRS to become your partner in your real estate portfolio. And most clients do not want that, but they haven't done enough planning in the meantime to avoid it.


Kiran Dhillon, SIG Commercial:

And I imagine some of that has to do with parents assuming that their children are going to continue on into this real estate business that they've built, and that's not always the case, but they're not having these conversations. I see that a lot on the brokerage side, where the parents pass away and the kids don't want to have anything to do with it, but they also feel guilty because they feel like their parents would have wanted them to keep the properties, but they never had those conversations.


Heath Goldman, ICON Wealth & Legacy Partners :

You know what bears the last point that you make, the conversations, you have to have the conversations as a family. I tell my clients all the time, you may not want to hear the answers that your children or grandchildren are going to give you, but it's a lot easier to deal with the ramifications of those conversations while you're all still living versus you two buried, and then having to deal with the other issues that have come along with it: tax planning, succession, I want this, my daughter wants that, my son wants this one, whatever it may be. So yeah, you're absolutely right. Conversations have to take place during life so that we can create a plan that makes sense for you and your family. And you're right. They oftentimes feel guilty, but they're not equipped to manage real estate. Exceptionally bright, talented children, and oftentimes adult children, but incapable of understanding the real estate world that their parents spent their lives building.


Kiran Dhillon, SIG Commercial:

Right, absolutely. What are the critical areas that clients should be looking at right now during these unprecedented times? And what's being discussed in Washington, that would be relevant to our multifamily property owners?


Heath Goldman, ICON Wealth & Legacy Partners :

That's a great question. There's a lot being discussed in Washington. What is the estate tax exemption amount going to be? Are we going to be doing away with step-up in basis? When the client passes away, capital gains rates going up, all kinds of stuff that's being discussed. So I tell my clients right now, if you can afford to look at gifting strategies, strategies that will allow you to eliminate the IRS as being your partner, now is the time to do it. The exemption, the estate tax exemption for a married couple is $23.4 million dollars. You don't have to use all of it.


But I happen to believe whether it's under this administration or when the Trump Tax Act sunsets, which is in 2025, that the estate tax exemption amount, the exemption is going to come down no matter what. So, I tell people right now, use it or lose it. And I am starting to have a lot more conversations with clients who are willing to use it as opposed to losing it, and I think that's the critical conversation that's taking place right now. And then in addition to what we just talked about, is succession. Who is going to take over these assets when you're gone?


Kiran Dhillon, SIG Commercial:

So what do you need to do right now to take advantage of the current estate tax exemption?


Heath Goldman, ICON Wealth & Legacy Partners :

I think first and foremost, you have to have a conversation with your spouse and understand what it is you're trying to accomplish. What do you want? If we start looking at different types of planning strategies, we could be creating a little bit more complication in your life. Clients don't want to deal with that. Some other clients say, "If I can eliminate every layer of tax legally that the government's imposing on me, that's what I want to do." Yes, it's going to take time. Yes, it's going to cost money. Yes, it's going to cost you some frustration probably. But do you want to do comprehensive planning today that is going to eliminate hopefully all of the problems and issues that can be addressed within the family unit and also within the taxation unit?


Kiran Dhillon, SIG Commercial:

Can you share a success story of a client that you've worked with and how you were able to help them?


Heath Goldman, ICON Wealth & Legacy Partners :

I'm going to give you a piece of the story. I did not get a chance to work with this client, but I want to just kind of give you a flavor for what it is that wealthy real estate families can deal with. I got a phone call from an advisor and she said to me, she goes, "Heath, I finally have the perfect referral for you." I said, "That's great. I'm so appreciative of you thinking of me, tell me a little bit more about the fact pattern." Gentlemen is worth about a hundred million dollars, all California real estate, all free and clear. Obviously in this particular example was cash flowing. One adopted son. I'm like, "This is a perfect client." I said, "When can we possibly talk to them?" "Well, that's the problem." I said, "That's the problem?" He passed away. I said, "A perfect referral for me is somebody that is breathing, alive, and somebody that I could actually do this amazing work for."


I tell that story because it happens often. We can't get down the road. We don't want to uncover the skeletons in the closet. We don't want to go back and rehash conversations that took place 25, 30 years ago that upset the children because we made a decision or this decision, we need to have those decisions now. We have the need to know how to have those conversations now so you can make the right decisions. So I tell people all the time, "Sit down and understand what it is you think you want to accomplish. Engage somebody like myself, who can banter on both sides of the ledger: "This is a bad idea because of this. You might want to consider this." Very time efficient process to work with somebody like me, who can bring suggestions, ideas, and create the conversations necessary for you to make the decision.


And then my job is to go work with the other team of advisors that you've assembled, or help you assemble that team if necessary, put the plan in place. As I said, that makes sense today and tomorrow, but hopefully flexible enough that we can deal with it in the future. And I think that's the critical thing that's missing right now is that conversation and understanding because it's frustrating for a patriarch and matriarch. When they look at their family unit and go, "Who is going to manage this property for us? I mean, our daughter's a lawyer, our son's a doctor." Maybe I reversed that before, but it doesn't matter. You know, they're professionals, they got their own lives. They live around the corner with the grandchildren. Who's going to leave their profession to come manage this portfolio? And oftentimes it's not going to happen. So we've got to deal with that issue and it's best dealt with during life.


Kiran Dhillon, SIG Commercial:

What is one piece of advice that you would like to leave the listeners with who are primarily owners of multifamily real estate? And I have a feeling I know what you're going to say.


Heath Goldman, ICON Wealth & Legacy Partners :

Create your plan. I mean, you have to understand what it is we're trying to accomplish. The government is going to change the tax structures all the time. What is the best use of the tax dollars today may not be the best use of the tax dollars in the future. So understanding the personal approach to planning, if you were worth $50 million and you had a twin sister who was also worth $50 million, your plans are going to look something very different, you're married with two kids. She doesn't have kids yet.


So the plan always needs to be flexible enough to change, but you've got to have something in place. So you understand that if you get hit by the beer bus tomorrow, that the government's not going to come in and take 30% to 40% to 50% of your assets in the form of taxation. And I don't know if clients understand this. I look at real estate clients, they own and operate a business. It just happens to be the business of real estate, as opposed to manufacturing widgets. Plan, plan, plan. Get it out of the way, put it in the drawer. Don't forget about it because it needs to be amended from time to time. But at least go back to enjoying the stuff that you liked to do, which is doing the deal and taking care of your family. That's what I tell people all the time.


Kiran Dhillon, SIG Commercial:

And doing those things with peace of mind, knowing that you don't have all this uncertainty hanging over your head.


Heath Goldman, ICON Wealth & Legacy Partners :

Or do it to create that peace of mind. Exactly.


Kiran Dhillon, SIG Commercial:

So for listeners who have questions or might want to reach out to you regarding their own financial situation, what's the best way for them to get in touch with you?


Heath Goldman, ICON Wealth & Legacy Partners :

Three ways: you check my website, that is www.iconwlp.com. You feel free to call me at (818) 981-7184. Or you can always email me at heathg@iconwlp.com. Happy to take any questions anytime I can.


Kiran Dhillon, SIG Commercial:

Great. Well, Heath, thank you so much for sharing your knowledge with us today. I'm sure the listeners really appreciate that. And I'm looking forward to talking with you again soon.


Heath Goldman, ICON Wealth & Legacy Partners :

Kiran, thanks for the time today. I appreciate it. It was a lot of fun.

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