Business acquisition with the Building & Real Estate

April 19, 2023

by a searcher from Northwestern University - Kellogg School of Management in Redwood City, CA, USA

In discussions with a business where the owner is 80 and owns the building/real estate. Estimated value of the property is $5M to $6M. He appears to have plenty of money and doesn't necessarily need the cash but doesn't want to be a landlord for 20 years. He is well aware of his mortality.

Question 1: Has anyone done a deal where the seller financed the building/real estate in a separate transaction?

Question 2: The estate tax exemption is changing in###-###-#### reverting from $12M per individual/$24M per couple to $6.8M per individual / $13.6M per couple. With this in mind, is there any estate tax advantage with financing the property sale? Could the loan be put in a separate entity (LLC/Trust) and passed on to heirs? And then, is the loan considered an estate asset that is taxed at the full value of the loan? Or is it taxed at all?

Thinking through ideas for doing a deal that are win-win for seller/buyer in this scenario. I'm sure competent CPA's / tax attorneys will know the details but I'm trying to gauge if these are possible strategies right now.

Reply by a professional
from Villanova University in West Chester, PA, USA

Hi ^redacted‌, yes, I've represented clients who have had seller financing for real estate. It can be in a separate or the same transaction. With respect to question 2, that is estate tax planning which is very complex, and I don't recommend general advice there. The seller would need to work with an estate tax planner and attorney to develop a plan to minimize estate taxes. There are tools such as irrevocable trusts, etc. but their use depends on the short term and long term goals of the seller, and recommendations shouldn't be made without a full understanding of the facts, circumstances, goals and preferences of the individual as this is a very complex strategy to develop in the most beneficial way. In short, yes, there are benefits to estate planning now before the change. However the structure and savings would depend on the entire estate tax plan. I would be happy to discuss this further and assist with the legal side of the transaction.

Reply by a searcher
from Texas A&M University in Johnson City, TN, USA

Like the creativity, maybe see if Seller will get their tax advisor in meeting all together to brainstorm?

Consider adding Right To Buy so you can max your SBA on business acquisition first, then there are programs for the RE to go beyond limit.

1. Usually the other way around from my experience, CRE longer term than business loans, backed by the asset, should be a little easier to finance.

2. Gift and Estate tax intertwined. With 2026 change, I'm guessing those in position or age to do so would consider making a maximum gift transfer before the deadline?They could just get a "high" appraisal before deadline and gift the RE, which would be passing on rental income to their heirs too?

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