Home Ownership—Nearly 11 Percent of US Houses Empty - CNBC

Home Ownership—Nearly 11 Percent of US Houses Empty - CNBC

REITs Push Pricing at Expense of Occupancy

Market strength allows for aggressive rent hikes to renewing residents.

By:Chris Wood

 

As earnings season gets into full swing, resident-heavy apartment REITs are likely going to announce significant price increases to renewing residents in order to keep pace with an expected surge in 2011 asking rents. Effective rent growth over the second half of 2010 and into the beginning of this year points to widespread concession burn-off, and apartment operators that guarded against the recession by filling up their communities are likely to have less pricing power and more dilutive effective rent gains.

“The REITs have a problem in that they are so well-occupied that they might struggle to generate strong rental revenue [relative to the market],” says Ron Johnsey, president of Dallas-based Axiometrics, which is forecasting annual effective rent growth from 4.4 percent to 5 percent this year with a vacancy drop from 6.5 percent to 5.8 percent. “One reason the market has been doing well is that the turnover rates have been much lower. But even if the market allows you to raise rents $100, it is only going to apply to new units created by move out, and we all know that as you start pushing renewal rates up, renters are going to look around for better deals, and the turnover rate will go back up.”

The scenario seems to be fine with many in the REIT sector who feel portfolio occupancy levels should be able to take a turnover hit just fine in the name of hiking renewal rents. “We know that as we push renewal rents aggressively, we create vacancy,” says Keith Oden, president of Houston-based Camden Property Trust. “We know that if we have rental growth of 7 percent to 9 percent, we are going to outstrip the ability of some residents to absorb those rental increases.”

Camden, which typically sees a monthly turnover rate of 8 percent, is anticipating that pushing rents over renewals could likewise raise its turnover, but nonetheless is advocating candid conversations with residents as it reaches for market and market-premium rents across its portfolio. “So you’ll have normal turn, then you’ll have the turn that is associated with the changing economics,” Oden says. “We want to be in a position to backfill all of that: be out there, drive traffic, capture your percentage, make a case for charging market -learing rent, and provide the best customer service of anyone in your submarket.”

Palo, Alto, Calif.-based Essex Property Trust likewise adopted an “occupancy first” strategy as rents began to fall during the recession. “Now we are in a different market where we think it is important to focus on rent growth as opposed to occupancy,” says Essex CEO Michael Schall. “So we are trying to re-gear the company to be willing to accept more vacancy, although not a lot more vacancy. If you push vacancy into the 93 percent range then typically rents are going down, not up. You eventually hit a point of diminishing returns on that trade-off.”

On the high side of that trade-off are companies that are still managing new lease and renewal metrics to occupancy numbers above 97 percent. “I don’t know that if you are at the top of market your goal is to get 97 or 98 percent occupancy,” says Greg Willett, vice president research and analysis at Carrollton, Texas-based RealPage’s M/PF Research division. “Operators manage to the revenue numbers now; they don’t manage to the occupancy numbers the way they might have a generation ago. While the past year was really about rebuilding the occupancy rate after it had gotten so low, we’re really at the point where we are ready to raise rents significantly now.”

 

 

 

Great Article from Llenrock Group

January 27th, 2011 | Author: Dave Jacobs

We all learn this lesson at one point or another in our lives: Stick to what you know.  It’s an age-old adage that proves true in the world of commercial real estate.  Asking a developer with a track record in retail development to build a hotel is a recipe for disaster.  Asking an office broker to underwrite an apartment complex could be similar.  But more glaring than the obvious scenarios mentioned above is the case of real estate investors, like the California Public Employees’ Retirement System. A recent Wall Street Journal article details their harrowing journey.

Calpers, like most other pension funds and many life companies who invest in commercial real estate, rank very low on the risk/reward spectrum when it comes to investing.  They are risk-averse and look for stable returns.  Why?  Mostly because the goal of their investment committees and advisers is to protect their nest egg first and foremost, and grow it modestly if they can.  In the case of insurance companies, the goal is to match future income to future liabilities.  Through a rigorous actuarial process, they can determine their expected future liabilities, and thus know what type of returns they need to achieve to meet those potential liabilities and remain solvent, if not profitable.

With pension funds, you literally have hundreds of thousands of people’s futures riding on the investment decisions that are made.  What’s worse is that the pensioners have zero control over the types of investments made, let alone the actual decisions on which properties to invest in.  Therefore, there is a lot riding on the line.  You would think then, that their risk-averse investment strategy is not only a prudent one, but an absolutely necessary one as well.

So what did they do?

During the boom years, Calpers, like many other big investors, sought profits on risky land deals and boosted its real-estate returns with increasing amounts of debt, generating annual returns as high as 30%.

That strategy had disastrous consequences when the recession hit. Calpers’s real-estate portfolio lost nearly half of its value, or more than $10 billion, from July 2008 to June 2009. Calpers’s sourced investments included those made in such high-profile deals as the Stuyvesant Town and Peter Cooper Village apartment complex in Manhattan, and a venture called LandSource, which held thousands of acres of California land.

Greed is an amazing phenomenon.  It’s one thing not to sell high on a stock because you want to wait for the absolute peak, only to see it plunge before you can pull the trigger.  That is an individual decision based on your risk tolerance.  But when the guys in charge are risking huge sums of other people’s money, when their mandate is to be conservative, that is just downright irresponsible.

Sure, Joseph Dear, CIO for Calpers can blame the investment managers like BlackRock (NYSE: BLK), Jones Lang LaSalle (NYSE: JLL) and others who were managing large sums of Calpers money.  But in my opinion, the blame should lay squarely at the feet of senior executives like Joseph Dear. He should know who he;’s serving, what his mandate ought to be, and the profile of the stewards whose hands he chooses to leave billions of dollars in.

Temple U Additional Main Campus safety measures

It appears that Temple is starting to get serious about safety!

From: Carl Bittenbender, Executive Director, Campus Safety Services

With the new semester, Temple University has implemented a series of additional safety measures at Main Campus. These initiatives, both on and off campus, are in response to recent criminal activity. We take the safety of our university community very seriously.

Beginning immediately, the measures include:

1. Bolstering City of Philadelphia Police patrols in areas immediately adjacent to campus. These additional patrols will coordinate with Temple University Police and will be assigned mainly in areas north and west of campus in response to current crime patterns. The university is underwriting the costs of these additional officers.

2. Increasing the presence of security officers on campus. Additional security officers will be added to increase visibility and deter criminal activity. They will have direct contact with the Temple University Police communications center and will initially patrol on foot. In the weeks to come, these security officers will be equipped with bikes. They will then be in special bike uniforms, distinctly marked and easily recognized as part of the security force at Temple.

3. Hiring additional sworn campus police officers. Temple already has a large, well-trained police department and adding new officers will enhance our policing abilities on and around campus.

4. Upgrading the network of security cameras on campus. This enhancement, already in progress, will greatly add to our investigative capabilities.

While there is no one simple solution to the safety challenges we face, we believe these steps will be valuable to our campus, our students and the community around Main Campus.

 

Yorktown renting ordinance upheld in recent court ruling

January 25, 2011 by Don Hoegg  

After years of complaints, Yorktown will no longer be home for student renters.

A Dec. 22 court ruling could pave the way for further evictions of student renters in Yorktown, where longtime residents have been fighting to get the city to enforce a zoning ordinance written to keep student tenants out the suburban-style neighborhood.

ABI REIMOLD TTN In Yorktown, a community neighboring Main Campus, a recently upheld zoning ordinance prevents landlords from renting to students.

Barring an appeal, the ruling was the last legal avenue tenants had to avoid eviction.

The court case arose from the Department of Licenses & Inspections evicting student renters from houses zoned as single-family dwellings, as per a city ordinance proposed by City Councilmember Darrell Clarke, the Democrat representing the fifth district.

In 2004, the so-called Yorktown Overlay was introduced and included specifically limited students from leasing non-owner-occupied housing in the area bordered by 9th and 13th streets and Cecil B. Moore Avenue and Jefferson Street.

Lawyers representing the owners of three Yorktown properties argued the language singling out students was unconstitutional, calling the legislation a “slippery slope.”

But Judge Idee Fox of the Court of Common Pleas defended the ordinance, writing in her ruling, “it is clearly intended to protect the vitality and viability of the Yorktown neighborhood as a unique inner city haven for single families from the harms of unsupervised students living with absentee landlords.”

Samantha Salley, a junior psychology major, said the possibility of being evicted factored into her decision to not renew her lease in June.

“I’d like to live here next year, but I don’t want to risk being kicked out halfway into a semester,” Salley said. “I can see why some of the locals might be annoyed, but I feel sorry for any innocent students who might be evicted.”

“It’s going to be the landlords that have the most to lose,” she added.

Community members seem to hope the court’s findings will lead the L&I to enforce the zoning law across Yorktown. Only eight houses were targeted when residents first petitioned the L&I. Lawyers for SFH Properties LLC, the firm listed as the plaintiff in the case, did not comment.

As of Jan. 7, it was “considering an appeal,” according to the Daily News.

Many Yorktown residents have called the area home for decades; some remember the neighborhood in its infancy.

“We are trying to preserve the community as a single-family area, which is what the developer had in mind when he built the development 50 years ago,” Yorktown Stakeholders’ Committee Secretary Pamela Pendleton-Smith said. “I’ve lived in Yorktown for 28 years. When I lived with my parents … I watched them build Yorktown.”

Pendleton-Smith said residents began having problems with Temple students in the early 2000s, when the university’s growing population drove students to find housing in nearby neighborhoods.

Complaints ranged from students parking in front of driveways to hosting loud, late-night parties. Block captains tried to be accommodating, letting students know when to put out garbage and that they were expected to shovel the walks, but were reportedly unreceptive.

Furthermore, the constant turnover of student renters made long-term residents feel they were fighting an uphill battle: Each year, a new group of students would cycle through and  problems would begin anew.

“I wish someone would orient these students to help them understand that they’re here for only a brief moment, but we’re here all our lives,” Pendleton-Smith said, adding much of Yorktown’s population is elderly.

It was in this mindset residents sought the help of Clarke.

“We thought all along this would be a difficult challenge and there would be a significant push back from a number of developers,” Clarke said in response to Fox’s findings. “The community took the position it had nothing to lose. It was becoming an unbearable situation.”

Residents and Wanamaker alumni are split on the issue — some want the school to continue to serve as a community asset, while others see the residence hall as a way to relieve pressure on the surrounding neighborhoods.

Temple spokesperson Ray Betzner said the dormitory currently under construction at Broad Street and Cecil B. Moore Avenue will help to alleviate some of the tension and that the university will assist evicted Yorktown residents with housing.

 Peter D. Crawford, Jr. |

| Greenbaum, Rowe, Smith & Davis LLP |

| t 732.476.2436 | f 732.476.2437 |

| w greenbaumlaw.com |

 

 

The Climate for Group Investing

The Climate for Group Investing

Syndications offer a ray of sunshine for transaction brokers.

by Eugene Trowbridge, CCIM, JD

Today’s stormy real estate weather may be a good time for commercial real estate professionals to consider syndication as a way to expand their business opportunities. In particular, one of the dark clouds hovering over commercial real estate — less traditional debt financing — often encourages the growth of real estate syndication transactions.

Syndication is merely the pooling of resources from multiple investors rather than relying on one investor to complete a transaction. Today’s tight lending has created an environment where multiple investors are needed to pool their resources to purchase commercial real estate. This offers a chance to specialize as syndicators or to create a new business line providing group investing. For CCIMs who are willing to face a couple of challenging issues, the syndication business can be quite lucrative.

Selling the Sizzle

The current syndication market appears to be a direct result of the collapse of the commercial mortgage-backed securities financing market in August 2007 and the subsequent absence of traditional sources of debt for the purchase of commercial investment real estate. (See “Syndication History.”) But despite this opening created by tight credit markets and the potential to purchase properties at discounted prices, syndicators still face two main challenges today when talking to potential investors.

Investor hesitation. While abundant investment cash appears to be available, syndicators report that before they can present a particular offering to a potential investor they must take three steps. First, they must gauge the investor’s interest in the broad area of commercial and investment real estate. Not every investor is interested in investing in real estate during the current market, but those who are appear to be interested in current cash flow, upside potential through positioning a property, or buying a property at what they believe is a below-market price. They also see stability in the real estate market when compared to the uncertainty in other investments.

Once past that barrier, syndicators need to educate potential investors on the benefits of the syndicator’s particular property focus such as apartments, self-storage, or development. Syndicators must identify the economic benefits of their product niche and match them to the economic benefits the investors are looking for. For example, a single-tenant, net-leased property will appeal to security-minded investors, but a raw land speculative development appeals to a different investor group.
In addition, the syndicator’s track record, educational background, and individual investment experience will be reviewed before the potential investor decides to invest with the syndicator.

Once those issues are resolved, investors are willing to look at a particular offering. But too often syndicators start by trying to sell the offering without first getting confirmation from the investor.

Securities regulation. Real estate professionals themselves often are hesitant to get involved with the highly regulated area of securities, which includes group investing.

When a syndicator asks an individual to invest money in a common enterprise such as a limited liability company and the investor expects to make a profit, and the profit will happen as a result of the syndicator’s action, it is likely that the investment will be deemed a security — even if the investors are friends or family.
Every security offered must be registered with the Securities and Exchange Commission unless it is exempt. The syndicator must employ a securities attorney to guide the offering through state and federal securities laws that cover everything from what an investor must be told, to how the syndication can attract investors without violating the available exemptions, to the expensive and time-consuming process of registration.

Even though a security is being offered, the syndicator rarely needs a securities license as there is an issuer exemption similar to the “for sale by owner” position in real estate. Syndicators can sell the securities they issue without a license, but they cannot sell anyone else’s and no one can sell theirs without a license.
Every syndication offering has its own structure of investor returns and syndicator compensation. Syndicators should identify the fees and cash distributions they will take during the life of the project and then use a present-value approach to determine the compensation value in today’s dollars and balance the compensation against the perceived risk. Discount rates used by syndicators generally range from 15 percent on a relatively risk-free offering to 30 percent on a development project.

Inexperienced syndicators sometimes structure the transaction to maximize yield to the investor and then just take what is left over. This is the wrong approach. The syndicator must first determine the appropriate level of compensation for the risk taken. Then the syndicator should determine if the amount left for the investors is adequate to attract the necessary capital. If it is not, the offering should be abandoned. An inappropriate approach may leave syndicators in a position where they are assuming all of the risks with few rewards.

Syndication Basics

The predominant syndication vehicle today is the limited liability company. The LLC entity offers the manager and the investor limited liability, while allowing the investors to be involved in management, depending on the language of the operating agreement. Most investors choose not to be involved in the day-to-day management, but the LLC format provides the option, as opposed to the more restrictive limited partnership format. The LLC structure provides for three types of offerings.

Specific offering. The syndicator identifies one or more specific properties to be acquired in the offering and raises the amount of money needed to acquire the identified properties. This allows the investors to examine each property and make a decision regarding the investment potential of each property before they invest. This is the structure most often used and many syndication sponsors report that it is easiest to raise money with this strategy.

Semi-specific offering. The syndicator identifies one or more specific properties to acquire and presents a business plan to the investors to raise funds to purchase additional properties that have not yet been identified. This offering is popular for syndicators who want to provide diversification to their investors and raise larger amounts of money without multiple offerings.

Blind pools. The syndicator presents a business plan to the investors explaining how the syndicator will go about acquiring properties but does not identify specific properties. The investors must understand the business plan, see its value, and be convinced that the syndicator can succeed with the plan. Generally the syndicator must have a track record of doing specified or semi-specified offerings to be successful in raising capital for a blind pool.

REITs. While not a vehicle every syndicator can tackle because of their complexity and cost, real estate investment trusts are very effective for pooling large amounts of debt or equity. In effect, a REIT is a corporation that issues shares to its investors. However, a REIT may avoid taxation at the corporate level under certain rules that include the requirement of having a minimum of 100 investors. The startup costs are substantial and the syndicator must deal with complex state and federal regulations. While the REIT may not pay taxes, the distributions to the shareholders may be taxable. There are non-traded REITs that are private offerings where the shares are not traded on any stock exchange and provide limited liquidity for investors. Publicly traded REITS listed on the various stock exchanges do provide transferability of the shares.

Investor profiles. Individual investors have the most interest in syndications. These investors may not be interested in or capable of acquiring and managing commercial investment real estate by themselves. They are willing to pool their equity with others so that they can be part of an investment in a larger piece of property and take advantage of professional management. Many individual investors like the diversification available to them when they purchase interests in several syndications.

Some institutional investors also are actively investing in syndications, placing their clients’ funds into institutional-quality real estate managed by syndicators with professional management skills.

Syndication Financing

Syndicators today face the same issues as any buyer when it comes to the availability of debt financing for commercial real estate. But syndications face additional hurdles in the underwriting process. The lender underwrites the property looking to see if the property can support the proposed loan. Lenders also underwrite the syndication group to determine creditworthiness, net worth, liquidity, and local property management expertise. They often require the group to personally guarantee a portion of or the entire loan.

Currently, multifamily appears to have the best financing potential through the government agencies. Regional banks where the syndicator has an established relationship also are a source for financing, and some life companies may finance other property types.

Depending on the particular transaction, it is not unusual for the lender to require that the syndicator have a net worth in an amount equal to or larger than the amount of the loan requested. The LLC often is required to have liquid cash equal to six months to 12 months of debt service. The lender also looks to see if there is local property management in place. These requirements often require the syndicator to involve sponsors or credit enhancers in the transaction, which usually increases the cost of the syndication.

Lenders also are interested in members of the investor group who are not going to take an active role in management. Generally a lender will want to underwrite any member of the group that has more than 15 percent to 20 percent ownership in the group. Members also may be asked to sign personally.

Today’s lack of available debt financing is driving investors to pool their resources to acquire commercial real estate. CCIMs considering the opportunity to provide services to these investors should make sure they understand all the issues involved.

Eugene Trowbridge, CCIM, JD, is a recognized expert in commercial real estate syndication, a member of the CCIM faculty, and author of It’s a Whole New Business. Contact him at gene@genetrowbridge.com

Brokers forecasting Phila.'s commercial real estate market

Philadelphia Business Journal - by Natalie Kostelni

Date: Thursday, January 20, 2011, 12:28pm EST . ..

Natalie Kostelni

Reporter

Email: nkostelni@bizjournals.com

 

Last year ended better than expected and this year should be an even better year. That was the main takeaway from Grubb & Ellis’ annual forecast held this morning at the Union League of Philadelphia.

 

“We think it will be a turn-the-corner year for the city,” said Wayne Fisher, an office broker at Grubb & Ellis.

 

The Central Business District ended 2010 with a 14.2 percent vacancy rate on 39.8 million square feet of office space. That’s up 1 percentage point over 2009. The market also had 362,000 square feet of negative absorption but that was less than the 500,000 square feet that was expected. Six firms contributed most of the vacancy after they decided to make major contractions last year, shedding a tad more than 1 million square feet. The tenants were: Verizon, Sunoco, Wolf Block, Dow, Arkema and Unisys.

 

Other highlights:

 

• South Broad, which used to be one of the city’s tightest submarkets, now has a vacancy rate of 15 percent, led by tenants fleeing to better buildings that can now offer cheaper rents. One of the office properties hardest hit has been 260 S. Broad St., which saw three tenants depart and the building put into receivership;

 

• University City is the tightest submarket at 7.2 percent vacancy;

 

• United Health continues to vacate its space at Wanamaker, hurting East Market; and

 

• Investment activity was light last year though Brandywine Realty Trust (NYSE:BDN) rang in two big deals — its acquisition of Three Logan (nee Bell Atlantic) and its 25 percent stake in One and Two Commerce Square.

 

The big prediction for this year made at the forecast: New downtown office construction.

 

Next up: The CREW forecast this afternoon where M. Walter D’Alessio of Northmarq, Esther Pulver of Oliver Tyrone Pulver, Larry Steinburg of Michael A. Salove and Anne Klein of Grubb & Ellis will make their predictions for this year.

 

Buyers Increase Risk Tolerance in Search of Higher Returns

Many multifamily investors are turning away from stabilized assets in core markets and fixing their sites on secondary markets and riskier plays.

Throughout 2010, a mountain of pent-up capital came off the sidelines with a vengeance, as REITs, pension funds and other large investors entered bidding wars on trophy assets in major markets. As a result, cap rates on Class A deals in many major metros plummeted, forcing investors to look elsewhere for higher yields.

“We’re still looking in primary markets, but the reality is that we’re not likely to be the highest bidder for a deal,” says Tom Bartelmo, president and CEO of Miami Lakes, Fla.-based the Kislak Organization. “So that leaves our focus a little bit more on these secondary markets, like Tucson and Pensacola.”

Kislak owns nearly 3,200 units spread between Dallas, Las Vegas, Tucson and several Florida markets. Like many multifamily firms, the company has been taken aback by the cap rates at which some high-profile deals have traded over the last two years.

“It sometimes feels more like 2005 than I ever thought it would,” says Bartelmo. “What we see happening out there, with some assets with 5 caps on them, that’s not for us. Frankly, I think the risk of those purchases outweigh the reward.”

Toward the end of 2010, the company purchased 481 units across three distressed assets in Pensacola, Fla. from Ocean Bank, which had foreclosed on the properties. The all-cash transaction totaled $11.5 million, and the company plans to spend another $4.5 million on capital improvements for the Class B assets.

Kislak is targeting 8 percent to 9 percent initial cash-on-cash returns, though a lot of heavy lifting is yet to come. One property, the Villas at Jasmine Fields, is only about 50 percent occupied. Another asset, the Villas at Jasmine Park, was a broken condominium deal where Kislak purchased 130 of its 170 units.

Kislak certainly isn’t alone. The shift to a greater risk tolerance was the biggest change evident in the recently released fourth quarter Real Estate Investor Survey from PricewaterhouseCoopers (PwC). The report noted that interest in secondary locations, Class B properties and value-added Class A plays is heating up as the market for trophy assets becomes increasingly saturated with eager capital.

“People need yield, and if you just buy a core deal, the yields have been driven down to, for the best markets, sub-5 percent cap rates,” says Mike Kavanau, senior managing director for the Chicago office of Holliday Fenoglio Fowler. “To move back toward a 10 percent cash on cash, that generally needs something with some moving pieces. We’ve absolutely seen people start to move into soft rehab.”

According to the PwC survey, average cap rates decreased nationally by 61 basis points (bps) from the third quarter to the fourth of 2010, and more than 150 bps since the fourth quarter of 2009. But given the rising 10-year Treasury, most investors believe cap rates will hold steady for the next six months, the survey found.

And the cap rate compression that characterized 2010 hasn’t been felt much away from the bright lights of the most desired markets. “When you move out of the core assets, you really haven’t seen a lot of cap rate compression,” says Bill Hughes, managing director of Encino, Calif-based Marcus & Millichap Capital Corp. “The cap rates there are still higher than they were in the fluff years of 2005 to 2007.”

 

 

Douglas Martindale
Newport Capital, Inc

T:   215.825.2509 x701
F:   215.701.4787

www.NewportCapitalinc.com   ||  www.NewportManagementCorp.com

 

Estate and Gift Tax Changes in the 2010 Tax Relief Act.

From our friends at Kaplin Stewart

Dear Friends,

One of the final acts of Congress in 2010 was to enact the 2010 Tax Relief Act. Before the new law, there was no estate tax for 2010, but possible higher taxes because there were less favorable income tax basis rules. Also, under the prior law, estate and other transfer taxes were scheduled to rise substantially in 2011.

Overview of the new law. The 2010 Tax Relief Act provides temporary relief. Among other changes, it reduces estate, gift and generation-skipping transfer (GST) taxes for 2011 and 2012. For persons dying in 2010, their representatives can choose to apply the old law or the new law.

Lower rate and higher exemption for 2011 and 2012. For estates of individuals dying in 2009, the top estate tax rate was 45% and there was a $3.5 million exemption. For 2011 and 2012, the 2010 Tax Relief Act reduces the top rate to 35%. It also increases the exemption to $5 million for 2011 with a further increase for inflation in 2012. Because of the temporary nature of these relief provisions, planning continues to be difficult unless you are certain of death occurring before 2012! After 2012, the top rate will be 55%, and the exemption will be $1 million (the pre-Bush tax cut levels).

Gift tax changes. Years ago, the gift tax and the estate tax were unified—they shared a single exemption and were subject to the same tax rates. This was not the case in recent years. For example, in 2010, the top gift tax rate was 35% and the exemption was $1 million (even though there was no estate tax). For gifts made after December 31, 2010, the gift tax and estate tax are reunified and an overall $5 million exemption applies.

GST tax changes. The GST tax is an additional tax on gifts and bequests to grandchildren. The 2010 Tax Relief Act lowers GST taxes for 2011 and 2012 by increasing the exemption amount from $1 million to $5 million (as indexed after 2011) and reducing the rate from 55% to 35%.

New portability feature. Under the 2010 Tax Relief Act, any exemption that remains unused as of the death of a spouse who dies after December 31, 2010 and before January 1, 2013 is generally available for use by the surviving spouse in addition to his or her own $5 million exemption for taxable transfers made during life or at death. Under prior law, the exemption of the first spouse to die would be lost to the extent not used. This could happen where the spouse with resources below the exemption amount died before the richer spouse. One way to address that was to set up a "credit shelter" trust for the poorer spouse. Now, the portability rule may make setting up a trust unnecessary in some cases. But there still may be other reasons to employ credit shelter trusts. For example, a credit shelter trust may protect appreciation occurring between the death of the first spouse and the death of the second spouse from being subject to estate tax. Such a trust also can protect against creditors. Plus, the transferred exemption may be lost if the surviving spouse remarries and is again widowed. Finally, it is unknown whether this portability feature will continue to be available if the second spouse dies after 2012.

Conclusion. The estate tax relief in the new law is substantial, but it is temporary. While death and taxes are certainties, predicting future actions of Congress is not. Nevertheless, estate planning to reduce taxes remains an important consideration. Even if taxes are not a concern because an estate is below the (current) exemption level, it is important to have a proper estate plan to ensure that the needs of intended beneficiaries are met.

Maury B. Reiter, Esq.
610.941.2476
mreiter@kaplaw.com

Dirk Mr. Simpson, Esq.
610.941.2544
dsimpson@kaplaw.com

Kaplin Stewart
910 Harvest Drive, Blue Bell, PA 19422
www.kaplaw.com

 

Check out this article from Multifamily Executive Magazine!

Hello,

This article link from Multifamily Executive Magazine
http://multifamilyexecutive.com was sent to you by Doug Martindale

To view this article click on the following link below. America Online
users: Cut-and-paste the link into your web browser and hit the enter key.

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Doug Martindale
also wanted to give you this message:

This is good news!

Yorktown Zoning issue

Well, it appears the zoning overlay appeal was not overturned.  This allows Philadelphia, in the Yorktown district, to regulate if an owner has the right to rent to students.  I wonder if a working mother decides to take some night classes if she’ll have to move out of her house!