Estate Planning, UPREITs, and Your Retirement | The Peak Group

Any successful investment property portfolio owner is keenly aware of the market their ventures exist in. Now—more than ever— you may be investigating safer investment vehicles that can safeguard your financial future and retirement. When it comes to estate planning, UPREITs provide that opportunity by offering to turn your self-managed properties into a diverse, large-scale, and secure investment.

As a skilled investor, you know that seeking growth comes with some element of risk—but when it comes to your retirement, your best interests as the portfolio owner should always be in mind. When estate planning, UPREITs are not created equal! If you’re looking to prepare your portfolio for retirement—and eventually, as an inheritance—choosing the right UPREIT structure for this is crucial.

We have been keeping a close eye on the impact of COVID-19 with respect to the property market, and we fully expected commercial buildings to take a far greater hit than the residential sector. Already there is some talk about a transition away from the need for commercial space as work-from-home ventures have seen an incredibly successful launch.

Silhouette, group of happy children playing on meadow, sunset

This presents a unique opportunity for investors who have reached a growth plateau with their residential investments and are looking to move into the next phase of life while holding onto the benefits of their portfolio. When estate planning, UPREITs focused on residential real estate are consistently a safe move.

A Quick Introduction to UPREITs

The whole idea of an UPREIT or Umbrella Partnership Real Estate Investment Trust is that they are a vehicle to help property owners everywhere convert their portfolio into easily-managed assets. If you are the owner of an investment property portfolio—no matter its size—you are always looking for ways to hedge and spark growth.

When it comes to estate planning, UPREITs give you the freedom to continue accessing the profitability of growth without requiring the work of management. It also makes converting your portfolio into a legacy your heirs or favorite charity can use easier than alternatives like a hard sale.

Why Hard Sales Are a Disaster for Estate Planning

While it may seem to make sense to pass along your entire portfolio as unconverted properties, this actually creates a burden for your heirs—and outright confusion for a charity—when it comes to navigating the needs of properties. You know firsthand how much work self-management requires. The alternative solution for many who are inexperienced in rental management is to turn to an outright sale when converting assets.

Unfortunately, such a direct sale comes saddled with capital gains taxation—and that means losing out on a significant portion of what you worked so hard to build. It also leaves the hassle and expense of a sale in the hands of whoever you’ve entrusted your legacy to.

  • When estate planning, UPREITs help you convert your portfolio into easily parseable assets.
  • The conversation of your portfolio into operating units is tax-deferred until your heirs decide to transfer their units into shares.
  • This keeps what you’ve earned in the hands of those you love most.

Understanding Operating Partnership Units

Operating partnership units are integral to how an Umbrella Partnership Real Estate Investment Trust functions as a vehicle for wealth retention. When you transition your portfolio into your UPREIT of choice, your properties are converted into like-value operating partnership units in exchange. This transformation of your assets does not trigger a taxable event and allows you to defer the capital gains tax.

When Your Operating Units Become Shares

Deferral for capital gains taxes will continue until the operating partnership units you received for your properties are converted into shares that behave just like any other publically-traded share. Only then are the newly converted assets subject to capital gains taxation. This ability to parse smaller portions of your legacy as needed is what makes estate planning using UPREITs much more manageable for your heirs long term.

Consider, too, that the growth of your portfolio over the years directly impacts the ease at which your legacy can be utilized. A portfolio of even five properties located in one area is a challenge—but when you have a diversified portfolio of ten, twenty, or even more properties, you can quickly see how the conversion of your assets into operating units preserves more of what you’ve worked hard to create.

Senior Couple Relaxing In HammockYour Retirement and Legacy Secured

When estate planning, UPREIT structures give investors much-needed stability to enjoy retirement and additional room to plan for the future. Whether you intend to leave your assets behind to a loved one or a favorite charity, an UPREIT structure—especially one with a focus on residential real estate—makes this easier and more secure than ever.

Taking advantage of an UPREIT structure all starts with the right guide. You’re a strategic investor, so you need strategic advice on how to maximize the benefits of an UPREIT for your portfolio. When it’s time to entrust your assets, turn to The Peak Group.