From: "Jeffrey E." <[email protected]> To: Ada Clapp Subject: Re: Purchase of townhouse Date: Thu, 05 Jun 2014 23:24:41 +0000 alans idea is right On Thu, Jun 5, 2014 at 5:15 PM, Ada Clapp < > wrote: Hi Jeffrey, Eileen, Rich and I had a call today with Alan to discuss the purchase of the new townhouse. We discussed who should buy it: • If we think the townhouse is a good investment that will appreciate over time, then it makes sense for a trust to buy it. o Alan felt that we could take the same approach regarding Leon's use of the residence that we do for the art (that is, as long as Debra is a beneficiary and they are married, Leon can live in the townhouse and not pay rent). We are however concerned with the cumulative effect of taking this position and see merit to Leon paying rent (including the transfer of the rent $$ to the trust transfer-tax free). There is flexibility to go either way. • Alan raised an alternative suggestion: a split interest purchase. He has used this technique in the past and thinks it would be a good fit here. It works as follows: Leon would purchase a life estate directly from the seller and the trust would purchase the remainder interest directly from the seller. What Leon pays would be calculated under IRS tables based on his life expectancy (about 1/3S of the purchase price). The trust would pay the balance. Leon would live in the townhouse as the life tenant and pay all regular day to day maintenance expenses. Capital improvements are split between Leon and the trust based on his life expectance at the time the funds for capital improvement are expended. On the upside: ■ Leon could live in the residence for his lifetime (even if Debra predeceased or divorced him) without paying rent. ■ On Leon's death, no portion of the residence should be included in his estate On the downside: EFTA00991366