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By Liza Horvath


Create a Win-Win in Investment Returns 


Author and minister Norman Vincent Peale said, “Every problem has in it the seeds of its own solution.” Peale was not alone in his belief that life’s challenges can present unique opportunities to find or invent creative solutions. Necessity is, after all, the mother of invention.


Many seniors today are looking for “safe” investments that provide reasonable returns. While the interest offered by bank certificates of deposit or U.S. Treasury bonds is, at the least, lackluster, seniors are understandably concerned about stock market risk. Value stocks that are presently paying good dividends and which also provide an opportunity for growth can be incorporated into an investment plan, but again, having too much in the stock market heightens risk. Finally, to lock in a reasonable rate of return on a long term bond you may need to buy one that has a maturity date well past your own expected, ah..,  “maturity” date.


With the low yields currently offered in traditionally safe investments and the need for income to meet life’s ongoing expenses, what financial strategies can seniors use to get a fair return on investment and still keep risk in check? Consider that young families, perhaps your own children or grandchildren, need housing and while it is true that mortgage rates are at historic lows, stricter bank regulations are making borrowing difficult for buyers. Perhaps you, a savvy investor, bought investment properties decades ago that, if sold today, would result some 25 percent or so of capital gains tax. Also, if you did liquidate the property, where would you invest for a similar or better income stream? The problems of a potential tax hit and the challenge with suitable reinvestment opportunities – presents the solution, no?


Selling your investment property on a lease with option to buy can solve many of the challenges we are currently faced with in terms of investment management. Let me expand – a qualified buyer gives you a down payment of say 20 percent of an agreed upon purchase price and moves into your investment property. They have a contract with you – prepared by your lawyer – agreeing to pay monthly payments and also to buy you out within a certain timeframe. This is similar to simply renting but the tenant in this case, the buyer, has skin in the game so they will take better care of the property – almost as if it is their own! You have the down payment money and the “rent” payments will most likely be better than the return you could get on investment if you cashed out completely. You also still own the property, as security, until the tenants complete the purchase from you.


But what about the capital gains tax? If you sell during your lifetime you will have capital gains tax to pay but if the buyer waits until after you die to finalize the purchase, your estate can get a “step-up in basis” for tax purposes and the capital gains taxes could be wiped out. This solution can work with your primary residence, as well. Peale also said, “How you think about a problem is more important than the problem itself.” With this solution, you can help yourself while helping others.   

Liza Horvath has over 30 years experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. If you have a questions call (831)646-5262 or email liza@montereytrust.com










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