Creating a Private REIT
Hi guys,

long time lurking and first time posting in this sub.

currently, my parents own 3 properties (commercial and residential) personally and are looking to form a tax efficient way of passing on the assets to my siblings and I.  recently, I have been reading about the advantages of REITS for income and succession. However, I am having a tough time finding information on how a REIT is established. We live in Quebec and I was curious to know the procedures and policies to consider for income distributions, establishing a REIT (does transferring assets into a REIT considered a taxable event) and just general rules to consider for REITS.

&amp;#x200B;

Thanks In advance!
[{"id": "fq39j37", "text": "There's way to structure to avoid taxes but generally REITs need $250m++ to make the annual accounting and disclosure requirements worth it.", "replies": [{"id": "fq3dxi5", "text": "is that the same case for setting up a private REIT?", "replies": [{"id": "fq3shxo", "text": "https://www.reit.com/what-reit/how-form-reit\n\n\n&gt;A U.S. REIT must be formed in one of the 50 states or the District of Columbia as an entity taxable for federal purposes as a corporation. \n\n&gt; It must be governed by directors or trustees and its shares must be transferable. \n\n&gt; Beginning with its second taxable year, a REIT must meet two ownership tests: it must have at least 100 shareholders (the 100 Shareholder Test) and five or fewer individuals cannot own more than 50% of the value of the REIT's stock during the last half of its taxable year (the 5/50 Test).\n\n&gt; To ensure compliance with these tests, most REITs include percentage ownership limitations in their organizational documents.\n\n&gt;  Due to the need to have 100 shareholders and the complexity of both of these tests, it is strongly recommended that tax and securities law counsel are consulted before forming a REIT.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fq39l04", "text": "This is my input from someone in America:\n\nREITs are public companies. Anyone can purchase stock in them. \n\nIt sounds you're looking to make a trust so you get your parent's properties in the future. \n\nTalk to a lawyer about these matters. Depending how the law is structure in your area, you might do a trust, LLC, or something else. \n\nBest of luck!", "replies": [{"id": "fq3eb7k", "text": "Thanks Mike!\n\nWas looking at establishing a private REIT or if a holding company would be best. definitely no where close to going public haha.", "replies": [], "depth": 2}, {"id": "fq3te70", "text": "REITs do not need to be public companies, any c-corporation can make an election to be taxed as a REIT.\n\nOther advice is correct, this is out of scope for this sub.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fq3a9zx", "text": "Trust.  Or corp.  Call a tax attorney//accountant.", "replies": [{"id": "fq3e2mj", "text": "Thats the plan. just wanted to get an idea of what the procedures would be before sitting down with a tax expert. Thank you!", "replies": [], "depth": 2}], "depth": 1}, {"id": "fq3gx1x", "text": "Reits require 100 shareholders. You\u2019re better having an s-Corp now, which provides the flow through income and avoids double taxation", "replies": [], "depth": 1}, {"id": "fq3jag1", "text": "Not sure about Quebec but in states it\u2019s more common to see a \u2018revocable trust\u2019 where usually children are named as Trustees or Successor Trustees and the assets of the trust pass into control of Successor Trustees at death. Since our estate tax in the states starts at $10 million for a married couple, the estate would need to be quite sizable before you paid some tax on it. And unlike Canada (my wife is Canadian, she inherited her fathers estate there), capital gains in the US can be deferred then exempted at death. Which is, IMO quite ridiculous but whatever. Anyway, it sounds like what you\u2019re looking for is a \u2018living will\u2019 or revocable trust. As for liability protection, you may want to form a Ltee and structure the trust as sole owner. I\u2019m not sure a trust will give any of the trustees liability coverage. In the USA, transfer of assets into a revocable trust is not considered taxable event because the assets are still controlled by original owner until death. \n\nI hope this helps. Both my wife and I have R/Ts setup with LLC holding real estate behind them. The LLCs are owned by the R/Ts.\n\nIt took 2 attorneys and a CPA to figure this structure out for us so please get advice of and atty and PA.", "replies": [], "depth": 1}, {"id": "fq3mr2g", "text": "REIT needs 50+ investors.", "replies": [], "depth": 1}, {"id": "fq3v26p", "text": "Going through something similar, and I discovered that there is minimal benefit to holding real estate in a corporation, in Canada. Have a look at http://dynamicplanning.ca/business-owners/corporate-held-real-estate/ , especially the bit about qualifying as a  \u201cproperty management company.\u201d I\u2019d suggest reading up on trusts. The CRA lays out the basics here. https://www.canada.ca/en/revenue-agency/services/tax/trust-administrators/types-trusts.html . Good luck!", "replies": [], "depth": 1}, {"id": "fq7iyj2", "text": "Syndication thru LLC", "replies": [], "depth": 1}, {"id": "fqd59pa", "text": "The 5/50 rule is the killer here. No 5 people can collectively own more than 50% of the stock.", "replies": [], "depth": 1}]