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Benefits of a Trust
There are many reasons why a person may choose to hold assets in a trust rather than in other holding capacities.  One of the primary reasons is to bypass probate proceedings.  When a person’s assets are held in a trust, the trust extends beyond the person’s death. Property held by the trust doesn’t go through probate.
Another benefit of trusts is that they can effectively double the amount of wealth that can be passed on to heirs, and they can be structured to address special needs, for instance the appointment of a trustee for heirs such as minors, handicapped persons, or those with alcohol , drug or gambling addictions.
Parties to a Trust

Grantor or Settlor – The person who creates the trust, granting or settling assets into the trust.
Trustee – The person responsible for administering the trust
Beneficiary – The person who inherits funds from or otherwise benefit from the trust. 

Revocable Trusts                                                                        
Revocable trusts are the most common type of trust.  As evidenced by the name, this type of trust may be revoked, modified or amended at any time by the grantor.  Other names for such trusts include living trusts, self-declared trusts and inter vivos trusts.
With revocable trusts, the grantor, trustee and beneficiary are often one and the same person. These are “tax disregarded” entities and are taxed to the grantor using his or her social security number.  The grantor of such a trust can meet the same taxpayer requirement of a 1031 exchange individually, as the trust or even as a single member LLC in which the grantor or the trust is the sole member. 
Irrevocable Trusts
Irrevocable Trusts also work as their name implies.  Once they are set up and funded, they cannot be changed in light of subsequent events.  These trusts can be structured to minimize taxes and also can protect assets from creditor claims.  An irrevocable trust has its own tax identification number and is not, for tax purposes,  treated interchangeably with the grantor/settlor.
Trust under Will
A will can provide for a trust to come into being upon the death of the person leaving the will or testator.  A testator may have been caring for a handicapped child and, upon his or her death, wishes to ensure that funds are on hand indefinitely to provide continuing care. Or, if beneficiaries of the will are be minors, a trust can set up to hold the assets for them until they are of a specified age.  Once these types of trust come into being, they are irrevocable subject to the terms of the trust.  Also, once the testator dies and the trust is established, a separate tax identification number is applied to the trust and used going forward.
Land Trusts
Land trusts can only hold real estate interests, and they will typically have a corporate trustee, such as a bank or trust company. Some states make broad use of land trusts while others do not recognize them  due to technicalities of common law brought over from England when the various state laws were forming.  Land trusts are like other revocable trusts; they can be revoked or amended while the primary beneficiary is living.  Such a trust may name other persons as successor beneficiaries upon the death of the primary beneficiary. 
Under Section 1031, there is a restriction against doing an exchange of a beneficial interest in an asset.  However, the drafters of the code section had other types of investments in mind when they wrote this.  In order to avoid confusion, the IRS released Revenue Ruling 92-105 stating that the owner of a beneficial interest in a land trust could participate in a 1031 exchange.
Probate
If a person dies without a trust, a court-supervised probate proceeding may be necessary to determine who inherits the assets from the deceased person.  If the person dies with a will, it is referred to as a testate proceeding.  If the person dies without a will, the proceeding is intestate, and the rules of heirship in their state of residence will dictate which heirs receive interests and at what percentage. If there is a will, an executor is named to carry out the distribution of the estate.  If there is no will, that person will act as the administrator of the estate.  As already mentioned, the existence of a trust will generally obviate the use of the will to transfer ownership of the assets left by the deceased.  To the extent that any asset was unintentionally left out of the trust, the will sometimes “pours over” those assets into the trust upon death and the will which accompanies the trust is referred to as a pour-over will.
Death during Pendency of a 1031 Exchange
Normally in a 1031 exchange, the same person who sells a property is required to buy the new property, but sometimes the taxpayer sells relinquished property as part of a 1031 exchange and passes away before the exchange transaction is completed.  Notwithstanding the old adage about death and taxes, the representative of the estate can, in this scenario, seek to complete the exchange and defer the taxes. In the event the exchange is not completed, the gains on the sale of the relinquished property would be paid as part of the deceased’s final tax return.

Benefits of a Trust
There are many reasons why a person may choose to hold assets in a trust rather than in other holding capacities.  One of the primary reasons is to bypass probate proceedings.  When a person’s assets are held in a trust, the trust extends beyond the person’s death. Property held by the trust doesn’t go through probate.
Another benefit of trusts is that they can effectively double the amount of wealth that can be passed on to heirs, and they can be structured to address special needs, for instance the appointment of a trustee for heirs such as minors, handicapped persons, or those with alcohol , drug or gambling addictions.
Parties to a Trust

Grantor or Settlor – The person who creates the trust, granting or settling assets into the trust.
Trustee – The person responsible for administering the trust
Beneficiary – The person who inherits funds from or otherwise benefit from the trust. 

Revocable Trusts                                                                        
Revocable trusts are the most common type of trust.  As evidenced by the name, this type of trust may be revoked, modified or amended at any time by the grantor.  Other names for such trusts include living trusts, self-declared trusts and inter vivos trusts.
With revocable trusts, the grantor, trustee and beneficiary are often one and the same person. These are “tax disregarded” entities and are taxed to the grantor using his or her social security number.  The grantor of such a trust can meet the same taxpayer requirement of a 1031 exchange individually, as the trust or even as a single member LLC in which the grantor or the trust is the sole member. 
Irrevocable Trusts
Irrevocable Trusts also work as their name implies.  Once they are set up and funded, they cannot be changed in light of subsequent events.  These trusts can be structured to minimize taxes and also can protect assets from creditor claims.  An irrevocable trust has its own tax identification number and is not, for tax purposes,  treated interchangeably with the grantor/settlor.
Trust under Will
A will can provide for a trust to come into being upon the death of the person leaving the will or testator.  A testator may have been caring for a handicapped child and, upon his or her death, wishes to ensure that funds are on hand indefinitely to provide continuing care. Or, if beneficiaries of the will are be minors, a trust can set up to hold the assets for them until they are of a specified age.  Once these types of trust come into being, they are irrevocable subject to the terms of the trust.  Also, once the testator dies and the trust is established, a separate tax identification number is applied to the trust and used going forward.
Land Trusts
Land trusts can only hold real estate interests, and they will typically have a corporate trustee, such as a bank or trust company. Some states make broad use of land trusts while others do not recognize them  due to technicalities of common law brought over from England when the various state laws were forming.  Land trusts are like other revocable trusts; they can be revoked or amended while the primary beneficiary is living.  Such a trust may name other persons as successor beneficiaries upon the death of the primary beneficiary. 
Under Section 1031, there is a restriction against doing an exchange of a beneficial interest in an asset.  However, the drafters of the code section had other types of investments in mind when they wrote this.  In order to avoid confusion, the IRS released Revenue Ruling 92-105 stating that the owner of a beneficial interest in a land trust could participate in a 1031 exchange.
Probate
If a person dies without a trust, a court-supervised probate proceeding may be necessary to determine who inherits the assets from the deceased person.  If the person dies with a will, it is referred to as a testate proceeding.  If the person dies without a will, the proceeding is intestate, and the rules of heirship in their state of residence will dictate which heirs receive interests and at what percentage. If there is a will, an executor is named to carry out the distribution of the estate.  If there is no will, that person will act as the administrator of the estate.  As already mentioned, the existence of a trust will generally obviate the use of the will to transfer ownership of the assets left by the deceased.  To the extent that any asset was unintentionally left out of the trust, the will sometimes “pours over” those assets into the trust upon death and the will which accompanies the trust is referred to as a pour-over will.
Death during Pendency of a 1031 Exchange
Normally in a 1031 exchange, the same person who sells a property is required to buy the new property, but sometimes the taxpayer sells relinquished property as part of a 1031 exchange and passes away before the exchange transaction is completed.  Notwithstanding the old adage about death and taxes, the representative of the estate can, in this scenario, seek to complete the exchange and defer the taxes. In the event the exchange is not completed, the gains on the sale of the relinquished property would be paid as part of the deceased’s final tax return.

Benefits of a Trust
There are many reasons why a person may choose to hold assets in a trust rather than in other holding capacities.  One of the primary reasons is to bypass probate proceedings.  When a person’s assets are held in a trust, the trust extends beyond the person’s death. Property held by the trust doesn’t go through probate.
Another benefit of trusts is that they can effectively double the amount of wealth that can be passed on to heirs, and they can be structured to address special needs, for instance the appointment of a trustee for heirs such as minors, handicapped persons, or those with alcohol , drug or gambling addictions.
Parties to a Trust

Grantor or Settlor – The person who creates the trust, granting or settling assets into the trust.
Trustee – The person responsible for administering the trust
Beneficiary – The person who inherits funds from or otherwise benefit from the trust. 

Revocable Trusts                                                                        
Revocable trusts are the most common type of trust.  As evidenced by the name, this type of trust may be revoked, modified or amended at any time by the grantor.  Other names for such trusts include living trusts, self-declared trusts and inter vivos trusts.
With revocable trusts, the grantor, trustee and beneficiary are often one and the same person. These are “tax disregarded” entities and are taxed to the grantor using his or her social security number.  The grantor of such a trust can meet the same taxpayer requirement of a 1031 exchange individually, as the trust or even as a single member LLC in which the grantor or the trust is the sole member. 
Irrevocable Trusts
Irrevocable Trusts also work as their name implies.  Once they are set up and funded, they cannot be changed in light of subsequent events.  These trusts can be structured to minimize taxes and also can protect assets from creditor claims.  An irrevocable trust has its own tax identification number and is not, for tax purposes,  treated interchangeably with the grantor/settlor.
Trust under Will
A will can provide for a trust to come into being upon the death of the person leaving the will or testator.  A testator may have been caring for a handicapped child and, upon his or her death, wishes to ensure that funds are on hand indefinitely to provide continuing care. Or, if beneficiaries of the will are be minors, a trust can set up to hold the assets for them until they are of a specified age.  Once these types of trust come into being, they are irrevocable subject to the terms of the trust.  Also, once the testator dies and the trust is established, a separate tax identification number is applied to the trust and used going forward.
Land Trusts
Land trusts can only hold real estate interests, and they will typically have a corporate trustee, such as a bank or trust company. Some states make broad use of land trusts while others do not recognize them  due to technicalities of common law brought over from England when the various state laws were forming.  Land trusts are like other revocable trusts; they can be revoked or amended while the primary beneficiary is living.  Such a trust may name other persons as successor beneficiaries upon the death of the primary beneficiary. 
Under Section 1031, there is a restriction against doing an exchange of a beneficial interest in an asset.  However, the drafters of the code section had other types of investments in mind when they wrote this.  In order to avoid confusion, the IRS released Revenue Ruling 92-105 stating that the owner of a beneficial interest in a land trust could participate in a 1031 exchange.
Probate
If a person dies without a trust, a court-supervised probate proceeding may be necessary to determine who inherits the assets from the deceased person.  If the person dies with a will, it is referred to as a testate proceeding.  If the person dies without a will, the proceeding is intestate, and the rules of heirship in their state of residence will dictate which heirs receive interests and at what percentage. If there is a will, an executor is named to carry out the distribution of the estate.  If there is no will, that person will act as the administrator of the estate.  As already mentioned, the existence of a trust will generally obviate the use of the will to transfer ownership of the assets left by the deceased.  To the extent that any asset was unintentionally left out of the trust, the will sometimes “pours over” those assets into the trust upon death and the will which accompanies the trust is referred to as a pour-over will.
Death during Pendency of a 1031 Exchange
Normally in a 1031 exchange, the same person who sells a property is required to buy the new property, but sometimes the taxpayer sells relinquished property as part of a 1031 exchange and passes away before the exchange transaction is completed.  Notwithstanding the old adage about death and taxes, the representative of the estate can, in this scenario, seek to complete the exchange and defer the taxes. In the event the exchange is not completed, the gains on the sale of the relinquished property would be paid as part of the deceased’s final tax return.

General Partnerships
A general partnership is essentially an association of two or more people to carry on a business as co-owners. No written agreement is necessary to have a general partnership. One advantage of the general partnership form of ownership is tax benefits. No taxable event happens at the partnership level. In other words, no double taxation occurs in a general partnership. The usual test the IRS uses to determine if a partnership exists is whether the partners share profits and losses, jointly own the capital and assets, and jointly control and manage the business.
General Partnership Advantages and Disadvantages
Other advantages of general partnerships include the following:

Each partner can participate in the management of a general partnership.
Continuity of the general partnership can be established.
The ownership interest in a general partnership is treated as personalty rather than realty.

The disadvantages of owning property in a general partnership include:

There is unlimited liability for general partnership partners.
The decisions of one partner can bind the other partners.
The life of a general partnership is not perpetual in duration.
Each partner’s interest may not be easily marketable to third-party purchasers.

The structuring of a 1031 exchange by a subsection of the partners is one of the most common questions asked by taxpayers and addressed in the article, “1031 Drop and Swap out of a Partnership or LLC.”
Limited Partnerships
A limited partnership is an association of two or more people in which the entity has one or more general partners and one or more limited partners. The limited partnership is usually established by filing a Certificate of Limited Partnership with the clerk of the county in which the partnership will be doing business or with the applicable Secretary of State’s office or similar agency.
Limited Partnership Advantages and Disadvantages
The major advantages of using a limited partnership to own real estate include

A limited partnership allows a passive investor,not active in the management decisions of the partnership, to participate in the investment.
The liability of each partner is limited to the amount of capital that the investor has agreed to put “at-risk.”
There is continuity of a limited partnership in the event of death, bankruptcy, or withdrawal of one of its partners.

The disadvantages of owning property in a general partnership include:

In order for their liability to be limited, the limited partners cannot engage in the management of the partnership or its property.
The general partner is responsible for making management decisions concerning the limited partnership.
A limited partnership is difficult to market to third-party purchasers.
The limited partners must rely on the ability and expertise of the general partner or else they risk losing their limited liability.

Summary
In the first of this series on selecting a real estate entity, we looked at sole proprietorships and tenant in common entities; in this installment we examined the advantages and disadvantages of two types of partnerships. In part three, we discuss corporations and the corporate form of ownership.

General Partnerships
A general partnership is essentially an association of two or more people to carry on a business as co-owners. No written agreement is necessary to have a general partnership. One advantage of the general partnership form of ownership is tax benefits. No taxable event happens at the partnership level. In other words, no double taxation occurs in a general partnership. The usual test the IRS uses to determine if a partnership exists is whether the partners share profits and losses, jointly own the capital and assets, and jointly control and manage the business.
General Partnership Advantages and Disadvantages
Other advantages of general partnerships include the following:

Each partner can participate in the management of a general partnership.
Continuity of the general partnership can be established.
The ownership interest in a general partnership is treated as personalty rather than realty.

The disadvantages of owning property in a general partnership include:

There is unlimited liability for general partnership partners.
The decisions of one partner can bind the other partners.
The life of a general partnership is not perpetual in duration.
Each partner’s interest may not be easily marketable to third-party purchasers.

The structuring of a 1031 exchange by a subsection of the partners is one of the most common questions asked by taxpayers and addressed in the article, “1031 Drop and Swap out of a Partnership or LLC.”
Limited Partnerships
A limited partnership is an association of two or more people in which the entity has one or more general partners and one or more limited partners. The limited partnership is usually established by filing a Certificate of Limited Partnership with the clerk of the county in which the partnership will be doing business or with the applicable Secretary of State’s office or similar agency.
Limited Partnership Advantages and Disadvantages
The major advantages of using a limited partnership to own real estate include

A limited partnership allows a passive investor,not active in the management decisions of the partnership, to participate in the investment.
The liability of each partner is limited to the amount of capital that the investor has agreed to put “at-risk.”
There is continuity of a limited partnership in the event of death, bankruptcy, or withdrawal of one of its partners.

The disadvantages of owning property in a general partnership include:

In order for their liability to be limited, the limited partners cannot engage in the management of the partnership or its property.
The general partner is responsible for making management decisions concerning the limited partnership.
A limited partnership is difficult to market to third-party purchasers.
The limited partners must rely on the ability and expertise of the general partner or else they risk losing their limited liability.

Summary
In the first of this series on selecting a real estate entity, we looked at sole proprietorships and tenant in common entities; in this installment we examined the advantages and disadvantages of two types of partnerships. In part three, we discuss corporations and the corporate form of ownership.

General Partnerships
A general partnership is essentially an association of two or more people to carry on a business as co-owners. No written agreement is necessary to have a general partnership. One advantage of the general partnership form of ownership is tax benefits. No taxable event happens at the partnership level. In other words, no double taxation occurs in a general partnership. The usual test the IRS uses to determine if a partnership exists is whether the partners share profits and losses, jointly own the capital and assets, and jointly control and manage the business.
General Partnership Advantages and Disadvantages
Other advantages of general partnerships include the following:

Each partner can participate in the management of a general partnership.
Continuity of the general partnership can be established.
The ownership interest in a general partnership is treated as personalty rather than realty.

The disadvantages of owning property in a general partnership include:

There is unlimited liability for general partnership partners.
The decisions of one partner can bind the other partners.
The life of a general partnership is not perpetual in duration.
Each partner’s interest may not be easily marketable to third-party purchasers.

The structuring of a 1031 exchange by a subsection of the partners is one of the most common questions asked by taxpayers and addressed in the article, “1031 Drop and Swap out of a Partnership or LLC.”
Limited Partnerships
A limited partnership is an association of two or more people in which the entity has one or more general partners and one or more limited partners. The limited partnership is usually established by filing a Certificate of Limited Partnership with the clerk of the county in which the partnership will be doing business or with the applicable Secretary of State’s office or similar agency.
Limited Partnership Advantages and Disadvantages
The major advantages of using a limited partnership to own real estate include

A limited partnership allows a passive investor,not active in the management decisions of the partnership, to participate in the investment.
The liability of each partner is limited to the amount of capital that the investor has agreed to put “at-risk.”
There is continuity of a limited partnership in the event of death, bankruptcy, or withdrawal of one of its partners.

The disadvantages of owning property in a general partnership include:

In order for their liability to be limited, the limited partners cannot engage in the management of the partnership or its property.
The general partner is responsible for making management decisions concerning the limited partnership.
A limited partnership is difficult to market to third-party purchasers.
The limited partners must rely on the ability and expertise of the general partner or else they risk losing their limited liability.

Summary
In the first of this series on selecting a real estate entity, we looked at sole proprietorships and tenant in common entities; in this installment we examined the advantages and disadvantages of two types of partnerships. In part three, we discuss corporations and the corporate form of ownership.

Recently, I have spoken with a number of taxpayers who have heard about Opportunity Zones and want to know if they are a viable alternative to a 1031 exchange. My answer is usually “it depends.” Here, I provide an overview of opportunity zones and their differences from 1031 exchanges.
Qualified Opportunity Funds
An investment under the O-Zone code provision and proposed regulations has to be into a qualified opportunity zone listed by the Community Development Financial Institutions Fund. Typically, the zones are areas where most of the population live well below the poverty level and the O-Zone provisions are obviously designed to encourage investment into Qualified Opportunity Funds (QOF) that have, in turn, invested in qualifying new or used property or qualified businesses after December 31, 2017. These investments may not fit the taxpayer’s property investment goals.
Much like Section 1031, the reinvestment window for a QOF investment is 180 days after the sale. However, unlike Section 1031, the taxpayer has to purchase shares of stock or partnership interest in a QOF invested in the O-Zone. The upside for the taxpayer is that unlike the typical 1031 exchange, which requires a reinvestment of 100% of exchange value for 100% gain deferral, the investor in an O-Zone only has to reinvest the capital gain portion and can draw out the basis on the sale of the relinquished asset. The trade-off for being able to pull out the cash is the obligation to comply with the myriad of rules designed to ensure that the QOF meets the O-Zone requirements.
Partial Ownership of Real Estate
When a taxpayer invests into a qualified opportunity zone, they are not purchasing a discrete, solely-owned real property interest (although the taxpayer could conceivably create their own QOF). Most often the investment will comprise ownership of stock or partnership interest in the QOF. This may be an issue for most taxpayers who are used to sole control of their investments. These are the same investors who are uncomfortable with TIC or DST ownership interests.
Potential for Capital Gains Deferral
Investing in an O-Zone results in something different than the potential 100% deferral of capital gains achieved with Section 1031 exchanges over the course of ownership of investment or business use property. With an O-Zone investment, the taxpayer can obtain a potential exclusion of capital gain up to 15% between the acquisition of the property during the 2018-2019 window and the end of 2026 (or the earlier sale of the QOF interest). The taxpayer may also achieve 100% capital gain exclusion if the investment is held for 10 years and sale occurs before 2047. Realistically, the gain will probably only be deferred for eight years or the end of 2026, and the gain will have to be reported on the taxpayer’s 2026 return.
Opportunity Zone Regulations
Finally, the proposed regulations for O-Zones are complicated and are still a work in progress. For example, there is still no clear definition of what “substantially all” means for purposes of the holdings of the QOF within the qualified O-Zone. There are ongoing annual certification requirements, strict timetables for reinvestment if a QOF investment is sold, a new set of forms for election of deferral and certification, minimum investment requirements for property types, etc.
Summary
While O-Zone investments are not a replacement for 1031 real property exchanges, they afford benefits to taxpayers who are willing to invest in the types of properties present in the designated zones and limit their gain deferral to less than the potential 100% deferral available in a 1031 exchange. Certainly, the Treasury will continue to refine the O-Zone regulations, and most likely a whole industry will emerge around these kinds of investments. The key for taxpayers is to learn of the pitfalls and the potential benefits, find advisors who know the rules, perform their due diligence and not to get lost in the O-Zone.