Many wealthy families own commercial real estate that has appreciated tremendously over decades.

But eventually, a difficult question comes up:

Who is going to own and manage this next?

The next generation often has very different priorities.

• Many don’t want to be landlords
• One sibling wants to keep the property
• Another wants liquidity
• Another doesn’t want the responsibility at all

Selling can trigger substantial capital gains tax and depreciation recapture.

Holding the property can create years of family tension.

One strategy that can be worth evaluating is a 1031 exchange followed by a 721 exchange.

For families that qualify, it may allow them to:

• Defer capital gains taxes and depreciation recapture
• Transition from actively managing property to being a passive investor with professional management
• Exchange a single, concentrated asset for an interest in a diversified real estate portfolio
• Potentially improve liquidity options over time
• Simplify the eventual transfer of wealth to future generations

No strategy is perfect, and these transactions aren’t appropriate for every family.

But for the right situation, they can solve far more than just a tax problem.

Sometimes the greatest value is preserving family harmony while modernizing the family’s balance sheet.