I am one of the managing partners in an apartment syndication deal, and am in the capital raise phase. We are using the 506b exemption. One of my accredited investors would like to buy a couple of shares on behalf of their minor children, but are unsure on the best way to structure the transaction to shield the minors from tax liability down the road. Is it possible to gift the shares once purchased, or is there another vehicle they should explore?
They may be able to do some form of custodial account like some of the larger stock brokerages offer.
I am not an expert on all of the securities law issues, but I have seen gifting of interests in syndication deals to a limited partner's children (cannot confirm that they were minors). Therefore, I believe it can be done without concern about them being accredited investors themselves.
In terms of taxes, there are two types to be considered: gift and income. The gift beneficiaries would not be responsible for any gift taxes owed; if anyone owes gift taxes it would be the parent making the gift, but it is unlikely that anyone would owe given the large exclusion amount. In terms of income taxes, the minors would have to pay taxes on the income the deal generates just like everyone else. However, the amount of taxes they pay due to the "kiddie tax" would not longer be based on the parents' tax rate. Instead, the amount of tax due is calculated based off of the trust and estates tax brackets. That means that the minor children may be paying a lower rate than the parents; although it would not take much income to get to the top tax rate so it is also possible that the child could be paying more. It all depends upon their situation.