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How do I acquire real estate within my Sterling Trust account?
Real estate can be purchased directly by your account, transferred from an existing IRA or rolled over from a qualified plan. It may also be acquired as a result of a foreclosure on a mortgage or deed of trust held within your Sterling account.
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Can my Sterling Trust account invest in real estate through a Limited Partnership or Limited Liability Company?
Yes. If real estate will be acquired through a corporate entity such as an LP or LLC and the Sterling Trust account will hold an equity interest in the entity, provide the items shown on Sterling Trust's Processing Checklist for Private Equity Investments . (If the Sterling Trust account will be originating a loan which will be secured by a mortgage or deed of trust, provide the items shown on Sterling Trust's Processing Checklist for Private Debt Investments.)
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In what name is title held for property held in an IRA or Qualified Plan?
Since your IRA or Qualified Plan is buying the property rather than you as an individual, the title must be held in the name of "Sterling Trust Company, Custodian FBO Accountholder Name, IRA #________. It is very important to have the contract/purchase agreement, title commitment/insurance, deed, liability insurance, etc. titled accordingly.
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May I sell property that I currently own to my Sterling Trust account?
No. Property that you or a disqualified person has ever owned is not eligible to be purchased by your Sterling Trust account since this would be considered a prohibited transaction under Internal Revenue Code §4975.
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What is a prohibited transaction?
In general, Internal Revenue Code Section 4975 defines a prohibited transaction as a transaction between a plan (your account) and a disqualified person. Generally, "disqualified persons" are defined to be the accountholder, other fiduciaries, certain family members (including lineal descendents and spouses of lineal descendents), and businesses under the accountholder's (or disqualified person's) control. In essence, the prohibited transaction rules prohibit an IRA or Qualified Plan from acquiring a piece of property which will be purchased from or used personally by the accountholder or other disqualified persons.
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Can I use the property held within my Sterling Trust account?
Neither you nor any other disqualified person can have any personal use or benefit of the property while it is held in your retirement account. The property must be purchased for investment purposes only.
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If I decide I want to begin using the property in my account, how do I take possession of the property?
You must withdraw the property from your account as an in-kind distribution (at the current market value) and pay any taxes and/or possible penalties if you are under age 59½. You will need to complete and sign Sterling Trust's Distribution Request Form and send to Sterling Trust, along with a deed prepared for Sterling's signature which conveys the title of the property from your Sterling Trust account to you individually. An updated appraisal or broker's price opinion must also be provided if the current appraisal is more than three years old or if improvements have been made to the property (new construction, etc.).
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How is earnest money handled?
The earnest money deposit must be funded by your Sterling account. You cannot use personal money for the deposit and then ask to be reimbursed by your Sterling Trust account. You should send a copy of the contract or purchase agreement to Sterling Trust, along with the Expense Payment Authorization Form or your written authorization for Sterling Trust to send the specified amount of earnest money from your account to the title company or closing attorney. The contract or purchase agreement must list the buyer as "Sterling Trust Company, Custodian FBO Accountholder Name, IRA #___________". You (or other disqualified persons) cannot be listed as the buyer and then later assign the contract to your Sterling account.
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Can my Sterling Trust account borrow funds to finance a real estate purchase?
Yes, but only within an IRA. Sterling will hold debt-financed property in an IRA only with the use of a non-recourse promissory note issued by a lending institution or by the seller of the property. The non-recourse promissory note cannot be personally guaranteed, and the lending institution can only look to the property securing the note as collateral. Important: Debt-financed property may generate Unrelated Business Taxable Income (“UBTI”), and any taxes due must be paid by the Sterling Trust IRA account. For more information regarding UBTI, please consult your tax advisor.
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Can my Sterling Trust account purchase a portion of a property in conjunction with other investors?
Yes, as long as the other owners are not disqualified persons. The deed must be registered as “Sterling Trust Company, Custodian FBO Accountholder Name, Account # _________ as to an undivided __% interest.” The exact undivided interest must be provided.
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What types of property can I purchase with my Sterling Trust account?
Vacant lots, raw land, and income producing property such as rental houses, condominiums, or commercial real estate.
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What types of property will Sterling Trust not hold?
Sterling Trust will not permit investments of mobile homes, time shares, foreign real estate, or property purchased through an auction or tax sale. Permanently attached manufactured homes may be purchased only if the certificate of title has been surrendered. Please contact the taxing authority with regards to the process of surrendering the title.
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May I purchase foreclosure property in my Sterling Trust account?
Only if the property has already been foreclosed upon, and you can provide all of the items on Sterling Trust's Processing Checklist for Real Estate. However, Sterling will not process a foreclosure purchase directly through an auction or tax sale.
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How are expenses and/or improvements handled for real estate held in my Sterling Trust account?
All earnest money deposits, insurance premiums, taxes, debt payments, or other expenses of the property (including any improvements) must be paid by the Sterling Trust account directly to an unrelated third party. Since Sterling Trust requires your written authorization to pay invoices, it is important that you use your mailing address when setting up utilities, etc. so that bills are sent directly to you (or your property manager). Once you receive an invoice or tax notice, you should send it to Sterling Trust, along with the Expense Payment Authorization Form or your written authorization for Sterling Trust to pay the expense from your account. You may not personally pay for an expense on a credit card and remit the statement for payment. Sterling will not process payments to a credit card issuer.
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Does rental income have to be deposited in my Sterling Trust account?
Yes, if the property is income producing property, all rental income must be paid to your Sterling Trust account. In addition, Sterling Trust requires you to appoint an unrelated third party to act as the property manager for income producing property. The property management agreement will be provided by the property manager and should be signed by you and the property manager. Your third-party property manager may pay expenses from rents received as long as Sterling Trust is provided with a monthly or quarterly report of income received and expenses paid. The report should accompany the property manager's deposit check (if any).
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Does Sterling Trust provide any management services with regards to the property?
No. You must appoint a Real Property Servicing Agent to handle all property servicing functions including monitoring the performance of the property manager. A servicing agent is required for all types of property. Please see the Real Property Servicing Agent Agreement in Sterling Trust's Processing Checklist for Real Estate for the specific duties of the servicing agent.
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Do I need to provide Sterling Trust with a property appraisal?
Yes. Sterling Trust requires you to provide a property appraisal or broker's price opinion prior to Sterling processing a real estate purchase. In addition, an updated appraisal or broker's price opinion must be provided to Sterling Trust every 3 years in order to update the value of the account. Important: If you choose to obtain a broker's price opinion, the broker must specify an exact opinion of value. Price ranges or approximations will not be accepted. In addition, the opinion must be prepared by a broker with a GRI, CRS, SIOR, or CCIM designation, and the broker must provide a copy of the certificate attesting to the appropriate designation along with his or her opinion.
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Do I need to carry liability insurance on property held in my Sterling Trust account?
Liability insurance is required on property with improvements and is optional for vacant land. The insured on the policy must be “Sterling Trust Company, Custodian FBO Accountholder Name, Account # _________”. The property cannot be covered by a policy in your personal name.
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What should I know about selling property held within my Sterling Trust account?
Once you have the property under contract and are ready to close, you will need to sign the closing documents as “Read and Approved by (your name)” and forward the documents to Sterling Trust for signature. Sterling Trust will then execute the closing documents and return the documents to the title company or closing attorney to complete the closing transaction. Upon closing, the title company or closing attorney must then remit the sale proceeds to your Sterling Trust account.
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When I sell property held within my Sterling Trust account, can my Sterling Trust account finance the transaction?
Yes. Your Sterling Trust account may carry the note and deed of trust/mortgage if you wish to finance the sale. The periodic principal and interest payments are to be deposited into your Sterling Trust account, and you may reinvest the cash however you choose. Please see Sterling's Processing Checklist for Private Debt Investments for specific details on the note vesting and to obtain the forms you will need to complete this transaction.
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