PROPERTY MANAGEMENT AGREEMENT GUIDELINES FOR A SELF-DIRECTED IRA ACCOUNT
This document provides guidance on how to set up property management agreements for a property owned by a self-directed IRA account.
1. Document Titling – The agreement should be between the property management company (“The Company”), and American Estate & Trust FBO
1.1. The titling on the signature block should read as:
1.2. If the signature block is not prefilled, then you should fill in the titling as described above.
2. Document Signing – As the account holder you can sign the property management agreement on the signature line.
42-155347083. Items that cannot be contained in the agreement:
3.1. Personal guarantees – This would be any type of language where you, as the account holder, are making a guarantee that you will be personally liable or responsible for any debts or obligations. The IRA can be required to meets its own obligations but you cannot personally extend credit, collateral or financial guarantees that benefit your IRA account or its investments.
3.2. Power of Attorney – This would be any type of language where you attempt to assign a power of attorney for the IRA account over to the property management company. The Company can manage the IRA’s property but cannot have any control or discretion over the IRA itself.
3.3. Power to sue or litigate – This would be any language that allows The Company to sue on the account’s behalf.
4. Transmittal of the executed document – Upon completing and both parties signing the document, you will need to provide a copy to us.
5. Payment of expenses – Fees and expenses can be paid from the IRA to the property management company provided that we have a valid Direction of Investment form, a copy of an invoice for the expense(s), and a copy of the completed property management agreement on file. You cannot pay IRA expenses, including property management fees, using your own personal funds. IRA expenses must be paid by the IRA, so be sure to leave sufficient cash in your account for future expenses.
6. Establishment of a petty cash account with the property manager – This can be accomplished by providing an invoice from the property manager, a valid Direction of Investment, and a copy of the completed property management agreement. The agreement should provide for periodic accounting of the petty cash.
7. What If The Company Will Not Allow You To Sign – In any cases where the property manager will not allow you to sign, you have two options:
7.1. Send the document to us with an Authorization to Execute form and we will sign, but only as your duly authorized agent, meaning you and your IRA will still maintain all rights and obligations with respect to the agreement. We will not have any rights or incur any obligations from signing the agreement on your behalf.
7.2. Inform The Company that it is your account, and that you have legal ownership and all rights and control over the account, much in the same way as you do over your checking account. Therefore, you have the legal capacity to enter into an agreement to hire someone to provide services for your IRA account.
PROPERTY MANAGEMENT AGREEMENT GUIDELINES
8. What Not To Do:
8.1. Do not personally pay any fees or expenses, or personally guarantee your IRA’s debts or expenses, or personally receive any income earned by your IRA’s property. All income and expenses must flow to and from the IRA.
8.2. Do not hold property in one IRA and use another IRA to pay the property’s expenses or deposit its rental income. The IRA holding the property should pay its own expenses and collect its own income.
8.3. Do not hire a property manager that is directly related to you. The following persons or entities are not allowed:
8.3.1. You
8.3.2. Your spouseHappy family of five together at home
8.3.3. Your children and their spouses
8.3.4. Your grandchildren and their spouses
8.3.5. Your parents
8.3.6. Your grandparents
8.3.7. Any business or other entity (LLC, trust, etc.) that you own or control
8.3.8. Any business or other entity (LLC, trust, etc.) that the above parties own or control
8.3.9. Any business partner
8.3.10. Anyone whose relationship to you could lead to a potential conflict of interest or may affect your judgment in doing what is best for your IRA (sibling, significant other, best friend, etc.)
8.4. Do not forget to send us a copy of the fully executed agreement.
8.5. Do not assume anything. Call us before making decisions. We cannot provide legal, tax or other professional advice but we may be able to point out potential red flags that you can address with your chosen advisors, if needed, to prevent possible disqualification of your IRA.
©American Estate & Trust, LC – 2014
QUESTIONS?
Jaclyn M. Grella
2. Document Signing – As the account holder you can sign the property management agreement on the signature line.