All About Estates

Fiduciary Investing Series – Don’t REIT around the bush

This blog has been written by Robert Boyd, Director, Scotiatrust

Real Estate Investment Trusts, or REITs as they are commonly referred to, are companies that own real estate which generate an income. They can be a useful investment vehicle as they are often well diversified and can allow an individual to invest in the real estate market without purchasing a property, while avoiding the ongoing maintenance that comes with outsight ownership. REITs can hold a variety of real estate including apartment complexes, data centers, self-storage, warehouses, healthcare facilities, timberland, hotels etc. REITs do however cause some confusion in the estate and trust industry.

If you are acting as trustee and would like to include REITs in the portfolio, there are two things to consider:

  1. REITs often have a return of capital component and may offend the parameters of a trust deed as a result. Be sure to check this in advance, and/or ensure that the Investment Policy Statement of the portfolio reflects any restrictions on capital.
  2. REITs can complicate  trust tax returns because of timing issues. REITs year end tax reporting slips may not be available in time to file the annual Trust tax return (T3), particularly for Testamentary Trusts. This is generally not an issue for individual investors who have a filing deadline of April 30th. This may result in amending the T3 trust return when the REIT information become available which may add additional costs and time.

Before taking advantage of REIT investment, it is important to consider the above points in conjunction with the overall investment objective which may save you additional administration/costs and minimize overall risk as a trustee in the future.

Fiduciary Investing Series

The blog is the fourth in a series focusing on Fiduciary Investing that will cover a range of practical topics.

Blog #1   How to avoid compounding liability in trust accounts
Blog #2   Fun, fun, funds
Blog #3   Powers of Attorney and Investment Portfolios
Blog #4   Don’t REIT around the bush

 

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2 Comments

  1. Suzanne S.

    January 9, 2020 - 4:35 pm
    Reply

    The return of capital component – that’s such good info! didn’t know that. Thanks Robert

  2. Peter Meitanis

    January 9, 2020 - 8:56 pm
    Reply

    This has been such a great series Robert. Future reference material that will be REITained for sure!

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