Distribution of Undivided Interests in Real Estate

[chris]

Participant has RE in his self-directed PSP account worth 2.5 MIL. Assuming plan allows for in-kind distributions, is there any reason why participant could not request an in-kind distribution of an undivided interest in the RE each year until it was all distributed out to participant? Particpiant's thinking is that as each undivided interest is distributed it would appraise for much less than the pro-rata value of the entire 2.5 MIL tract and thus he will have less tax to pay on the distribution. Two issues: 1) It seems incongruous that the PSP could have the property valued at 2.5 MIL inside the Plan and then have the participant receive for example, ten (10) distribbutions valued at less than 250K each because of the undivided interest aspect; 2) appears there would be potential for prohibited transaction issues in the interim, e.g., when participant would own 10% of the tract and the PSP would own the other 90%, e.g., PSP inadvertently pays all of the property taxes, etc.... Any thoughts? Thanks for the help.

[QDROphile]

The plan should not allow the proposed distribution. The plan should not allow acquistion of an undivided interest, especially if the participant will own an interest in the same property, so the plan should not find itself in the same place on the back end. You are correct that there are legal issues, but the administrative issues alone are so troublesome, and the participant's expectations are so out of line, that the idea should be dismissed out of hand. The plan would be in for too much trouble, even if you could resolve the legal issues. And if you still want to try, you had better make sure that the participant or the participant's account will be charged for the effort with or without ultimate sucess, and make sure the particpant knows about the charges up front. The participant is going to be a separate source of trouble.