Father and son’s love of flying spills over into law practice

Jeff and Ethan Beswick handle complex aviation transactions for Varnum clients.
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Jeff Beswick

Some days you can find Jeff Beswick and his son, Ethan Beswick, in the courtroom. At other times, you might see them in the cockpit of their airplane.

Jeff Beswick is an attorney and partner at Varnum where he specializes in business law, real estate, estate planning and aircraft transactions, which includes purchase, sale, fractional ownership, leasing and the operation of aircraft, among other things. He also is an instrument-rated private pilot.

Ethan Beswick also is an instrument-rated commercial multi-engine pilot and an associate attorney at Varnum, where he focuses on mergers and acquisitions, tax, real estate and aircraft matters.

With their passion for aviation intertwined with their legal careers, they’ve noticed an increase in aircraft transactions since the pandemic started last year.

Jeff Beswick said aircraft transactions and activities pre-COVID-19 were consistently growing, but at the beginning of the pandemic and throughout 2020, there was a decline in the number of aircraft transactions and flight operations for both business and personal travel.

According to the senior Beswick, in the fourth quarter of 2019 there were 980,000 flight operations and in the second quarter of 2020, there were 510,000 flight operations. So, it was about a 50% decline in flight operations and as flight operations go down, so does the interest in airplane transactions, he said.

“Now we are seeing, as we come out of COVID, we are seeing a rebound,” Jeff Beswick said. “We are seeing more transaction activities. People are buying and selling airplanes and moving up to the next-level airplanes. There are more business travels as business travel opens up and also personal use of aircraft because it is an efficient and safe way to get around.”

The rebound in flight operations began in the third quarter of last year and continued into early 2021. Jeff Beswick said there have been 910,000 flight operations. Although flight operations have increased, he said there is some hesitancy for international private airplane travel.

Nevertheless, with the increase in domestic flight operations, Jeff Beswick and Ethan Beswick said there are some issues purchasers have to be aware of, including purchase agreements, transaction and closing issues, ownership options and tax benefits of aircraft purchases.

Ethan Beswick

Ethan Beswick said the purchasing agreement is a letter of intent, which will set out the basic initial terms where the parties begin to agree on the transaction. Within the purchasing agreement, it must include title search, logbook review, physical inspection, inspections by independent shops/mechanics, cost to resolve discrepancies, sales and use taxes, avionics, equipment and software.

“People can get pretty enamored with the efficiency, fun and joy of traveling by jet airplane and they can forget that they need to protect themselves in the same important ways when they are buying anything else that is a multimillion-dollar investment,” Jeff Beswick said. “Sometimes clients forget that they need to do a thorough inspection of the airplane, a thorough inspection of the records of the airplane to see if there is any damage history or problems because they all look pretty sitting out on the ramp, but every aircraft is different, and they need to be inspected. That process typically takes a week or two for a thorough inspection and sometimes clients do not want to wait that long.

“In doing a title search they have to make sure that there is not a lien or a mortgage on the aircraft that needs to be cleared up. Another area of concern is transfer titles because in Michigan, there is a 6% transfer tax, and various (other) states that have transfer taxes. If you are not careful, you can end up paying unnecessary taxes because you pay taxes in the state where you closed on the airplane and you also have to pay taxes somewhere else. The closing location and the states transfer, and sales use taxes come into play and those are areas where clients can make mistakes.”

Through the Tax Cuts and Jobs Act of 2017, Ethan Beswick said there are currently bonus depreciation opportunities that would be advantageous for clients and individuals purchasing aircraft.

“The bonus depreciation will continue for the next few years and then it will phase out through 2027, but there are certainly tax advantages in the near-term of acquiring an aircraft and then depreciating 100% of the cost of that aircraft and offsetting other taxable gain incentives a company or business clients may have,” he said. “There are also other tax considerations for sales tax, use tax and transfer tax, and proper planning and structuring allow clients to minimize those taxes to the best of their ability. Some states have fly-away exemptions and those allow for an opportunity to purchase an aircraft in a state and so long as the aircraft is removed from that state within a set amount of time, the purchaser is able to be exempt from that state’s taxation. Michigan has a fly-away exemption, as do numerous other states, and that allows clients to avoid double taxation in the acquisition of aircraft.”

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