4 minute read

Estate Planning for Real Estate Owners

If you own real estate, chances are you have unique needs when it comes to estate planning. We break them down in this short guide!

Part of creating an Estate Plan is considering the responsibilities that will fall to those you leave behind. Will your loved ones encounter debt when settling your affairs? What about property tax payments on the Estate you pass down?

Estate Planning is an important part of planning for the future, no matter who you are, but real estate owners have unique needs that make it particularly vital. In this guide, we'll explore what real estate owners should know when preparing their Estate Plans:

Estate Planning for Real Estate Owners

An Estate Plan is a tailor-made, legally binding series of documents that outlines your last wishes for yourself and your assets after death. An Estate Plan ensures that your properties and possessions are safe during life and that they get to where you intend them to after death.

A complete Estate Plan includes four key elements: a Last Will and Testament, Living Will, Power of Attorney, and Revocable Living Trust. By planning what will happen to your Estate after you're gone and putting your wishes in the correct document, you can protect your assets while saving your Beneficiaries a considerable amount of money.

Asset Protection

Many real estate owners will accumulate one-of-a-kind properties. A Trust-Based Estate Plan is a comprehensive way to protect your assets in life and after death. For real estate owners, a Trust can also provide legal protections for the Trustees. With proper Estate Planning, you can maintain your real estate assets for future generations.

You can place just about anything in a Trust for safekeeping. Typically, when you fund a Trust with real estate, you are transferring the ownership of that property from yourself to your Trust. That is what keeps it safe for your Beneficiaries after death. But for a piece of real estate that you own and are currently living in, a Qualified Personal Residence Trust (QPRT) can keep you in your home.

A Qualified Personal Residence Trust allows for a piece of property to be removed from an Estate and put into a Trust for safekeeping. At the same time, it grants the original owner the right to live in the residence for an agreed-upon length of time. After that time, which may be after the original owner's death, the property then passes to the Beneficiary or Beneficiaries.

Tax Planning

Important to many real estate owners are the tax protections that come with Estate Planning. Typically, the more valuable an Estate is, the more likely it is that a financial adviser or lawyer will recommend setting up a Trust.

Trusts are taxed differently than Wills, based on a variety of different factors. For instance, a Beneficiary of a Trust receives a tax deduction, making them responsible for paying income tax on the taxable amount of the Trust only.

When naming Beneficiaries to your Estate Plan, it's important to consider how they will be affected by the inheritance. Not everyone is in a financial position to pay the fees and taxes associated with a large inheritance. When that inheritance is real estate, the taxes can multiply with no end in sight.

Federal Estate taxes are due nine months after a Decedent's death. That doesn't leave much time for a Beneficiary to raise the cash needed to pay what can be a sizable tax payment. In some cases, an Estate may qualify for a tax relief provision that allows up to 14 years for a Beneficiary to pay off the Federal Estate taxes in installments. This provision, however, is only available to real estate investors with specific operations. It's wise not to count on this provision as a way for your Heirs to stay up-to-date on their tax payments.

Putting your Estate into a Trust also allows your Beneficiaries to avoid Probate after your death, which we will discuss in more detail below.

Avoiding Probate

Probate Court is the process of settling your Estate in court. It can also come with its own set of hefty fees, long waits, and red tape. If there is no Executor named in an Estate Plan, it can sometimes take the Probate Court weeks or even months to appoint an Executor and get the process started. And that wait may cost you.

When a Will gets stuck in the Probate process, the Estate is responsible for paying the fees and taxes related to it. Depending on the size of the Estate, Probate could end up eating into an inheritance. It may even require you to sell off assets to pay off the debts of the Estate.

To avoid Probate, real estate owners may put their properties into a Trust. They may also set up Joint Tenancy or Transfer on Death Deeds in states that permit it, which would transfer ownership of a property to the co-owner (or owners) immediately after death.

By avoiding Probate, your assets, including all your real estate properties and investments, would pass seamlessly and immediately to your Beneficiaries, no waiting or red tape, fees, and minimizing federal and state taxes.

Creating Your Estate Plan

A comprehensive Estate Plan allows real estate owners to pass their legacy onto their families without compromise. Trust & Will is here to help real estate owners of all sizes make sense of their Estate Plan and keep their most valuable assets safe.

Get started on your Estate Plan for real estate owners by telling Trust & Will about yourself and your unique needs. Not everybody has the same Estate Planning needs. By telling Trust & Will about your situation and what you need to account for, you will get documents uniquely tailored to you.

Passing real estate on to a Beneficiary after death can look different depending on your state. Because each state has its own Estate Planning laws and regulations, it is imperative to work with a company that knows the rules for each state. Trust & Will delivers state-specific online Estate Planning documents created by knowledgeable attorneys. Get started today!