When it comes to estate planning it’s tempting to procrastinate. It’s unpleasant to contemplate your incapacitation or death, and estate plans can feel distant and irrelevant while enjoying good health. But planning for the future is essential when passing your assets to your loved ones. And bequeathing rental properties may require special considerations. So don’t get caught unprepared: take on this crucial task sooner rather than later.
What is estate planning?
Your estate comprises everything you own, including your home, car, financial accounts, personal possessions, and properties. An estate plan details what should happen to those possessions upon your death. It should be easy to follow and should minimize the fees, taxes, and court costs deducted from your legacy. Failing to plan can result in delays, expenses, and confusion for your beneficiaries. And if you’re a landlord, a lack of forethought can also create havoc for your tenants.
An estate plan should be a process rather than a one-time event. Additionally, you should update your plan whenever family or business changes arise to avoid misunderstandings and unnecessary court involvement.
How should I factor in my rental property?
A critical step in estate planning is listing possessions and determining the best allocation. If a rental property is among those assets, there are a few common ways to handle it. For example, most landlords leave their properties to an heir in their will. However, this simple approach may leave problematic gaps for your beneficiaries and tenants while your estate goes through probate.
Several alternatives may provide better continuity and protection for your rental property investment. One option is to place the property in a living trust, which allows you to be both the trustee and beneficiary during your lifetime. Other landlords create a limited liability company (LLC) or corporation to hold their property. Such an organization survives the owner and protects your assets from liabilities—such as lawsuits or disgruntled tenants. It would be best to discuss the advantages, legal considerations, and tax ramifications of establishing a trust, LLC, or corporation with a tax or legal professional. Doing so will go a long way toward achieving your estate planning goals.
Additionally, estate planning should consider who would run your business if you’re temporarily or permanently unable to collect rent or respond to emergencies. Many property owners designate a trusted family member, friend, or business partner to step in when necessary. Consider signing a power of attorney to give your replacement the ability to act on your behalf when needed.
No one can predict the future, so it’s never too early to secure the succession of your business and possessions. An estate plan will give you a say in how your property’s handled. This preparation will also provide security and peace of mind for you, your loved ones, and the tenants who call your property home.
About Rentals America
Rentals America provides full-service property management for residential rental properties. Our team is wholly dedicated to property management, and we’re here to help landlords navigate the rental market.
