If you own rental property, it can be a great investment.
But being a landlord comes with its own set of complications and risks.
Top among them are tax implications and liability issues.
Why is including your rental property in your estate plan so important?
Because, as Florida estate and probate lawyer, Samantha J. Fitzgerald notes, not including investment properties in your estate plan can be costly and cause significant hardships for your beneficiaries and heirs when your estate is administered.
Being a landlord, whether commercial or residential, comes with a number of duties. And it exposes you and your estate to certain liability risks.
For example, a tenant or guest on property you rent is injured, it is highly likely that as the landlord, you may be sued. Lawsuits, as everyone knows, are expensive and time-consuming. Which means that they can eat up the assets in your estate—leaving less or little to nothing for your heirs.
Having a comprehensive estate plan structured to protect your assets can do much to mitigate these inherent risks.
So, it’s important you take the time to consider now how you want to own rental property and that you include it in your estate plan.
Here are 3 things to consider when it comes to deciding how to own rental property:
What Type of Entity Should Own Your Rental Property
Investment or rental property can be owned in a number of ways. Some of the more common forms for purposes of estate planning are:
- Limited Liability Company (“LLC”)
- Revocable Trusts
Each one of these has its own advantages and disadvantages.
For example, owning rental property in the name of a corporation can protect your individual assets against lawsuits. However, due to tax implications applicable to the transfer of real property, this form of ownership is almost never a good idea. Of course, you should consult an experienced estate and probate lawyer to find out if this is true for your particular situation.
Individual ownership of rental property (i.e., not a homestead), or ownership by a revocable trust, can provide you with significant control over your property and how it is managed.
But these forms of ownership do not offer significant protection for your assets against creditors’ claims, individual liability, or personal judgments.
For many property owners in Florida, to own rental property in the name of an LLC can make sense. LLCs provide a level of protection against creditors and liability claims because they are considered to be legally separate from their member/owners.
Ease of Property Transfer at the Time of Death
Another consideration that can influence your choice of how to own your rental property is how easy it will be to transfer that property to your loved ones at the time of your death.
As noted briefly above, corporations are generally a disfavored form of investment property ownership for estate planning purposes due to the tax laws applicable to property transfers.
Property owned in an individual’s name must go through Florida probate to be transferred.
On the other hand, if your rental property is owned by an LLC, property transfer is much easier.
Ownership interests can be transferred to family members through your Last Will and Testament (“Will”) or through a revocable trust. Alternatively, a “family membership” LLC can be created.
Are You Willing to do the Work Required for Your Chosen Entity Ownership?
Another thing to think about when deciding how to own rental property is how disciplined you are.
This is important because certain forms of property ownership —i.e., corporate or LLC ownership of property—require complying with certain legal formalities.
For example, if you decide to own rental property as an LLC, you will be required to run your LLC as a business —complete with separate bank accounts, membership meetings and more and prove that your LLC is conducting business, as a business, and is not just holding your assets.
Need some help deciding what is best for you and your estate plan? Protecting Your Family is Just a Phone Call Away.
At the Law Offices of Samantha J. Fitzgerald in Plantation, Florida, we are here to help you with all your estate planning, trust, and probate needs. We expertly guide individuals through the complex probate process, and capably handle all aspects of the creation, administration, and settlement of trusts as well. Connect with us on Facebook or Instagram or call us at 954-580-3690.