Estate planning for real estate investors involves anticipating and mitigating the impact of the client’s death or incapacity on the client’s family and business interests.
If you own real estate investment property, it is crucial that you have an estate plan that is well-coordinated with your investments. Failure to incorporate your investment properties into your estate plan can lead to substantial difficulties for your business and family when you die or if you become incapacitated.
Generally speaking, an estate plan for the real estate investor should accomplish the following:
Our approach is to devise an integrated, master plan incorporating the client’s investments with their family/personal estate plan to best preserve and protect our client’s wealth. This is accomplished through the proper use of limited liability companies (LLCs), revocable living trusts, wills, and other estate planning tools.
The optimal estate plan for those who own investment or rental property in Texas often involves the use of a revocable living trust and one or more LLCs.
Living trusts are powerful and valuable tools for certain clients, particularly those with real estate investments. A trust provides flexibility, continuity and centralization of management; enhanced privacy; probate avoidance; and enhanced control upon death or incapacity, to name a few advantages.
However, there are some misconceptions regarding the role of trusts in an asset protection plan. Despite an abundance of information, a lingering false perception endures that living trusts provide asset protection. They do not.
Many individuals have the mistaken notion that after creating a living trust, they become invisible or invincible. After all, if the assets are no longer titled in your name, nobody can reach them, right? Wrong. A revocable trust weighs in at exactly zero on the asset protection scale. This is why LLCs are also necessary.
Let’s take estate planning out of the picture for a moment. From a legal standpoint, if you own an investment property, it should be held in an LLC. An LLC, or Limited Liability Company, is a business entity that exists as a separate legal entity from its members, insulating the individuals who own ownership interests from personal liability.
An LLC, when properly drafted and administered, is an extremely effective tool for asset protection planning, estate planning, and management of family owned wealth, including investments, businesses, and real estate.
Why have an LLC? A judgment against an owner of real estate is not confined to the value of the property. If a court renders a judgment against you in favor of a tenant who suffered injury on your rental property, then the plaintiff tenant could reach all of your assets to satisfy the judgment. The same applies to claims by business partners or deficiency suits for loans where property was collateral.
Properties held in a living trust are exposed to this same liability. If a trust owns property and has a judgment against it, the judgment creditor can reach other trust assets to satisfy the judgment. However, if each property is placed into an LLC which is held by the trust, the risk of exposure to the other trust assets is greatly minimized.
A revocable living trust, coupled with one or more well-drafted LLCs, can insulate you from liability, give you peace of mind, and ensure control over your investment properties in the event of your death or incapacity.
If you need assistance with estate planning, contact the Daves Law Firm today
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