With the booming real estate market all across the state of Maryland, many investors are scooping up rental properties. These properties not only appreciate in value over time, but also provide a source of income. Failing to properly plan for these real estate investments can lead to problems for your loved ones when it comes time to administer your estate after death.
When you attend a consultation with an estate planning attorney, all of your assets will be listed and the attorney will make recommendations for each type of asset based on your overall goals. The two main strategies for handling rental properties are:
1. Put the property into a living trust. There are several benefits that will result from this strategy. The first is privacy. You can retitle the deed to reflect the name of the trust which adds a layer of privacy in the public land record search database. While the trust will now technically own the property, as long you are of sound mind, you can be the trustee. This allows you to continue to manage the investment in the same manner as before it was put into trust. You can also continue to be the beneficiary of any income generated from the property. Upon your death, the ownership of the property will be transferred to the beneficiary you name in the trust.
2. Set up a Limited Liability Company. Titling the property in the name of the LLC offers similar benefits as those provided by the living trust with an added bonus of liability protection. If you have renters that sue you, this could be extremely beneficial. Be sure to discuss all the tax consequences of this strategy with your advisory team.
A plan created by a knowledgeable estate planning attorney can offer you the following benefits:
- Avoid Probate: A will must be probated through the court system which can be a lengthy process. All court records are made public which limits your privacy.
- Create a Business that Outlives the Owner: The LLC will continue to survive the death of the owner, and a business succession plan can ensure that the business seamlessly transitions over to the new ownership.
- Retain Control: Whether through an LLC or a living trust, you can determine the terms surrounding the investment property and its transfer to your chosen heirs. You can develop a distribution schedule and establish requirements for your beneficiaries to inherit.
- Minimize Taxes and Fees: Your estate planning attorney can help you set up a plan to minimize estate taxes, income taxes and administration fees.
Protect your real estate investments by strategically incorporating them into your comprehensive estate plan. For more information on comparing a living trust to an LLC in the context of investment property, set up a consultation with an experienced estate planning attorney at Stouffer Legal in the Greater Baltimore area. You can schedule an appointment by calling us at (443) 470-3599, emailing us at office@stoufferlegal.com, or register for an upcoming free webinar using the link below:
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