Rental properties and investment real estate can provide a significant financial safety net, not only for their owner but their named heirs and beneficiaries. However, conventional estate plans cannot always accommodate commercial interests. Since rental and investment properties are typically considered business assets, they may be subject to additional tax liabilities and restrictions. Including rental properties in your estate plan | California Estate Planning Lawyer

Addressing Rental Properties in Your Estate Plan

An estate plan could ensure that your rental properties and other business assets are distributed in accordance with your wishes. Without the right plan, your heirs may be forced into unnecessary legal proceedings to contest their own inheritance with a California probate court.

Under most circumstances, a conventional will—perhaps coupled with a revocable living trust—is sufficient to alleviate most concerns about probate and intestacy.

However, the alternate categorization of rental properties as business assets could raise additional concerns—concerns that should, ideally, be addressed by a comprehensive and well-considered estate plan. Rental and investment property owners can protect their assets in several ways.

Write a Will

Everyone should have a last will and testament—especially if they own rental properties or any other high-value assets. While a will is the only surefire way to keep estate assets safe from intestacy, it suffers some critical limitations. Since any properties bequeathed in a will are subject to probate, the transfer of rental properties could be contested by interested parties in court.

However, even if a will is not always the best way to bequeath rental properties, you should still consider drafting one if you have not already. A will provides an opportunity to detail your legacy and make other critical decisions, such as the designation of a guardian for your minor children and the delegation of important powers of attorney.

Establish a Revocable Living Trust

A trust is a special legal entity that can receive, manage, and own assets, including private residencies and commercial properties. Revocable living trusts have many advantages.

  • Since they are revocable, they afford their grantor significant flexibility. For as long as you remain alive, you have the right to retain use of trust assets and to modify the terms and conditions of the trust as you see fit.
  • Perhaps most importantly, any assets bequeathed through a trust are considered non-probate assets and can be passed on to heirs outside of the ordinary probate process.

Create a Limited Liability Company

Your attorney might recommend establishing a limited liability company (LLC) to hold the rental or investment properties. LLCs are similar to trusts, as they allow their primary owner to move assets into and out of the company at will. Additionally, LLCs can shield properties from certain legal claims.

However, you should only place assets into an LLC after consulting an attorney since LLC-owned properties could incur additional tax liabilities.

Sell the Properties

Rental properties can be serious income-generating assets, but they are sometimes more trouble than they are worth. Under certain limited circumstances, selling a property provides an opportunity to provide heirs with a significant cash gift—a gift that is comparatively easy to distribute among multiple beneficiaries.        

However, California has laws governing the sale and repurposing of rental properties, and you should speak to an experienced lawyer before opting to place an apartment complex or condominium on the market.

Do You Need To Speak With An Estate Planning Attorney?

If you need to speak with an experienced estate planning lawyer please contact us online or call us directly at 800.756.5596 to first register for one of our free, informative seminars. Your attendance will qualify you for a special discount for our estate planning services should you decide to make a free appointment at the conclusion of the seminar and choose to proceed with us. We proudly serve clients throughout California with offices in Torrance, Newport Beach, Orange, Woodland Hills and Pasadena.

Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.