Yes, high-value homes, rental real estate, and other investment properties are often treated differently in estate planning. Although the basic principles of estate planning apply to all types of property, high-value homes, rental real estate, and other investment properties often require more careful and sophisticated planning, because they can raise additional tax, liability, management, and family conflict issues that a typical family residence may not.
Table of Contents
- Additional Tax Considerations for Highly Appreciated Real Estate
- How the Property Is Titled Affects the Planning
- Practical Management Issues Rental and Investment Properties Create
- Planning for What Happens Among Your Beneficiaries
- Why Advanced-Level Planning Often Makes Sense
- Frequently Asked Questions About High-Value and Investment Real Estate
- Get Sophisticated Planning for Your Real Estate Holdings
Additional Tax Considerations for Highly Appreciated Real Estate
Highly appreciated real estate may involve several layers of tax exposure that deserve attention, including:
- Significant capital gains tax considerations if the property is later sold
- California Proposition 19 property tax reassessment issues
- For larger estates, potential federal estate taxes
How the Property Is Titled Affects the Planning
How a property is titled also affects the planning options available. Real estate may be owned:
- Individually
- Through a living trust
- Through an irrevocable trust
- Through a business entity, such as a partnership or LLC
How the property is titled, and how it will pass at death, can significantly affect which planning strategies are available and how efficiently the transition can be handled.
Practical Management Issues Rental and Investment Properties Create
Rental and investment properties also present practical issues that a family residence may not. Someone may need to continue:
- Collecting rents
- Paying mortgages and expenses
- Dealing with tenants
- Maintaining insurance
- Managing or selling the property
These responsibilities can arise during the trust maker’s incapacity or after their death, and they don’t pause simply because a transition is underway. Either the living trust, or — better yet — the operating agreement for a business entity holding the property, should give the successor trustee or another designated person clear authority to handle these responsibilities without unnecessary interruption. Learn more about estate planning considerations for rental and investment properties.
Planning for What Happens Among Your Beneficiaries
There may also be important questions about what happens to the property among your beneficiaries. For example:
- One child may want to keep a property while others want to sell it
- You may want one child to receive real estate while others receive different, non-real-estate assets
These are the same kinds of questions that come up when deciding whether an appreciated home should pass outright to your children or remain in a protective trust.
Why Advanced-Level Planning Often Makes Sense
For all of these reasons, families with valuable real estate holdings should generally consider what we call advanced-level planning — going beyond simply transferring title into a basic living trust. Learn more about including all of your California real estate in your estate plan.
Frequently Asked Questions About High-Value and Investment Real Estate
Do I need a different kind of estate plan for rental property?
Not necessarily a different plan altogether, but rental and investment properties typically need additional provisions covering management authority, tenant issues, and ongoing expenses that a basic living trust for a single family residence may not address.
Does it matter whether my property is owned individually, in a trust, or through an LLC?
Yes. The way a property is titled affects liability exposure, tax treatment, and how efficiently it can be managed or transferred, so it’s an important factor in choosing the right planning strategy.
What happens if my children disagree about keeping or selling an inherited property?
This is a common concern, which is why an estate plan can be designed in advance to address it — for example, by allocating the property to the child who wants it, while using other assets or a sale to provide for the others.
Who manages a rental property if I become incapacitated?
Your living trust, or the operating agreement for a business entity that holds the property, should name a successor trustee or manager with clear authority to collect rent, pay expenses, and handle tenant issues without interruption.
Get Sophisticated Planning for Your Real Estate Holdings
Kavesh, Minor & Otis helps South Bay families with high-value homes, rental properties, and investment real estate build estate plans that address the tax, liability, management, and family issues these assets can raise. Learn more about the firm’s estate planning services.
