Making Ends Meet

5 Special Considerations For Estate Planning With Rental Properties

5 May 2021

Judy Gomez

Does your estate include rental properties? While these particular assets can bring in a stable income that helps grow your overall wealth, they need special consideration when planning for your estate should anything happen to you. What extra steps should you take to properly account for and protect your rental assets? Here are five things to do.

1. Protect Your Finances

If you haven't formed any special purpose entities to hold rental assets, now is the time to consider it. A special purpose entity — usually an LLC or S Corporation — can be formed specifically to own and manage one or more properties. This separates the risk common to landlord activities from your personal finances, both now and later. 

2. Avoid Probate Delays

Any assets left in a will must go through probate for confirmation before they can be distributed. The time needed to go through probate could damage the business continuity of your rental units and cost the estate significant money. And they may or may not be managed by your chosen individual during this process. Avoid these problems by placing them in a trust or business entity. 

3. Talk With Heirs

Any business owner should discuss business succession with all potential heirs. Landlord work isn't for everyone, after all. And if you own a number of properties, they could require significant time, energy, and knowledge to take over. So make sure your heirs really want the units. If they don't, look for more amenable options like selling the units upon your passing or exchanging them for shares in a portfolio. 

4. Standardize Your Practices

Whether you want an heir to take over your rentals or you plan to sell them, prepare things now so that someone else can take over your operation. Keep books according to standard accounting practices. Write down procedures and instructions. And work with outside vendors so others are familiar with your properties and can help future heirs. 

5. Consider a Separate Manager

The person who will serve as executor will have a lot on their plate just executing your overall estate. One way you can help them is to name a separate person or company to manage the rentals. This means you don't have to appoint someone with landlord experience as executor, but your rentals will still get good management. 

Clearly, estate planning for rental properties can be complicated. Start by consulting with an estate planning professional in your state. Armed with their expertise, you can make a plan to protect your estate, simplify the transition process, and maintain business continuity for all your rentals. Call today to make an appointment. 

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