What to do with properties when I'm gone ?

Question

I'm an beginning investor and my wife asked me what would she have to do with our properties if I died?

What is the best company structure to hold properties in so that if I died someone could then take and manage or sale them with the least amount of hassle?

Jerel Ehlert · Answer

Talk to an estate planning attorney.  Not every estate planning attorney is good for every situation.  There's an exemption to "the death tax" (the estate tax).  It was $11,180,000 in 2018, $11,400,000 in 2019, and $11,580,000 in 2020.  If the size of your estate gets close to those limits, there should be a concerted plan between estate and tax attorneys to minimize the estate's tax burden.  This is where an ILIT might be useful to preserve the estate for spouses and heirs.  When I take on estate planning for high net worth clients, I retain a tax attorney that works in estate taxes.  Together we arrive at a plan that meets the clients goals with the smallest tax bill under current laws.

This is definitely one area of life you don't want to go cheap.

If your spouse has no skill or interest in running the property portfolio, they can hire a professional or sell and have the profits placed in a trust that pays a stipend (a testamentary trust).  At the very least, the executor should be able to manage your holdings competently until it is settled, and that person might not be your spouse.

Ethan G. · Answer

You should also just get some life insurance too

Scott Mac · Answer

Hi Kyle,

You might want to look into a Grantor Trust (aka Living Trust).

If you want one, finding an EXPERIENCED attorney in TEXAS who does this would be smart.

Finding someone that you "Get Along With" is good too, because you will probably have to communicate with him/her over the years as things change, and when you have questions you would like answered. If you are comfortable with the person (and the staff), it just makes life a lot nicer. Meaning it's probably best to interview a few, because who is right for your neighbor might not be (feel) right for you.

This is also something you would want to run by your CPA because in some instances there may be tax issues for Grantor Trusts, and if that applies to you, it's best to know that in advance of pulling the trigger on a Grantor Trust, so you can decide if that's what you want to do, vs some other strategy.

Some people do this themselves, but it can be complicated and they lose the legal guidance that their heirs need to make things happen properly when that time comes. (and that guidance costs extra, in addition to the trust setup)

You pay to have it set up, then pay to make any changes to it, and then later pay for what's needed legally and advice-wise (when that end time comes).

Although this may not be the best strategy FOR YOU at this time, so be sure to discuss it with both legal council and your CPA. You don't want to be blindsided with anything in this process.

Another strategy might be some type of Deed language.

Good Luck!

Theresa Harris · Answer

I know it sounds obvious, but make sure you have a will.

Zachary Paschke · Answer

When it comes to life insurance, it is important to get your coverage early. Some companies will not insure rental income because it is passive. This means since the income continues after your death they don’t want to insure it. If your income is mostly rental properties or completely rental properties, it’s best to work with an agent that has a track record with life insurance for Business.  sometimes these policies need to be structured as a key-man policy.

When looking for a policy, you should also make sure it has chronic, critical, and terminal illness riders (often called living benefits) many companies offer them at no additional cost. The offerings vary by company. Almost every company offers a terminal illness rider, but you should look for all 3. Thea riders allow you to  accelerate some of your death benefit if you become chronically, critically, or terminally ill. This can allow you to get the money up front to put the rentals on ice or hire help to run them (as well as provide for living expenses) before you die. If you don’t use the rider, the money simply gets paid out at your death as a normal death benefit.

Basit Siddiqi · Answer

@Kyle JeaneIs your wife part of the business? Would she want to manage the real estate if anything were to happen to you?Do you manage the real estate yourself or do you use a property manager?Using a property manager would be easier for her to manage, however, it would be important for her to know the numbers of the business.

Phillip Vera · Answer

Similar.  Definitely consult an attorney for structure, but I am writing out detailed instructions as to what to do and who to talk to.  Ideally, she hold on to them (we do have life insurance) and utilize a property management company and she get some help from some of our close investor friends.  Also depends on our age.

Johnoson Crutchfield · Answer

@Kyle Jeane sounds like a conversation with a couple of local real estate attorneys would be good for you. I personally have a folder with instructions for my wife of exactly what needs to be done with contacts for my real estate attorney. We go over it each year.

What to do with properties when I'm gone ?

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