What Every Commercial Real Estate Investor Should Have In Their Estate

Whether you own one commercial property or several of them, it’s very important to have a current estate plan that you and your family can follow. Estate planning is very important for tax purposes and the lack of a plan can cause your property to end up in probate. An updated estate plan can prevent many headaches for you, your family, and business partner(s). The list below details what you should include in your estate plan and why.

Be sure that you have sufficient life insurance to cover the costs of your commercial real estate assets and other expenses.

If you pass away before you sell your commercial properties, your family will obviously need funds to continue paying for the properties’ expenses until the properties are sold. This is why it’s important to make sure that your life insurance is a large enough amount to cover the expenses of your properties, as well as any other expenses you want paid for on behalf of your family.

Remember to review and update your life insurance each time you purchase more properties. If you’re not sure if you have the right amount of life insurance, you can always ask your life insurance agent and/or your financial planner.

Your estate plan should detail your estate succession plan.

If you don’t have an estate plan that includes your will, your property may end up in probate, which can be a nightmare for your family. This is one of the most important reasons why commercial real estate investors should always update their wills and explicitly state how you want your family and business partners to dispose of the property, if applicable.

Your will should also state If you wish for your family and/or business partner(s) to continue to own the property until a certain amount of time after your death. For example, if you own 4 commercial properties and you want your family to sell your properties 2 years after your death, be sure to include this in both your estate plan and will.

Your estate plan should include all business partners’ life insurance policies, if any.

Some businesses and investors obtain life insurance, as their business partner(s) as the beneficiary. The purpose of the insurance is for, in the case of an owner’s death, the living business partner(s) can continue to pay their share of expenses. There are also times when a deceased business owner’s surviving family uses life insurance proceeds to buy out the owner’s interest in the company.

If you own any commercial real estate with another person or entity, include any information on life insurance your partner(s) may have. Keep in mind that even if you are not the beneficiary of your partner’s life insurance policy, it’s still good to know ahead of time whether or not your partner’s family plan to buy out or continue to have interest in your company and/or property.

Your estate plan should include your liquidation plan, in the case you wish to have your assets sold after death.

The more properties that you own, the more necessary it is for you to clearly state in your estate plan how you’d want your estate to be distributed. It’s a good idea to have a tax plan if you wish to have your business assets sold after your death. If you don’t have a tax strategy for your commercial property, you can always hire a CPA or financial advisor to help you with this.

Conclusion

Planning your estate can be a difficult and even an emotional subject to tackle. However, neglecting to do so while owning commercial property can do you more harm than good. Remember to update your estate plan each time you purchase and sell your properties. Also, be sure to plan your estate one year longer than you plan to keep your properties. For example, if you plan to keep your properties for 5 years, plan your estate for 6 or more years ahead. Work with a financial advisor or your life insurance agent if you need assistance.