When estate planning for real estate assets, you should consider choosing an entity that will provide sufficient liability protection, protecting yourself against liabilities generated by the real estate, and determining who will manage the real estate after your death.
An LLC (limited liability company) is one of the most common used entities to hold real estate. An LLC protects its members from personal liability, in addition to providing anonymity. If no assets can be located in your name this decreases the chances that litigation will be pursued. When owing real estate, clients are faced with an array of potential liabilities such as hazardous materials; slip-and-fall cases; disgruntled tenant claims; claims regarding mold; claims by vendors and contractors; claims by tenants regarding security deposits; and claims based upon construction defects. In addition to incorporating, it is best to make sure that you purchase a sufficient amount of liability insurance and an umbrella policy.
In addition, you can use a revocable living trust to own real estate or the trust can own the interest of an LLC that owns real estate. When using the latter method, it not only avoids having the real property go through the probate process but ensures that you will still be protected against personal liability.
Clients who own real estate may not feel comfortable having their surviving spouse or children managing their real estate upon death. Often these types of management issues can bring about family strife and discord. Some solutions to consider are having a real estate management company hired or using a board of directors. Whatever methodology you choose, it is always important to create a plan for the real estate assets that is manageable for your family upon your death.