Owning Real Estate

Gabriel Katzner - March 9, 2020 - Estate Planning
New York Estate Planning Attorney

Real estate can refer to your primary residence, but it can also include a vacation home or rental property. Below, we take a look at the different types of real estate and make suggestions about the best form of ownership for each.

Primary Residence

A primary residence receives special tax treatment, so you’ll need to carefully consider how your home is owned. In some states, “tenancy by the entirety” offers married couples creditor protection from the creditors of one of the spouses, while still preserving tax benefits. It also transfers the property automatically to the surviving spouse upon the death of the first spouse, without court involvement. Placing ownership of the primary residence into a joint revocable trust may also be an option if you live in a state that allows you to transfer tenancy of the entireties protection into the trust. Ownership by the trust also means that the real estate will not go through the cumbersome probate process but will instead be handled according to your wishes.  

If you are single, owning the property in your name alone allows you to take advantage of tax benefits for primary residences. Transferring ownership to a revocable living trust may also allow you to retain the tax benefits with the added benefit of avoiding the probate process. If asset protection is a major concern for you, certain types of irrevocable trusts are be right for you, but may require you to give up some control of the property.

Also note that the bankruptcy code may provide additional protections for a primary residence (In some states, this is called a “homestead” exemption). However, according to some state laws, transferring your primary residence to a trust may eliminate the homestead exemption because the trust is considered the owner of the property, not the debtor (you). If this situation could apply to you, meet with an estate planning attorney before transferring your primary residence to a trust.

Vacation Home

For some families, the vacation home has high monetary value, and emotional value as well. Ownership of a vacation home by a trust or limited liability company (LLC) can be advantageous because it addresses two main priorities: asset protection and also ease of transfer to the next generation. 

With a trust or LLC, you can establish how the property is to be used and maintained, as well as designate what is to happen to the vacation home once you pass away. This can be a great solution if you want to ensure that the vacation home stays in the family for generations with minimal family conflicts.

Having an LLC own the vacation home also provides limited liability from outside claims. If a judgment is entered against the LLC, the creditor is limited to the assets of the LLC to satisfy its claims, not your personal assets. Also, if you or another member have a judgment entered against you for a claim unrelated to the LLC, it will be harder for a creditor to force a sale of the vacation home. This can be helpful if you wish to pass on the vacation home to the next generation without having to worry about the individual financial situation of each of the new members.

Note: In some states, single member LLCs (an LLC in which you are the only member) do not enjoy the same protection from your personal creditors. These laws are in place to allow creditors to seek relief through your LLC interests because there are no other members that will be negatively impacted their seizure of property owned by the LLC.

If the vacation home has been in the family for many years, consult with us and your tax advisor to make sure that transferring your vacation home to a trust or LLC will not cause an increase in your property taxes or other unintended consequences. 

Rental Property

As a stream of income, instead of a residence, the bigger concern with rental property is usually asset protection. Because the occupants of the rental property can change over time, as a landlord and owner of rental property, there is a higher probability of lawsuits arising in connection with it. For rental property, transferring ownership to an LLC is a great option. If a renter gets injured on the property, sues the LLC that owns the property, and obtains a judgment that exceeds any property insurance you have, the renter can only go after the assets owned by the LLC, not your personal assets or those of any other owners of the LLC, to satisfy any claims. 

In addition, ownership by the LLC may protect the rental property from your personal creditors. Again, if you are forming a single member LLC, it is important to have us check state law to make sure creditor protection is available.

Contact Us Today!

If you’re concerned about your primary residence, family cabin, or rental property, we are here to help you protect your valuable asset. Contact us we can discuss your real estate ventures and the best way to protect them for generations to come.

You can use the link below to schedule a call with Gabriel Katzner, or just call us at 855.528.9637 to learn more about how best to plan today to protect those most important to you





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