Owners of rental real estate need to do some future planning to protect their income stream and pass it on to their heirs. Here are three tips to help you if you own property that you rent out to others.
Owning a rental property puts you at risk for lawsuits and financial obligations. You could have to pay a judgment when someone gets injured on the property, you might have a lease dispute with a tenant, or you might get fined by the city for code violations. If you own the real estate personally, then creditors could reach your personal assets to pay for debts from the real estate.
Many rental owners choose to place their property in a trust, a limited liability company (LLC), or a corporation. Depending on the type of trust, your personal assets may have a better shield from creditors than without a trust. The same goes for a limited liability company or corporation. Both provide some protection to your personal assets because your name is no longer on the deed (even though you have an interest in the property through the company).
Anyone who owns property, whether it is real estate or a small business, needs a contingency plan. If you are unavailable to collect rents or talk to the property insurance company, decide who will take your place. You may have a business partner or trusted family member who can step in. Consider signing a power of attorney allowing your replacement limited powers to act if you are incapacitated.
Further, plan for the worst happening – you lose the rental property due to natural disaster or bankruptcy. Do you still have savings to pass on to your heirs? Do you have a cushion of money to pay for building repairs? If rent from the property is more than your mortgage, consider investing the money using a trustee or a retirement plan.
Your rental property provides you with income now. If you want to pass that income stream on to your relatives in the future, you need an estate plan. By placing the property in trust or creating an LLC, you can direct that the rent payments go to your children after you die. Also, you can take steps to keep the property in the family for years to come. Many estate planning vehicles such as trusts or wills can help you accomplish this goal.
Planning your estate and own rental property? Angela Klenk, Esq. and the team at Beach Cities Estate Law couple personalized attention to your estate plan with big law firm experience for a winning combination to give you peace of mind. To schedule a case evaluation, visit Beach Cities Estate Law online or call Angela’s office at (424) 400-2125.