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PROTECTING YOU, YOUR FAMILY, YOUR FUTURE | CALL US TODAY! (832) 408-0505

GP Schoemakers, PLLC

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  • Home
  • About Us
    • Gratia Schoemakers
      • Community Outreach Program
    • Testimonials
  • Virtual Services
  • Estate Planning
    • Estate Planning Basics
    • Last Will and Testament
    • Revocable Living Trusts
    • Durable Power of Attorney
    • Medical Power of Attorney
    • Living Will
    • Family Estate Planning
    • LGBTQ Estate Planning & Asset Protection
    • Kids Safety Plan™
    • Business Succession Planning
    • Guardianship
      • Guardianship Planning
    • Special Needs Planning
    • Legacy Preservation Planning
    • Asset Protection
    • Trusts
    • Pet Trusts
    • Gun Trusts
  • Probate
    • Texas Probate Guide
    • Probate of a Will
    • Texas Affidavit of Heirship
    • Texas Small Estate Affidavit
    • Texas Heirship Determination
    • Texas Muniment of Title
    • Trust Administration
  • Family Law
    • Divorce
    • Collaborative Divorce
    • Mediation
    • Custody / Visitation
  • Blog
  • FAQs
    • FAQs – Videos
    • FAQs – Estate Planning
    • FAQs – Probate
  • Contact
    • Virtual Estate Planning Login
    • Client Portal

Rental Property

Estate Planning for Rental Property Owners

In all parts of the country, services such as Airbnb have grown in popularity over the past few years. Indeed, these alternatives to hotel stays are popular among homeowners and vacationers alike. If you have a home or other rental property that is generating income, you should understand the following asset protection and estate planning considerations.

Protecting Owners from Liability

Just like any rental relationship, there is risk for the property owner. If anyone is hurt on the premises during their stay – no matter how short – a property owner could be held legally and financially liable for injuries suffered.

Rental Property Owner

The first line of defense is general liability insurance – assuming there is proper and sufficient coverage on the property. In the case of a lawsuit the insurance company should step in and defend the claim up to the policy’s limits. Any damages beyond that may become a personal liability to the owner, depending upon how the property is titled.

If the property is owned by a limited liability company (LLC) instead of the individual(s), then the individual member(s) of the LLC may have some additional protection if the liability insurance coverage limits are not sufficient to cover the total amount of financial liability. It is important to note that in order to receive liability protection through the use of an LLC, the entity must be formed correctly and managed properly. If the entity is viewed as merely an “alter ego” of the member(s), the court may not uphold the liability protection, placing the property owner(s) back on the hook. To ensure that you have the most protection available, you need to consult with an attorney.

Estate Planning Considerations

Beyond liability in the event of an incident, deciding how an asset will be passed from generation to generation is an important part of estate planning. This is particularly true if such property is lucrative – like income-generating rental property. If the real estate is held in an LLC, you have options. You may choose to divide up the membership interest of the LLC among the multiple beneficiaries. With an income producing asset, such as a rental property, it is important to consider your family’s situation and your ultimate goals for the property.  

Using an LLC is also helpful for estate planning because you can gift some of the membership interests during your lifetime without losing control, transfer it at the time of your death to the beneficiaries, or have it held by a trust for the benefit of the beneficiaries. Regardless of your personal situation or goals, there is a solution for everyone. 

Determining whether or not to use an LLC for rental property is just one aspect of the overall estate planning process. We can guide you through your legal options and help ensure your property is protected and distributed at your death according to your wishes. Do not leave this to chance, contact us today to learn more.

Do You Own Rental Property? How Proactive, Comprehensive Estate Planning Can Help

A comprehensive estate plan should address all of your assets.  For most people, an estate plan must include three common categories: (1) your home; (2) financial accounts, like your checking and savings account; and (3) personal property.  Other types of assets – such as life insurance, retirement funds, and annuities – should also be considered as part of your estate plan.

If you own rental property, however, your estate plan will be more complicated because there are some unique considerations.

Rental Property & Estate Plans

It is no surprise that one of the risks of being a landlord of commercial or residential property is the threat of lawsuits.  An injured guest or tenant, a claim under the landlord-tenant act, or a lease dispute can all end up in the courtroom.  However, a well thought out rental property plan and estate plan can hedge against this risk.

Protecting Your Assets: A prudent landlord purchases adequate insurance coverage as the first line of defense.  Sometimes, however, the insurance policy’s limit is not sufficient to cover damage awarded by a court.  When this happens, the next place the prevailing party looks to for satisfaction of judgment is the property owner’s personal assets, which leads us to the next layer of protection.

Using a Business Entity as Protection: Owning property through a business entity, like a limited liability company (LLC), can protect personal assets against seizure.  That being said, merely filing paperwork to create an LLC isn’t enough.  The LLC must be treated as a true business entity and all reports, filings, bank accounts, and other formalities must be met at all times in order to benefit from the liability protection of the business entity.  Additionally, when meshing your rental property ownership with your estate plan, you must consider who can manage your assets if you’re unable to do so, our next consideration.

Who Is Managing Your Assets: Another factor to consider is the trustee who manages the living trust.  A trustee bears the responsibility of managing the property owned by a trust for the benefit of the trust beneficiaries.  The exact duties of a trustee may vary depending on what assets are owned by the trust and the trust’s terms.  While income from the rental property made you financially successful, many institutional trustees – or someone outside of your circle of family and friends – will often liquidate assets and invest the funds.  This result may or may not be what you want done with your assets.  For this reason, using an LLC to organize your rental property holdings and have the trustee simply collect the net income from the overall operation can be a way to ensure your wealth remains invested in the rental property that made you successful.

Tax Advantages Through 1031: While many think of estate planning and LLCs as strategies to save on death taxes and provide for heirs, we can help with much more.  A 1031 exchange is a vehicle to defer taxes from the sale of rental property.  The rules to qualify are complex, but can save enormous amounts of income tax, depending on your situation.  We can help by making sure that your trust, powers of attorney, and LLC allow your family to take advantage of this tax-saving law if you are incapacitated and unable to manage your own affairs.

Bottom Line

You’ve likely worked hard over the years to build and acquire your rental property, along with your other assets.  Make sure that your estate plan takes every one of your assets into account so that you and your family receive the most benefits and protection.

Call today and find out how to better protect your assets.

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