Estate planning: Trust or Will with rental properties

10 Replies

Just curious what a typical mom-and-pop landlord out there goes for when it comes to estate planning. We don't have an LLC and don't plan to. I've seen older threads here entitled "Trust or LLC", but not "trust or will". So which do you choose, BP'ers?

We are setting up a trust right now.


We currently have two buildings we rent out (a total of 5 units between them), and we're close to 60 years old.  Maybe we'll get another property in the future, we don't know. We're also unsure how long we plan to keep the rentals during retirement, but likely at least another decade. A trust will allow the rentals to keep going should we become incapacitated for any reason, or after our death. If anyone knows of an estate planning forum where this has been discussed, please respond with a link. I'm more curious what the average member of this community has chosen.

Originally posted by @Tanya F.:

Just curious what a typical mom-and-pop landlord out there goes for when it comes to estate planning. We don't have an LLC and don't plan to. I've seen older threads here entitled "Trust or LLC", but not "trust or will". So which do you choose, BP'ers?

We are setting up a trust right now.


We currently have two buildings we rent out (a total of 5 units between them), and we're close to 60 years old.  Maybe we'll get another property in the future, we don't know. We're also unsure how long we plan to keep the rentals during retirement, but likely at least another decade. A trust will allow the rentals to keep going should we become incapacitated for any reason, or after our death. If anyone knows of an estate planning forum where this has been discussed, please respond with a link. I'm more curious what the average member of this community has chosen.

 Trusts are good for many reasons but not only for if you become incapable. 

There are other estate planning documents that are actually directed to your disability and stuff. 

Trust will avoid probate and is beneficial especially if real estate is in another state. But same benefits can be achieved with correct kind of titling. Trust is absolutely not necessary. 

Trust comes in handy when you are trying to split the interest of the property. Such as when Income goes to surviving spouse and property to the children when surviving spouse is dead. Or you are scared survive spouse is going to remarry and not give anything to your childerns. 

You might have specific requirement that might actually require the Trust. May be you have more than 22M in net worth and you are trying to lock in the appreciation in the Trust so that you do not have to pay estate taxes when you pass away.  Did you have a conversation with the professional? 

Originally posted by @Ashish Acharya:
Originally posted by @Tanya F.:

Just curious what a typical mom-and-pop landlord out there goes for when it comes to estate planning. We don't have an LLC and don't plan to. I've seen older threads here entitled "Trust or LLC", but not "trust or will". So which do you choose, BP'ers?

We are setting up a trust right now.


We currently have two buildings we rent out (a total of 5 units between them), and we're close to 60 years old.  Maybe we'll get another property in the future, we don't know. We're also unsure how long we plan to keep the rentals during retirement, but likely at least another decade. A trust will allow the rentals to keep going should we become incapacitated for any reason, or after our death. If anyone knows of an estate planning forum where this has been discussed, please respond with a link. I'm more curious what the average member of this community has chosen.

 Trusts are good for many reasons but not only for if you become incapable. 

There are other estate planning documents that are actually directed to your disability and stuff. 

Trust will avoid probate and is beneficial especially if real estate is in another state. But same benefits can be achieved with correct kind of titling. Trust is absolutely not necessary. 

Trust comes in handy when you are trying to split the interest of the property. Such as when Income goes to surviving spouse and property to the children when surviving spouse is dead. Or you are scared survive spouse is going to remarry and not give anything to your childerns. 

You might have specific requirement that might actually require the Trust. May be you have more than 22M in net worth and you are trying to lock in the appreciation in the Trust so that you do not have to pay estate taxes when you pass away.  Did you have a conversation with the professional? 

Thanks, Ashish

We don't require a trust. We don't (and won't) have more than 22M in net worth. No children either, but many sibs on both sides, and yes, we plan to split it up. We did have a long conversation with our attorney and thought that a trust would be more work up front, but had advantages. We feel that we could go either way, but decided on a trust. 

Promotion
BiggerPockets
The one-stop-shop for REI
Find Local Home Improvement Pros!
Check out our network of trusted, local contractors for all of your home improvement projects.
Find a Contractor

Mostly because we were convinced it would be less hassle for our heirs, and a friend who has had to deal with probate several times made us see the benefit of directing things ahead of time. That being said, we don't understand about titles, so maybe there would be that would be another alternative. 

Not that a trust is the wrong choice, but you could use a TOD Deed to have the property transferred to your heirs upon death. It doesn't go through probate, its fairly straightforward, and its inexpensive to set up and make changes to.

Here's an article:  https://www.thebalance.com/use-deeds-avoid-probate-3505250

I would ask the attorney to clarify the benefits of the trust vs a TOD deed just to make sure you understand your options.

@Ashish Acharya, @Scott Jensen, question for you guys, if you have a transfer of deed, does that effect the inheritors step up basis when you do pass away? in other words, the property automatically is in their name now with the TOD, as if they had rights to the property all along, would they still qualify for the step up in Basis value if there is any ?

Originally posted by @Patrick Liska:

@Ashish Acharya, @Scott Jensen, question for you guys, if you have a transfer of deed, does that effect the inheritors step up basis when you do pass away? in other words, the property automatically is in their name now with the TOD, as if they had rights to the property all along, would they still qualify for the step up in Basis value if there is any ?

 Yes, agreed with Scott. 

I am using a Trust for my property. 

It avoids probate and the cost and time associated with probate.  It allows the stepped up basis upon my death.  It allows me to plan for minor and special needs persons to be beneficiaries.  It keeps everything PRIVATE!  No one need to know who is the beneficiary of what, so 'needy' relatives will not know what my heirs / Trust beneficiaries get.  It also allows the assets to continue as they were (rent  collected and available) and the beneficiaries do not have the 'waiting' time that probate can create.

Transfer on Death deeds vary by states.  Some do not support them, other allow them and they work great, but then there is California.  The law allows TOD deeds, but the title companies do not support them.  And the 'mini-probate' type of information that the title companies require (if you can even find a company to consider insuring the title) is ridiculous.    They even ask for proof of things like 'every doctor is paid'  How do you prove 'every'?  I could easily show that the primary dr and specialists I knew of were paid in full.  But medical records are confidential.  I did not know of other doctors, but they wanted me to prove 'every' with some sort of non-existent record.  They wanted 'every possible' heir to sign a form that they did not object to selling the property.  Really, 'every' , note, not direct heir, 'every possible' heir.  And with most families someone will object or need a bribe to not object, even if they also know they have no legal 'interest' or legal claim.  So before depending on TOD deed, look into Title and if that causes issues.  Also with TOD deeds, if the person you are transferring to dies before you, guess what?   Your property is now part of your estate and goes through probate.  A Trust avoids this.