A Will and a Trust Do Different Jobs for Real Estate Owners
Attorney · 10451 Mill Run Cir #755 Owings Mills, MD 21117 · Member since 2024 · 300 posts · 113 votes
Owning property can make estate planning a little more complicated than simply writing a will. I often see property owners assume that once they have a will, everything they own will automatically follow those instructions. But that is not always how it works.
A will generally controls assets that go through probate. Other assets may pass differently because of how they are titled, who is named as a beneficiary, or whether they are already held in a trust. A properly funded trust may also allow certain assets to pass without going through probate.
For real estate owners, that means the documents need to work together. Creating a trust is not enough if the property was never actually transferred into it, and updating a will does not automatically change a beneficiary designation or the ownership shown on a deed.
The bigger lesson is that estate planning is not just about having documents. It is about making sure those documents match how your property is actually owned.
What estate planning question do you hear most often from real estate owners?
@Diana Khan At what age do you think it's appropriate to setup a trust? I'm 40, my wife is 31, we have wills, and have two small children.
Two years ago my wife and I setup a living trust based on a recommendation from my dads attorney (he wanted to pay for it). They advised us and then they deeded all of our real estate into the trust at that time. Fast forward two years while working with a different attorney to setup our LLC we realized that was a big mistake. He told us putting the primary in a living trust actually hurts you from liability prospective. It delayed the process and cost us money. We had to warranty deed the rentals into the LLC, and then our primary back into our personal name.
We still have the living trust but nothing is in that bucket. The OA for our LLC defaults the business to my wife in case of my death (I'm the manager). I'm questioning if/when we're going to need the trust? We have children so I guess it's for them to avoid probate entirely with all the RE stuff?
@Diana Khan At what age do you think it's appropriate to setup a trust? I'm 40, my wife is 31, we have wills, and have two small children.
Two years ago my wife and I setup a living trust based on a recommendation from my dads attorney (he wanted to pay for it). They advised us and then they deeded all of our real estate into the trust at that time. Fast forward two years while working with a different attorney to setup our LLC we realized that was a big mistake. He told us putting the primary in a living trust actually hurts you from liability prospective. It delayed the process and cost us money. We had to warranty deed the rentals into the LLC, and then our primary back into our personal name.
We still have the living trust but nothing is in that bucket. The OA for our LLC defaults the business to my wife in case of my death (I'm the manager). I'm questioning if/when we're going to need the trust? We have children so I guess it's for them to avoid probate entirely with all the RE stuff?
@Jaron Walling, I actually get this question a lot, and I don’t think there is a magic age where someone suddenly “needs” a trust. I usually look more at what the family owns, whether there are minor children, and how they want things handled if one or both parents pass away. With two young children and real estate, those are already good reasons to at least look at whether the trust still has a job to do.
I've worked with families where the rentals stayed in LLCs for liability reasons, but the estate plan was still built around what happens to those business interests and who manages everything for the children if both parents are gone. That is why I would not assume your trust is useless just because the properties are no longer titled directly in it. Your LLC agreement, wills, deeds, beneficiary designations, and trust should all be reviewed together so they are telling the same story.
I’d be glad to stay connected, @Jaron Walling. You’re asking exactly the right question because this is really less about your age and more about making sure the plan you already paid for still works with how you own everything today and since you’re in Indiana, I’d have an Indiana estate planning attorney review the full setup with you.
Thanks for the reply and add. I agree and we should review our estate planning in a couple of years. Setting up our LLC properly and separating our personal stuff from business was the most important thing. I'm glad it's done because it forced me to grow and to manage the business better. That side of running a small business is rarely discussed.
Jaron,
I set up lady bird deeds for my kids. Do some research on it. LBJ created these so he could leave his wife properties that
would pass after his death with no probate and a step-up in tax basis. Not sure what state you are in but if you aren't in the
5 states that recognize lady bird deeds (Texas, Michigan, Florida, Vermont, West Virginia) then you can use Transfer on Death
Deeds. The best part for me is they are revocable in case one of your kids goes off the rails. Sucks to think about but it happens.
Adding an angle to this thread: non-resident aliens only get a $60,000 estate tax exemption on US-situs assets (vs. $15M for citizens/residents), with 40% tax above that - and US real estate is always US-situs, no matter where the owner lives.
Does holding the property through a US LLC actually help with this exposure, or does an NRA's interest in the LLC still count as a US-situs asset either way?
If a US LLC doesn't solve it, what's the usual fix you'd point someone to - is holding through a foreign corporation on top of the LLC generally worth the tradeoff (losing pass-through tax treatment) for an NRA?
Thanks again
Adding an angle to this thread: non-resident aliens only get a $60,000 estate tax exemption on US-situs assets (vs. $15M for citizens/residents), with 40% tax above that - and US real estate is always US-situs, no matter where the owner lives.
Does holding the property through a US LLC actually help with this exposure, or does an NRA's interest in the LLC still count as a US-situs asset either way?
If a US LLC doesn't solve it, what's the usual fix you'd point someone to - is holding through a foreign corporation on top of the LLC generally worth the tradeoff (losing pass-through tax treatment) for an NRA?
Thanks again
@Shaked Zemach, great question. I've seen this come up when someone owns U.S. real estate but lives outside the country. A U.S. LLC by itself does not automatically fix the estate tax issue. A lot depends on how the LLC is set up, how it is taxed, and where the owner lives.
A foreign company can sometimes be part of the solution, but it can also create other tax issues, so I would never look at that piece by itself. I usually want the real estate, estate plan, and tax structure looked at together before making that kind of change. I’d be glad to stay connected, @Shaked Zemach. Cross-border ownership can get complicated pretty quickly, and this is a good example of why the whole structure matters.
@Diana Khan Thank for the thorough answer!!!
Makes sense that it has to be the real estate, the entity structure, and the estate plan reviewed together rather than bolting on a foreign corp as a quick fix.
We are actively building out our operations, so this is exactly the kind of thing I'd like to dig into further.
I'd love to stay connected and pick your brain again as the structure takes shape - thanks again for taking the time here!