Protect Your Legacy with Rental Property Estate Planning

You’ve worked hard to acquire investment properties, build equity, and establish wealth. Now it’s time to make sure all that effort doesn’t disappear when you’re gone! 

Every investor should consider estate planning and how their rental properties fit into their grand financial legacy. Including your rental properties in estate planning ensures that your assets are preserved, managed, and transferred according to your wishes…all while minimizing tax burdens and dodging pesky probate delays.

We understand that this can be a complex and intimidating process. We’re here to simplify things as much as possible so you have a clear starting point. Here’s a breakdown of how to include rental real estate in estate planning, the professionals to consult, and the standard processes utilized:

THE WHY: Key Objectives for Including Rental Properties in Estate Planning

• Avoid Probate: Streamline the transfer of property without court involvement.
• Minimize Taxes: Reduce or eliminate estate, gift, and capital gains taxes.
• Protect Assets: Shield properties from lawsuits and liabilities.
• Ensure Smooth Transition: Identify who will inherit or manage the property.
• Maintain Income Streams: Plan for continued rental income to benefit heirs.

Further Reading: 3 Ways to Use Real Estate to Garner Generational Wealth

THE WHO: Relevant Professionals to Consult

Estate Planning Attorney

Their role: Draft wills, trusts, and legal structures. Help ensure the plan complies with state and federal regulations.

Real Estate Attorney

Their role: Review property titles and ensure deeds are appropriately recorded and aligned with estate planning structures.

Certified Public Accountant (CPA)

Their role: Analyze the tax implications of different estate strategies. Help you maximize value and minimize tax liabilities.

Financial Advisor

Their role: Help align the estate plan with broader financial goals, particularly in income and retirement planning. They make sure your portfolio—and your post-mortem plans—complement one another.

Property Manager or Real Estate Professional

Their role: Advise on operational continuity of rentals in the event of incapacity or death. Make your property management team or turnkey partners—those who may make management and investment decisions on your behalf—aware of your estate plans.

That’s who may be involved. But what options are available to investors? After all, this process is (usually) more complex than simply writing properties into your will!

THE WHAT: Common Estate Planning Options for Rental Properties

#1 – Revocable Living Trust (RLT)

How it Works:

• Create the trust and transfer the rental property title into it.
• You remain the trustee and beneficiary while alive.
• On death or incapacity, a successor trustee manages or distributes the property.

Benefits:

• Avoids probate.
• Allows for quick transfer or continued management.
• Privacy (not a public record like a will).

Drawbacks:

• No asset protection from creditors in the present.

#2 – Limited Liability Company (LLC)

How it Works:

• Transfer rental property into an LLC.
• Assign LLC membership interests to your trust or heirs.

Benefits:

• Asset protection from property liabilities.
• Simplifies management of multiple properties.
• Flexibility to gift ownership/stakes in the LLC.

Drawbacks:

• Requires ongoing compliance and annual filings.
• Minor setup and maintenance costs.

#3 – Transfer-on-Death (TOD) Deed or Beneficiary Deed

How it Works:

• File a deed that names a beneficiary who receives the property upon your death.

Benefits:

• Avoids probate.
• Simple and inexpensive.

Drawbacks:

• Limited to certain states.
• Does not provide asset protection or advanced tax planning.

#4 – Last Will and Testament

How it Works:

• Name heirs to receive the property through your will as you would any other asset. This is the option people think of when they think “estate planning.”

Benefits:

• Simpler to set up.

Drawbacks:

• Subject to probate (which is time-consuming and costly).
• Public record.
• Doesn’t protect against incapacity, only death.

#5 – Irrevocable Trust

How it Works:

• Transfer the rental property into an irrevocable trust.
• You lose control but gain tax and asset protection benefits.

Benefits:

• Removes property from your taxable estate.
• Protects assets from creditors and lawsuits.

Drawbacks:

• Loss of control and flexibility.
• Hard to modify or revoke (hence “irrevocable”)

#6 – Family Limited Partnership (FLP) or Family LLC

How it Works:

• Form a legal entity with family members.
• Transfer rental property to the entity.
• Use limited partnership interests for gradual gifting.

Benefits:

• Allows transfer of wealth with valuation discounts.
• Retain control while gifting interest to heirs.

Drawbacks:

• Complex setup and legal compliance.
• Risk of IRS scrutiny if improperly structured.

THE HOW: Include Rental Property in Your Estate Plan

Step #1 – Inventory All Rental Properties

Include ownership structure, mortgage status, and income streams. Gather copies of deeds, lease agreements, insurance policies, and mortgage statements. You want the complete picture!

Step #2 – Establish Goals

Do you want to generate income for heirs? Sell and distribute cash? Avoid taxes? Figure out what you want and how your structure can best benefit you in the present and your heirs in the future.

Step #3 – Select the Appropriate Estate Planning Tool

Choose your strategy based on property value, family needs, and your tax situation. There’s no one right way to plan your estate.

Step #4 – Update Titles and Deeds

Deed properties to your trust, LLC, or TOD beneficiary as needed.

Step #5 – Coordinate with Existing Estate Plan

Ensure that any wills, trusts, powers of attorney, and health directives are aligned. Contradictions can cause significant problems!

Step #6 – Document Succession and Management Plans

Identify who will manage or inherit the properties. Sync up with existing management teams.

Step #7 – Review Regularly

Update the plan every 2–5 years or after significant life events (marriage, divorce, birth, death, etc.). 

As always, consult with your team of professionals to determine the right estate planning strategy for your investment portfolio.

Start investing with REI Nation, where you invest and we handle the rest!