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What is the Best Way to Hold Real Estate I Want to Pass On?

People with substantial real estate assets often think about passing on that legacy.  Whether you are thinking about your children or charity, planning is important to avoid the costly public process called probate that settles your estate and then divides what is left.  Smart transfers of property can also help limit tax implications and provide you with control after you are gone.  Here are three forward-looking ways to hold property.

 

Life Estate

Owning a life estate simply means that you own a piece of property until you die.  After that, “remaindermen” that you designate in the deed will take full ownership of the property.   In this sense, property is not even being transferred.  Your ownership simply dissolves upon your death.  A life estate may be easy, but you lose control of the property and you also immediately transfer most of the value of the property and that can trigger gift taxes.

 

Revocable Trust

A “trust” is a legal device that can hold property.  Like a company, a trust can live on indefinitely regardless what happens to the individuals involved.  To create a trust, a grantor must put some property in possession of another person, the trustee, to manage for the benefit of another person, the beneficiary.  

 

The way a revocable trust is commonly used is for a person to move some of his or her property into the trust.  That person would name himself the first trustee, with a new trustee to take over upon his death.  That second trustee can be given clear instructions about what to do with the property without involving probate and allowing you to still retain control during life.

 

Family Trust

A family trust is a popular tool for wealthy families.  The trust will often be managed in part by a board of family members.  Assets can go in over time, and the family controlling the trust can decide how much should go to different family members or they can direct charitable giving.  A family trust can carry your assets well into the future, but managing the trust properly can be complicated and costly.

 

The manner you choose to convey title either before or after death can have a major impact on your finances, your estate and your heirs.  Seek guidance from an experienced attorney who can make sure you’re making the best decisions to achieve your goals.

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John E. Reid

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