How to deal with Rental Property when Estate Planning
One of the assets I look at and consider when Estate Planning for a client is any real property that the client owns. This includes residential homes as well as rental properties. A big mistake people make is owning rental property in their own name. What they may not realize is if it is owned in their own name that they will be personally liable should anything happen to a renter or a renter’s guest while on the property. This leaves all the client’s personal assets vulnerable in a lawsuit.
What I often advise my clients to do is transfer the rental property into a separate entity such as an LLC. The client can be a manager and member, but the property will not be in their name, but in the name of the LLC. The liability is limited to the assets in the corporation (which is the value of the rental property). Not only will this limit personal liability, but often times it helps in Estate Planning when the client’s estate may ultimately be taxed upon death. The deed, rental agreements, rental payments, insurance policies, utilities, etc. would all be in the name of the LLC. Any income from the rental property would be placed in a separate bank account with the LLC as the owner.
Unfortunately we live in very litigious times. Doing whatever you can to limit your personal liability is not ownly smart but in the long run will save you more money than you can imagine.