If you have the money and opportunity to purchase multiple properties, it’s a great investment strategy. Barring disasters like economic crashes, you’re likely to see a good return on investment, especially if you can afford to wait for favorable market conditions to sell. You can also use rental properties to offset expenses and earn passive income.
When you purchase property, you have a tangible asset that, when maintained and/or improved, is likely to gain value over time. Owning property in multiple states, however, can complicate the estate planning process.
It’s wise to work with an experienced estate planning attorney to ensure that any investments and generational wealth are protected. So how do you navigate this tricky process, and why is it so important?
Putting Property in a Trust
One of the best ways to protect and preserve assets for future generations is to place them in a trust. This legal structure holds your property on behalf of named beneficiaries until conditions are met to transfer ownership.
There are two types of trusts to consider: revocable and irrevocable. Revocable trusts are attractive because they allow you to serve as the trustee and maintain complete ownership of and control over assets. The downside is that you will still be liable for all taxes and claims against the estate, as will any named beneficiaries.
An irrevocable trust, by contrast, takes ownership of assets away from you and places it with the trust until it is passed on to beneficiaries. A trustee of your choosing (such as a trusted family member, friend, or lawyer) will manage assets until they get transferred.
You may continue to use properties placed in the trust until your death, incapacity, or other specified circumstances, but you will not legally own them. This stipulation protects the assets from claims by creditors and ensures that properties go directly to the intended beneficiaries.
If you create a Last Will and Testament, your assets are passed on to heirs when you die. If there is no will, an estate will pass through intestate succession, which can vary by state. Typically, however, this process involves surviving spouses and children, followed by more distant relatives.
In both cases, an estate will be subject to probate, a process of legal review in which the probate court has the final say in the outcome. A will makes this process easier, but it can still be time-consuming. When you own properties in multiple states, they must go through each state’s probate process — they cannot be dealt with as a batch in your state of residence.
This requirement can cause lengthy delays and other hassles for your heirs, as they may have to hire lawyers in multiple states at considerable expense. Even worse is that probate is a matter of public record, which means creditors, family members, and others may opt to challenge a will and lay claim to assets.
Assets held in irrevocable trusts are not subject to probate. Therefore, they will pass quickly and seamlessly to named beneficiaries upon your death or other prescribed conditions.
Any assets you own at the time of your death may be subject to estate tax, which ranges from 18-40% federally, if your estate totals over $12.9 million. A handful of states also impose inheritance tax. With an irrevocable trust, you are no longer the owner of the assets placed within, which means beneficiaries can avoid this form of taxation.
Owning properties in multiple states can be lucrative during your lifetime but impose certain hardships on heirs following your passing. By placing these assets in an irrevocable trust, you can streamline the passing of wealth and avoid the hassles of probate and taxation.
Get in Touch with a Skilled Estate Planning Attorney
A qualified Staten Island estate planning attorney from Merlino & Gonzalez can help you create trusts and protect your assets for future generations. Reach out today to learn more.