Your real estate encompasses not only your primary residence but also any vacation homes, rental properties, or even vacant land you may own. The ideal form of ownership varies depending on the type of property and your individual circumstances.
Your Primary Residence
How you own your primary residence affects your control over it while you are alive, its level of protection from creditors, and what happens to it after you pass away. The most suitable way to own your home often depends on your goals.
A Vacation Home
For some families, their vacation home has significant financial and emotional value. How you hold title and what happens to the property in the future are important considerations. Vacation homes may also be treated differently from primary residences for tax purposes, so careful planning is essential to ensure that what you would like to happen with your vacation home is accomplished.
Rental Property
Because rental property serves as an income stream rather than a residence, protecting it from lawsuits and creditors is usually the primary concern and main goal for rental property owners. As a landlord, you may face a higher probability of lawsuits arising in connection with the property as renters come and go.
Transferring ownership of the rental property to a limited liability company (LLC) is one potential option. One benefit is that any creditor is generally limited to the assets of the LLC, so, for example, if a renter is injured on the property, they can seek satisfaction of any claims only from other accounts and property owned by the LLC, not from your personal accounts and property or those of any other members of the LLC.
You can own title to real property in the following ways:
Sole Ownership
Owning your home in your own name allows you to take advantage of certain tax benefits that may be available for primary residences. While you have full control over the real estate during your lifetime, your primary residence will not automatically transfer to your heirs at your death without additional planning; it will likely need to go through the lengthy, expensive, and public court process known as probate first.
Revocable Living Trust
Another option is to place your primary residence in a revocable living trust. This type of ownership allows you to retain control of your home during your lifetime while ensuring it transfers according to your wishes without court involvement upon your passing.
If protecting your home from creditors during your lifetime is your primary concern, an irrevocable trust may be the appropriate choice.
Joint Ownership or Tenants in Common
In a tenants-in-common ownership structure, two or more people own property together. Each owner can specify in their estate plan what happens to their share. However, one co-owner’s creditors may be able to claim the debtor’s share, potentially putting the entire property at risk of liquidation to satisfy that co-owner’s outstanding debt. In addition, when one co-owner dies, probate may become necessary to transfer their share.
Ownership by a Limited Liability Company
Although not commonly used to hold a primary residence, an LLC can be used to hold other real estate, such as your vacation home or investment property, by creating a legal separation between you and the property. This option generally protects your personal assets from lawsuits or creditors arising from the use of the property. With an LLC, you can also establish rules for use, maintenance, and decision-making. You may consider this option an ideal solution if multiple family members or partners share ownership.
Contact Us Today
Whether you are concerned about your primary residence, a family cabin, or rental property, we are here to assist you in protecting your valuable real property. Given the various considerations in selecting a form of ownership, it is important to have the right advisors by your side. Contact us to discuss the best way to protect your real estate for generations to come.
Posted in: Estate Planning, Real Estate