Strategies For Passing Down Investment Property to Heirs

January 11th, 2022

Investment turnkey rental property is one of the most valuable assets you can pass down to your heirs, as it can offer passive income for generations. However, passing investment property down to your heirs can be a complex matter. By knowing the various options you have in terms of estate planning, the task can be more of a simple matter. If you want to make the best decisions for your heirs and ensure that your turnkey rental investment property gets passed down according to your wishes, here are some strategies to keep in mind.


Bequeath Your Properties to Your Beneficiaries


When you create your will, you can choose to simply leave your rental properties to your beneficiaries in this manner. However, remember that most wills are required to go through probate, which can be a time-consuming and expensive process. In fact, as little as five to as much as 15% of the total value of an estate may go to probate and legal fees. In addition, laws in some states do not allow the renting out of properties while a will is in probate, which could prevent your beneficiaries from immediately having access to the income derived from the properties. 


Add Co-Owners to Property Deeds


One of the best and most recommended ways to avoid probate is to add co-owners to your property deeds. In this case, your heirs would of course be the new co-owners of your rental property. However, there are potential problems with this, as well. For example, the portion of the property transferred will be subject to a gift tax. Also, the rental properties become assets of the new co-owners.


A lien may also be placed on the property in the event that any of your heirs go through a divorce or incur large amounts of debt. Finally, don’t forget that if you want to refinance or sell any properties that have co-owners, you will need the permission of all the property’s co-owners to do so. While this strategy can work well in some cases, it can also create a new set of problems; so think things through very carefully before making your final decision.


Create a Family or Living Trust


If you place your properties in a family trust, this will allow you to avoid probate and still have complete control over your turnkey rental properties. When a trust is created, you designate a trustee to manage the properties after you die. While you are alive, you will maintain total control, which is an advantage over adding co-owners. Upon your death, the properties in the trust will avoid the probate process, and thus be distributed directly to your heirs.


If you have investment properties in different states, this can be advantageous in that it will help you avoid the probate process in state after state. Since laws vary among individual states, it’s important that you work with an attorney or estate planning professional to set up an arrangement that works best for your situation.


As an added bonus, a family trust won’t affect your taxes while you are living. However, once you pass away, the trust then becomes an “independent taxpayer,” meaning a high tax rate on income must be paid before any property is distributed. Should any of your heirs be minors, or if there are other circumstances that may prevent immediate property distribution, it could actually be more expensive to create a trust than it would for your will to go through probate.


Sell Your Turnkey Rental Properties


While you could choose to sell your properties rather than pass them down to your heirs, this strategy is rarely recommended.  After all, if you pass down your properties, your heirs will be able to enjoy passive income indefinitely. If you sell your properties, your heirs would only get an immediate payoff from the sale, ultimately depriving them of hundreds of thousands of dollars in the years to come.


Along with this, there are numerous state laws that often make the selling of rental properties far more complex, and can also greatly impact tax bills that come with these transactions. Since you would need to work closely with your attorney and perhaps a CPA to learn the various ins and outs of the laws regarding the selling of rental properties, chances are any of the previously-mentioned strategies would be a wiser choice.


Since rental properties do require a certain amount of attention, always discuss any ideas you have with your heirs prior to creating a will or other legal documents regarding your estate. While some heirs may have doubts about owning turnkey rental property, others will likely see the many advantages that come with passive income. By talking over things with any potential heirs and beneficiaries, you can complete your estate planning process, avoid the many pitfalls others often experience, and give yourself and your heirs tremendous peace of mind in the years ahead.




Customer Testimonial:


“My wife and I were very happy with the Memphis property we purchased through Martel Turnkey last year. They were patient with my limited knowledge and helpful with all of my questions until the closing. The monthly cashflow accurately matches their estimation. So far it’s been a very positive experience.”



~ Hal, New York, NY





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