Planning for your estate is not the most enjoyable task, but it is essential. Having a will and estate plans in place will save your heirs the difficult task of deciding how to divide your assets. Creating your will and codifying your estate plans can be expensive, but it can save money and headaches for your beneficiaries in the long run. Your rental property will be a special consideration, as you may leave not only a building, but a tenant or a family that your heirs will be in a contract with.
Determine who will inherit your rentals
Determine where you would like to designate your property as part of your estate. While it may be uncomfortable and cost you a little to secure your future plans, if you do not make this designation it will be up to the state and the legal system to determine who gets your rental property.
While you are engaged in the process, it’s an opportune time to have a discussion with the person to whom you would like to leave this asset. Speak with them about the financial status of the property. Is there a mortgage remaining on the property? Is the mortgage covered by what you make in rental income? Is your heir interested in continuing to operate the rental, or would they rather sell it? If you are the sole surviving mortgagee, several factors will determine whether or not your heirs will be able to refinance the property. Be sure to speak with your lawyer about the ways to help safeguard your mortgage after your death.
What are your state laws with regard to rental property?
Your state laws will govern what happens with your estate and what role your estate plan plays in that process. In some states, every estate goes through probate, whereas in other states, only assets that clear a minimum value trigger the probate process. In some states you may be able to forego the expense and time of probate by holding your property in a trust or just by having a will. This is where you should check in with an expert. While it can cost thousands of dollars to prepare your estate, you may save more than that for your heirs in terms of legal fees and taxes, not to mention saving them from frustration and stress while they are in mourning.
What to do while the estate is settled
Be sure to plan for the realities of settling your estate, which can move slowly even though you are planning ahead. Although your local laws may vary, in most cases, a legal lease signed by a tenant and a landlord who has died will still be honored for the duration of the lease term. This being the case, you want to include some means for your heir to be able to carry on business through the transition. Be sure to include this in your estate plans.
Obviously making your estate plans will take lots of care and the advice of an expert. Hopefully reading this article will remind you to take care of this chore while you are able to do it. Or, if you have written a will in the past, have you revisited it lately? Check in with your heirs and your financial advisor to see if the situation has changed since you last looked at your estate.