If you are the sole owner of an income producing property, you should consider placing that property in a Revocable Trust. There are several benefits in executing a trust to hold the real property, rather than bequeathing the property in a will, including avoiding the costs of probate and protecting privacy. The need for continuity is a prime consideration.
For example, if you own a multifamily apartment building in your sole name, you can create a will that leaves the property to your heirs. However, upon your death, your named executor does not automatically have the authority to access your bank accounts or collect rents. The will must first be offered for probate and letters testamentary issued to the nominated executor by the Surrogate Court, which could take weeks, months, or even years, depending upon the circumstances. In the meantime, nobody is legally authorized to collect rents, pay the mortgage, access or make repairs to the property. An executor with limited letters can be appointed, but this also costly.
If the rental property is located out of state, an ancillary probate proceeding will be necessary which prolongs and complicates the process further.
A Revocable Living Trust solves this problem by avoiding probate. As a grantor trust, the owner continues to collect income, pay taxes and claim tax deductions. During his or her lifetime, the grantor is usually the trustee and names a successor in the trust document. Upon the death or incapacity of the grantor, the successor trustee seamlessly steps in to administer the assets in the trust and distribute the property to the beneficiaries.
Additionally, given the nature of the trust, the beneficiaries still receive a full step-up in basis to the fair market value of the asset at the time of death. This eliminates capital gains tax if the beneficiaries wish to sell the property.
A simple Revocable Trust avoids the gap in authority caused by the death of a property owner. More sophisticated solutions — such as LLCs and Medicaid asset protection trusts — may also be warranted, so it is important you consult an experienced estate planning attorney before making any deed changes.
– Nancy Burner, Esq.