Do you own or do you plan to buy an investment property to rent out for income? If so, it's vital to protect yourself, your investment, and your tenants. One way to do that is to transfer the property into a revocable living trust. How does a trust help small landlords like you? Here are five important ways.
1. Trusts Protect Privacy
You may not want the world to know that you're a real estate investor. Many investors would prefer to keep their financial success quiet to avoid unwanted requests, spendthrift family members, or solicitations. You also may not want to advertise your personal information to tenants. Using a trust for rentals helps preserve your privacy.
2. Trusts Limit Liability
A landlord always runs the risk of a disgruntled tenant or service provider going after them in court. Limit your personal liability by separating your person from your rental business. A properly executed trust creates a separate legal entity, meaning your personal assets cannot be seized to satisfy the trust's debts.
3. Trusts Maintain Continuity
What would happen with your rental properties if you were incapacitated? Most people think of estate planning in regards to their death, but it also protects the grantor if there's an emergency. If you become sick or are in an accident, your successor trustee is automatically authorized to manage your rentals, keep them maintained, and deal with tenants.
4. Trusts Avoid Probate
Business owners generally cannot afford to have their business sit around for months or even years while their estate goes through probate. Because a trust is not considered part of your estate, it's not subject to probate. It can pass immediately to your successor trustee and beneficiaries without delays or legal wrangling.
5. Trusts Reduce Taxes
Irrevocable trusts have an additional financial benefit: reducing or eliminating taxes. Keep your estate below the threshold for estate or inheritance taxes by transferring large assets to an irrevocable trust. In addition, special trusts — commonly the Charitable Remainder Trust — allow you to receive the income from a trust for life and avoid capital gains taxes when the grantor passes away.
Where To Learn More
Want to know more about using revocable or irrevocable trusts for your rental properties? Start by meeting with a trust and estate planning attorney in your state today. Together, you can find the right trust to achieve your goals, no matter whether you want risk protection, business continuity, privacy, or something else.
