Travel listing websites like Airbnb and Vrbo have made it easy for the most casual entrepreneurs to set up income-producing assets. Think about that place in the mountains you got from your parents years ago. You might make it up there once or twice a year, but it’s now relatively simple for someone else—complete strangers, really—to book a weekend getaway there.
If you own any such properties, you can consider yourself an entrepreneur. Congratulations!
With great power, though, comes great responsibility. Making sure your income-producing property stays in the family after you pass away is more complicated than you might think. That goes for any asset that appreciates over time, like the family business or rental property. Below are some important estate planning considerations.
Form a Limited Liability Company (LLC)
While this isn’t necessarily crucial for estate planning, setting up a holding company for your properties is necessary for protecting your personal assets. If a tenant experiences a covered loss in one of your properties, you could be financially liable. Transferring ownership of your property to an LLC is often the most efficient way to shield your personal assets from judgments and losses relating to the property.
Trusts or Wills?
To ensure the property or asset goes to the right person after you pass away, you need to set up some sort of estate plan. You could (and probably) should form a Last Will and Testament; in that document, you might choose to make a bequest, which would transfer the asset to the individual of your choice.
Wills, however, require heirs to go through the probate process. They also don’t provide any asset protection for your heirs. A living trust is often the choice of Virginia estate planners when it comes to transferring income-producing assets. Different trusts have different benefits, though, so make sure you select the right type before transferring the asset’s ownership.
Discuss Your Plans with Your Family
Having proactive discussions with your heirs and beneficiaries about your estate plan is just as important as making a plan in the first place. Make your goals clear, and don’t assume your son or daughter can step in and perfectly manage your assets from day one. It takes at least 5–10 years to plan and implement an effective business succession plan. Even though it may not always feel like it, your Airbnb listing is a real-life business.
Conclusion
Transferring income-producing properties through estate planning is more complex than bequeathing a personal asset. Real property needs regular maintenance to stay profitable. Strategic planning can also result in a lower tax bill for planners and heirs.
Norton Pelt, PLC helps Virginians reach estate planning goals through personalized legal counsel. The team understands that each plan is unique and requires tailored strategies. Call us today at (540) 440-7007 to get started on your future.
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