Owning real estate, whether it’s your family home, vacation property, or a portfolio of rental properties, is a significant part of your financial legacy. When it comes to estate planning, real estate owners face unique challenges that require careful consideration to ensure your property is protected and passed on according to your wishes. In Wisconsin, as in other states, there are specific issues related to real estate ownership that must be addressed in your estate plan. In this blog post, we’ll explore some of the unique estate planning challenges faced by real estate owners, such as managing multiple properties, handling rental properties, and dealing with out-of-state real estate.
Challenges of Estate Planning for Real Estate Owners
1. Managing Multiple Properties
Owning multiple real estate properties—whether residential, commercial, or a combination—adds complexity to your estate plan. Each property may come with its own set of issues, including different mortgages, maintenance responsibilities, and tenants. If you own properties in multiple locations, you’ll need to make specific provisions for their management, maintenance, and distribution upon your death.
In Wisconsin, the first step in managing multiple properties is to ensure they are properly titled in your name and that all relevant documentation (mortgages, deeds, etc.) is up to date. A key consideration when passing on multiple properties is whether to divide them equally among heirs or assign specific properties to different family members. This decision may have financial and emotional implications, so it’s important to approach it carefully and consider how each heir can best manage or benefit from the property.
2. Handling Rental Properties
Rental properties, in particular, require more attention when planning your estate. You need to consider how rental income will be handled after your death, as well as who will be responsible for managing tenants and maintaining the property. Without a clear plan, your heirs may face difficulties in managing rental properties, which could lead to disputes or financial issues.
In Wisconsin, rental properties are often treated as part of the decedent’s estate and may go through probate unless the property is placed in a trust or properly designated to a beneficiary. The person responsible for managing the rental property after your death may also need to be designated, and you might consider setting up a property management company to take care of day-to-day operations. It’s also critical to address potential liabilities related to the property, such as tenant disputes or injuries, by ensuring the appropriate insurance coverage is in place.
3. Real Estate Held in Different States
If you own real estate in multiple states, including property located outside of Wisconsin, you’ll face additional challenges when planning your estate. In Wisconsin, like many states, real estate located outside of the state is subject to “ancillary probate,” a secondary probate proceeding that occurs in the state where the real estate is located. This means that your estate will have to go through two separate probate processes—one in Wisconsin and one in the state where the property is located—adding time, cost, and complexity to the process.
To avoid the complications of ancillary probate, consider placing your out-of-state real estate into a revocable living trust. A living trust allows the property to pass directly to your beneficiaries without the need for probate in multiple states. This can save your heirs both time and money while simplifying the distribution of your property.
Estate Planning Strategies for Real Estate Owners
1. Use a Revocable Living Trust
For real estate owners in Wisconsin, a revocable living trust is one of the most effective tools to manage and protect real estate. By transferring your property into a living trust, you retain full control over the assets during your lifetime, and upon your death, the property can pass directly to your beneficiaries without going through probate. This helps to avoid the delays, costs, and public exposure of the probate process, making the transfer of real estate smoother and more efficient.
A revocable living trust is particularly beneficial for real estate owners with multiple properties or those owning out-of-state real estate, as it eliminates the need for ancillary probate in other states.
2. Consider Joint Ownership
If you have a spouse or children you’d like to inherit your property, you may consider holding the property in joint ownership with rights of survivorship. This means that when one owner passes away, the surviving owner automatically becomes the sole owner of the property without the need for probate. In Wisconsin, you can hold property in joint tenancy with the right of survivorship, which provides this automatic transfer.
However, joint ownership can be risky in some situations, especially if your joint owner is involved in a lawsuit or faces creditor issues. Therefore, it’s essential to consider the financial stability and needs of the individual(s) you are adding as joint owners.
3. Designate Beneficiaries for Real Estate
Wisconsin allows you to designate a beneficiary for certain types of property through “transfer-on-death” (TOD) or “beneficiary deed” designations. These options allow you to name a beneficiary who will inherit your real estate upon your death, without the need for probate.
For real estate, a Designation of TOD Beneficiary Deed (“TOD Deed”) allows you to specify who will inherit your property, but you remain the owner during your lifetime. The beneficiary takes ownership only after your death. This is a straightforward way to transfer real estate without the delays and costs of probate, provided you have a valid TOD Deed in place.
4. Plan for Property Taxes and Debt
Real estate ownership can come with ongoing property taxes, mortgage obligations, and other debts. It’s important to plan for how these responsibilities will be managed after your death. One option is to place funds in a trust to cover ongoing costs such as property taxes or maintenance until your property can be distributed or sold. Alternatively, you may want to ensure that your heirs have a clear understanding of how to handle outstanding debts related to the property.
5. Insurance and Liability Considerations
When it comes to rental properties or properties with significant value, insurance is a critical component of your estate plan. Ensure that your insurance policies are up to date and that your heirs understand how to manage coverage after your death. Consider working with a financial advisor or insurance professional to assess your property’s needs and adjust coverage accordingly.
Conclusion
Estate planning for real estate owners requires careful thought and attention to detail, especially when it comes to managing multiple properties, rental income, or real estate in other states. The key to effective estate planning is working with an experienced estate planning attorney who understands the nuances of real estate ownership in Wisconsin. At Turke & Steil LLP, we can help you navigate these complexities and create a plan that ensures your real estate is protected, your heirs are well-prepared, and your wishes are honored.
If you own real estate in Wisconsin or beyond, contact Turke & Steil LLP today at 608.237.1775 to begin the process of protecting your property through thoughtful and strategic estate planning.