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Smarter Ways to Keep Real Estate in the Family for Now or Forever

Bobby Howard

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Published in California Inherited Property Guide: Smarter Ways To Keep Real Estate In The Family For Now Or Forever

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California Inherited Property Guide: Smarter Ways to Keep Real Estate in the Family for Now or Forever

by Mandy Harbin

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Language	:	English
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Print length	:	48 pages

Real estate is often a family's most valuable asset. It can be a source of income, a place to live, and a legacy to pass on to future generations. But keeping real estate in the family can be challenging. There are estate taxes, property taxes, and other costs that can eat away at its value. And if the property is not properly managed, it can be lost to creditors or other claimants.

There are a number of smarter ways to keep real estate in the family. By planning ahead and using the right legal structures, you can protect your property and ensure that it remains in your family for generations to come.

1. Create a Living Trust

A living trust is a legal document that allows you to transfer your assets to a trustee, who will manage them according to your instructions. Living trusts can be used to avoid probate, which is the court process of administering an estate after someone dies. Probate can be time-consuming and expensive, and it can also expose your estate to public scrutiny.

By creating a living trust, you can keep your real estate out of probate and ensure that it is distributed to your beneficiaries according to your wishes.

2. Use Joint Ownership

Joint ownership is another way to keep real estate in the family. When you own property jointly with someone else, both of you have an equal interest in the property. This means that if one of you dies, the other person will automatically inherit your share of the property.

Joint ownership can be a simple and effective way to keep real estate in the family. However, it is important to note that joint ownership can also have some drawbacks. For example, if one of the joint owners gets into financial trouble, the other owner's interest in the property could be at risk.

3. Form a Limited Liability Company (LLC)

An LLC is a type of business entity that can be used to hold real estate. LLCs offer a number of advantages, including limited liability protection and tax benefits. Limited liability protection means that the owners of an LLC are not personally liable for the debts and liabilities of the LLC. This can protect their personal assets from creditors.

LLCs can also be used to reduce taxes. LLCs are taxed as pass-through entities, which means that the profits of the LLC are passed through to the owners and taxed on their individual tax returns. This can result in significant tax savings.

4. Establish a Land Trust

A land trust is a type of trust that is used to hold real estate. Land trusts are often used to protect land from development or to preserve it for future generations. Land trusts can also be used to reduce taxes.

When you establish a land trust, you transfer your ownership interest in the property to the land trust. The land trust then becomes the legal owner of the property. However, you retain the right to use and enjoy the property as you wish.

Land trusts can be a good way to keep real estate in the family while also ensuring that it is used for its intended purpose.

5. Create a Family Limited Partnership (FLP)

A FLP is a type of partnership that is used to hold real estate. FLPs offer a number of advantages, including limited liability protection and estate tax benefits. Limited liability protection means that the partners of an FLP are not personally liable for the debts and liabilities of the FLP. This can protect their personal assets from creditors.

FLPs can also be used to reduce estate taxes. FLPs are taxed as pass-through entities, which means that the profits of the FLP are passed through to the partners and taxed on their individual tax returns. This can result in significant estate tax savings.

6. Use a Generation-Skipping Transfer Tax (GST) Exemption

The GST tax is a tax that is imposed on gifts and inheritances that are made to grandchildren or other generations that skip a generation. The GST tax can be a significant burden, but there is an exemption that can be used to reduce or eliminate it.

The GST exemption is a per-person exemption. This means that each person can give or inherit a certain amount of money or property to their grandchildren or other generations that skip a generation without having to pay the GST tax.

The GST exemption can be a valuable tool for keeping real estate in the family. By using the GST exemption, you can reduce or eliminate the taxes that would be imposed on gifts or inheritances that are made to your grandchildren or other generations that skip a generation.

7. Plan for Estate Taxes

Estate taxes are taxes that are imposed on the value of an estate after someone dies. Estate taxes can be a significant burden, and they can eat away at the value of your real estate. There are a number of things that you can do to plan for estate taxes, including:

Making gifts to your heirs during your lifetime
Using trusts to reduce the value of your estate
Purchasing life insurance to pay for estate taxes

By planning for estate taxes, you can protect your real estate from being taxed at a high rate and ensure that it is passed on to your heirs in the most advantageous way possible.