Formulating a comprehensive estate plan should entail addressing all of your valuable assets. And if you are the owner of a rental property, it should also include the necessary asset protection measures to safeguard your future. For the majority of clients, a complete estate plan consists of three broad main categories:
- Your house
- Financial accounts
- Personal property
Additional assets, including rental property, life insurance accounts, retirement accounts, and annuities should also factor into your estate planning process.
If you are the owner of one or more rental properties, however, your estate plan will inevitably be more complex due to the fact that there are special considerations involving premise liability, Florida’s landlord-tenant act, and personal guarantees that you must take into account when getting your affairs in order.
Factoring Rental Properties into Your Estate Plan
It shouldn’t come as a surprise that, if you own rental property, you run the risk as the landlord of a commercial or residential property of getting sued for a premises liability claim. A guest or tenant, who is injured on a rental property in the state of Florida, has a potential claim against both the occupant as well as the owner. There are a number of limited scenarios in which the landlord can be found liable for injuries occurring on their rented premises – such as when they fail to ensure the building meets all applicable building, housing, and health codes; when they fail to remedy a known defect; or when a tenant’s pet attacks a visitor. Fortunately, a well-organized and carefully implemented estate planning protocol that includes a protection strategy with regards to your rental property can significantly mitigate this inherent liability.
Safeguarding Your Rental Property Assets
A responsible landlord will be sure to purchase a sufficient liability insurance plan as an initial level of protection. There are instances, however, in which the given insurance provider’s coverage caps are insufficient to cover the damage amount awarded to a plaintiff by a judge or jury. When this occurs, the subsequent resource the plaintiff turns to, in order to satisfy the outstanding balance of the judgment, is the defendant’s landlord’s personal assets. Fortunately, there are a number of proactive estate planning measures a landlord can implement in advance in order to provide additional asset protection.
Utilizing Business Entities as Safeguards
If a landlord owns real property via a business entity (such as a limited liability company (LLC) or a Florida Land Trust), they can shield their personal property assets (other than the real estate) against claims from injured parties seeking to fulfill a judicial damage award. It should be noted, however, that simply filing the requisite documentation for the establishment of an LLC is not sufficient. The LLC has to be treated as a legitimate business entity. And all reports, filings, financial accounts, and associated formalities must be fulfilled at all times in order to receive the liability protection benefit of a business entity. Additionally, if the landlord wishes to protect the ownership of the LLC from potential creditors, it has to be a multi-member LLC and created in a jurisdiction (of which Florida is one) that grants charging order LLC protection.
Asset Management Planning
An additional issue to contemplate is the individual that will act as a trustee responsible for the management of your living trust – who is an agent you have designated to operate as your power of attorney. A trustee handles your assets in a manner that benefits the trust’s beneficiaries, or in a scenario of the power of attorney, the assets under your ownership. The specific responsibilities of a trustee may vary, as they are determined by the type of assets owned by the trust and the terms of the trust itself. Although rental property income may have contributed to your financial success, many institutional trustees will oftentimes liquidate assets and invest the resulting sum in stocks, bonds, and mutual funds. When you own rental property as part of an LLC, the trustee’s responsibilities and the power of attorney must consider specific issues pertaining to the maintenance and management of your rental property. The subsequent result may or may not coincide with your personal preferences. As such, utilizing an LLC or a Florida Land Trust for you to own rental property holdings may be a more favorable option – in which case, the trustee would simply collect the rental income. This gives you the peace of mind that your rental property remains viable in the event of your death.
Taking Advantage of 1031 Tax Breaks
Although many clients visualize the estate planning process writ large, as well as the implementation of LLCs as strategic ploys to save on death taxes and provide more financial benefit to their heirs, the experienced and skilled estate planning attorneys at Beller and Bustamante can assist you with so much more – including the often-overlooked potential savings from a 1031 exchange. This process functions as a vehicle to defer taxes from the sale of rental property. The requisite qualifying standards are nuanced and complicated, but the effort to explore this route is well worth your time as it can save you significant portions on your income taxes. Our dedicated Jacksonville estate planning legal team can assist you in ensuring that your trust, powers of attorney, and LLC enable your family to take advantage of this tax benefit statute in the event you become incapacitated and are subsequently unable to personally oversee the disposition of your own affairs.
Contact Beller and Bustamante, P.L., Today
There is no doubt you have worked tirelessly over the course of your life to acquire and maintain a financially successful rental property in addition to all of your other assets that make up your overall estate. Our Jacksonville attorneys have years of experience assisting clients in making sure that their estate plan adequately covers the entirety of their assets, so that you and your loved ones reap the rewards of your life’s work. Schedule your consultation with a skilled Florida estate and probate litigation attorney immediately. Contact the law office of Beller and Bustamante in their Jacksonville office at (904) 288-4414, today.