Real estate often stands as one of the most valuable assets in a person’s estate, making its thoughtful planning a key component of your overall strategy. Beyond their financial value, these properties frequently hold personal significance, serving as homes filled with memories and a tangible legacy to pass on.

In estate planning, the term “devise” refers to the transfer of real estate through a will or trust after death. To devise real estate effectively, one must consider various factors, such as how to avoid unnecessary taxes, the potential for family disagreements, and the specific needs of the beneficiaries.

This guide will provide you with practical advice on transferring your real estate assets, helping you protect what matters most. We’ll explore important tools like wills and trusts, along with key tax considerations, so you can make informed choices that benefit both your property and those who matter to you.

Table Of Contents hide

1. Estate Planning Tools: Wills vs. Trusts

1.1. When to Choose a Trust vs. a Will

2. Tax Factors When Transferring Real Estate

3. Managing Family Disagreements

4. Special Considerations for Family-Owned Real Estate

4.1. Considerations for Selling or Gifting Real Estate to Children

5. Estate Liquidity Challenges: Managing Real Estate in Larger Estates

5.1. Addressing Immediate Financial Demands

5.2. Financial Support for a Surviving Spouse

6. Multigenerational Planning and GSTT Considerations

7. Asset Protection Measures: Trusts and LLCs

8. Keeping Your Estate Plan Current

9. Professionals That Help With Estate Planning

10. We Can You Devise Real Estate And Make The Right Estate Plan

Estate Planning Tools: Wills vs. Trusts

Deciding between a will and a trust is an important choice in managing how your real estate will be handled after your death. Both options have their merits, but each serves a different purpose based on your specific situation. Let’s quickly review the major differences between the two:

Wills: A will is a legal document that spells out how your assets, including real estate properties, should be distributed after you pass away. While it’s a straightforward option, it often requires going through probate court. The probate process also makes your estate’s details public, which may not be desirable if privacy is a concern.
Trusts: A trust offers more flexibility and can help you avoid probate entirely. By placing your real estate into a trust, you maintain control over how and when the property is distributed. This is particularly useful if you want to set conditions or manage the timing of the inheritance. For example, a Qualified Personal Residence Trust (QPRT) allows you to transfer ownership of your home while still living there for a specified period, offering both control and possible tax advantages.

Please Note: Not all wills are subject to the probate process. Depending on the laws of your state, there may be exceptions. These exceptions may include, but are not necessarily limited to, jointly-held assets, property that has designated beneficiaries, or estates whose value is below a certain threshold.1

When to Choose a Trust vs. a Will

The decision between a trust vs. a will often depends on several key factors, including the complexity of the probate process in your state and potential estate tax implications.

Probate Process

First, consider how complicated and expensive the probate process is in your state of residence. In some states, probate is a straightforward, fast, and inexpensive process, making a will a sufficient option for passing on real estate. However, in other states, probate can be more complex and costly. In these cases, using a trust can help minimize costs and avoid delays when transferring assets after death.

Estate Taxes

Another factor is whether your estate might be subject to estate taxes. If your estate is large enough to trigger estate taxes—currently for assets over $13.61 million per individual or $27.22 million per couple (for 2024)—planning with trusts can be an effective strategy to minimize those taxes. Trusts offer the flexibility to structure your estate in ways that can reduce the overall tax burden on your heirs.

Please Note: Our team often works hand-in-hand with estate planning attorneys to guide clients through choosing between a will and a trust based on local considerations. In South Carolina, for instance, probate can be more time-consuming and costly, making trusts a preferred tool to help reduce expenses and avoid delays. In Georgia, on the other hand, probate is usually more straightforward and less costly, so a will may be all that’s needed for many estates.

Tax Factors When Transferring Real Estate

When you plan to pass on real estate, being aware of tax implications is important, as they can greatly influence the inheritance your heirs will receive. Federal estate taxes are a significant concern, particularly for larger estates.

Remember, if the value of your real estate holdings and other assets surpasses the tax threshold, an estate tax as high as 40% may come into play. To help mitigate this, you might consider gifting parts of the property during your lifetime or using a trust. Additionally, some states impose their own estate tax when passing down real estate. These states and territories include:2

New York
Hawaii
Washington
Rhode Island
Nebraska
Oregon
Connecticut
Maryland
Minnesota
Massachusetts
Vermont
Maine
District of Columbia

Another aspect to consider is the step-up in basis, which can ease capital gains taxes for your heirs if they decide to sell the property. The property’s value is typically adjusted to its market value at the time of your death, instead of its original purchase price. This adjustment can significantly reduce the taxable gain, making the sale more manageable for your heirs.

Valuation discounts are also worth exploring as they can lower the appraised value of the property by taking into account factors like shared ownership or limited marketability. This reduction can decrease the overall estate tax liability. By carefully considering these tax factors, you can help maximize the value of the real estate your heirs will receive.

Managing Family Disagreements

Family dynamics can make transferring real estate more complicated, especially when multiple siblings are involved. If there’s a possibility of conflict, consulting with an estate planning attorney is a wise move.

Drafting a clear and thorough estate plan is especially important when family disputes are likely. A well-crafted plan will specify who receives which assets and designate who controls various aspects of the estate. In some situations, it might be advantageous to appoint a corporate executor or trustee to manage the estate. Although this adds to the cost, it can help minimize tension by placing a neutral third party in charge.

Taking the time to create a detailed estate plan not only simplifies the process for your heirs but also helps prevent unnecessary family discord. As Benjamin Franklin aptly put it, “By failing to prepare, you are preparing to fail.” Developing a comprehensive estate plan can spare your family from additional stress and conflicts.

Special Considerations for Family-Owned Real Estate

Properties passed down through families, such as farms or vacation homes, often hold significant emotional value. When it comes to planning the transfer of these assets, it’s important to take both sentimental and financial aspects into account to help avoid potential arguments amongst your loved ones. Here are some strategies to consider:

Shared Ownership Agreements: If a property is going to be inherited by multiple family members, it’s helpful to establish clear terms in a shared ownership agreement. This agreement should cover how the property will be used, who will handle maintenance, and how costs will be shared, making sure everyone is on the same page. It can also address what happens if one heir wants to sell their share or if major repairs become necessary. Without this kind of agreement, disagreements could arise, leading to possible legal disputes or even the division of the property.
Incorporating Buyout Options: In some cases, one family member may want to keep the property while others prefer a financial payout. Including buyout options in your estate plan can provide a way for one heir to buy out the others based on a previously agreed valuation. This approach can help preserve family harmony by giving each heir the choice that best suits their needs.
Considerations for Real Estate with Business Ties: If your property is connected to a family business, like a rental property or a farm, planning for its future is essential. This might involve setting up a succession plan, designating who will take over, creating a trust to manage the property, or arranging for its sale if no heir wants to continue the business.
Environmental and Zoning Issues: It’s also important to consider any environmental or zoning regulations that might impact the property’s future use or value. For instance, if your land is subject to conservation easements or zoning laws, your heirs might face restrictions on how they can develop or use it. Including these considerations in your estate plan can help prevent surprises later and make sure your heirs are aware of any limitations.

Considerations for Selling or Gifting Real Estate to Children

If you are considering selling or gifting your home to your children as part of your legacy, there are a few factors to consider. These include:

Tax Basis and Financial Implications: Are you planning to sell your personal residence or gift it? These scenarios are treated differently from a tax standpoint. Selling your main home may qualify you for an exclusion of up to $250,000 as a single filer, or as much as $500,000 if you file jointly with your spouse.3 It’s important to discuss these details with your CPA or financial planner to assess the tax efficiency and liquidity benefits.
Gifting Considerations: Gifting your home during your lifetime may result in your children inheriting your tax basis, potentially leading to a higher tax bill if they sell the property in the future. Alternatively, a transfer at death allows for a step-up in basis, which could significantly reduce the taxable gain on a future sale.
Transfer-on-Death Deed (TOD Deed): A TOD deed is another option to consider for transferring real estate upon your death. It allows you to designate who will receive the property without going through probate, offering a streamlined and efficient transfer process.

Please Note: The state of Georgia recently passed legislation permitting real estate to be transferred to beneficiaries through a TOD deed.4

Estate Liquidity Challenges: Managing Real Estate in Larger Estates

When real estate represents a large portion of an estate, liquidity can become a pressing issue. Real estate assets aren’t easily turned into cash, and a quick sale might result in a lower price. This can create difficulties for heirs who need funds to pay estate taxes, settle debts, or cover other immediate costs after the owner’s passing.

Addressing Immediate Financial Demands

Under federal law, estate taxes must be settled within nine months following the decedent’s passing. If the majority of the estate’s value is locked in property, meeting this deadline may prove challenging. Heirs might feel forced to sell real estate quickly, potentially settling for less than its true value to meet the estate’s financial obligations.

Life insurance planning offers a practical solution to this problem by providing immediate liquidity after death. Proceeds from a policy can be used to cover estate taxes or other relevant expenses.

Another option to alleviate this pressure is Section 6166, which allows estates with significant real estate holdings to extend their tax payments over several years.5 It may also be possible to obtain a Graegin loan, which provides the estate with the necessary funds to cover taxes or other costs, allowing for repayment over time without an immediate property sale.6

Financial Support for a Surviving Spouse

Consider the financial needs of a surviving spouse, especially if they rely on real estate for income or as their primary home. Maintaining sufficient liquidity to support them is an important aspect of thorough estate planning.

By planning ahead to address these liquidity issues, you can help prevent the need for rushed property sales and give your heirs the flexibility to manage the estate in the best possible way.

Multigenerational Planning and GSTT Considerations

Passing real estate to future generations requires careful consideration, especially when it comes to taxes. The Generation-Skipping Transfer Tax (GSTT) becomes relevant when property is inherited by someone who is two or more generations younger, such as a grandchild. This tax adds another layer of cost beyond estate or gift taxes, so it’s important to plan effectively to reduce these expenses while keeping the real estate in the family.

One strategy is to use a generation-skipping trust, which can help shield the real estate from GSTT. This method not only preserves the property for future generations but also lowers the potential tax burden. It’s important to correctly apply the GSTT exemption, which is separate from the estate tax exemption, as part of this approach.

Please Note: With the possible expiration of the Tax Cuts and Jobs Act (TCJA), which could reduce the current high exemptions for both estate and GSTT, now is a good time to revisit and adjust your estate plan. These changes could significantly affect your plans for transferring real estate, making it wise to consult professionals who specialize in multigenerational estate planning.

Asset Protection Measures: Trusts and LLCs

Protecting your real estate from risks such as creditors or lawsuits is another important part of estate planning. Two effective tools that offer significant protection are trusts and Limited Liability Companies (LLCs). Here’s a closer look:

Trusts for Securing Real Estate: An irrevocable trust can effectively remove property from your personal estate, providing a shield against claims or legal actions. This arrangement safeguards real estate from being targeted in lawsuits against your personal assets. Moreover, a trust gives you the ability to specify how the property should be managed and passed on after your death.
LLCs for Limiting Liability: On the other hand, an LLC serves as a protective barrier by separating your personal finances from your real estate holdings. This separation is particularly beneficial if you own multiple properties or rental units, as it limits personal liability. By placing real estate in an LLC, you protect your personal assets from potential legal issues that may arise with the properties.
Both for Further Protection: Combining these two strategies can offer even more protection. For instance, combining an LLC with a trust offers the liability shield of the LLC while also incorporating the estate planning advantages of a trust. This dual approach not only shields your real estate assets but also clarifies how they will be distributed according to your wishes.

Keeping Your Estate Plan Current

Your estate plan should be revisited regularly to ensure it remains effective. Life events, financial shifts, and changes in tax regulations can all impact your plan, making periodic reviews necessary.

Major life changes—such as marriage, separation, having a child, or the passing of a loved one—may require adjustments to your estate planning strategy. Likewise, any significant changes in your real estate holdings, like buying or selling property, should prompt a review to ensure your plan aligns with your current intentions.

Shifts in tax laws also make it important to reassess your estate plan. For instance, changes to estate tax exemptions or potential adjustments due to the Tax Cuts and Jobs Act (TCJA) could necessitate updates to your planning approach. Regular updates help prevent any unwanted consequences that might result from outdated provisions.

Please Note: In 2024, individuals can benefit from a federal gift and estate tax exemption of $13.61 million, which helps most estates avoid federal taxes. However, this exemption is set to drop to $5.49 million, adjusted for inflation, when the Tax Cuts and Jobs Act ends in 2025.7

Professionals That Help With Estate Planning

Crafting an effective estate plan often requires the expertise of a skilled team, each member contributing specialized knowledge. Working with the right professionals can significantly impact how well your plan reflects your intentions and safeguards your assets. Below are the key roles involved in estate planning:

Estate Planning Attorneys: These lawyers prepare and update documents like wills, trusts, and powers of attorney, aligning them with state regulations and your personal goals. They also provide guidance on strategies to potentially avoid probate and manage any legal issues that could arise in the administration of your estate.
Accountants: Accountants offer tax advice, helping you understand and navigate estate, gift, and inheritance taxes. By collaborating with your financial team, they aim to transfer your assets in a tax-savvy manner, which could help reduce costs and preserve more for your heirs.
Financial Advisors: Financial advisors integrate your estate planning with your broader financial objectives, ensuring that your investments, retirement funds, and insurance policies align with your long-term goals. They provide strategies on how to structure your assets to maximize their value and distribute them according to your specific plans.

Please Note: Our financial advisory team is here to support all aspects of your estate planning journey. Whether working with your existing professionals or connecting you with trusted experts from our network, we are committed to helping you create a plan that meets your financial goals.

We Can You Devise Real Estate And Make The Right Estate Plan

Thoughtful management of your real estate is key to maintaining its value and passing it on as intended. Decisions related to wills, trusts, tax planning, and asset protection all play a part in securing your legacy.

Real estate often holds more than just monetary value; it embodies years of memories, hard work, and personal investments. Careful estate planning helps protect this legacy, allowing future generations to inherit without unnecessary complications.

Whether you’re drafting an estate plan for the first time or revising an existing one, professional advice can be invaluable. Collaborating with estate planning attorneys, financial advisors, and tax specialists helps make sure that your property is managed and distributed according to your preferences.

If you’re ready to start planning or need to update your current plan, reaching out to a trusted advisor is a great first step. Our financial advisory team stands ready to help you with your real estate and estate planning needs. Please schedule a call with us at a time that is convenient for you.

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Clayton Quamme

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Devise Real Estate Smartly: How to Pass Down Real Estate to Your Heirs