Real Estate Ownership
Real estate encompasses not only one’s primary residence but also other real estate such as a vacation home or a rental property. The ideal form of ownership varies depending on the type of real estate you own. Below, we take a look at the different types of real estate and offer options for ownership for each.
Because you can sell your primary residence exempt of capital gains taxes on the first $250,000 of gain if you are single and $500,000 if married, you should carefully consider how your home is owned. In Montana, joint tenancy with rights of survivorship allows couples to take advantage of the tax benefits for primary residences. It also allows automatic transfer of ownership to the surviving spouse upon the death of the first spouse without court involvement. Transferring ownership of the primary residence to a revocable living trust is also an option. Ownership by the trust also means that the real estate will not go through the probate process and court involvement, but will instead be handled according to your wishes as specified in the trust document.
If you are single, owning the property in your name allows you to take advantage of tax benefits for primary residences. Transferring ownership to a revocable living trust will also allow you to retain the applicable tax benefits with the added benefit of avoiding the probate process.
Use of a Transfer on Death Deed where the owner or owners retain ownership of the primary residence but names a beneficiary or beneficiaries to receive the property upon the death of the owner(s) is another option that may be appropriate. It will also avoid the probate process upon death.
If asset protection is a major concern during your lifetime, certain types of irrevocable trusts are best suited for your needs but may require you to give up some control of the property.
Cabin or Vacation Home
For some families, their cabin or vacation home has not only high monetary value but also significant emotional value. Ownership of a cabin or vacation home by a trust or limited liability company (LLC) can be advantageous because it addresses two main priorities: ease of transfer to the next generation and asset protection.
With a trust or LLC, you are able to establish rules for how the property is to be used and maintained, as well as designate what is to happen to the cabin or vacation home once you pass away. This can be a great solution if you want to ensure that the cabin or vacation home stays in the family for generations with minimal family conflicts.
An additional benefit of having an LLC own your vacation home is that it provides limited liability from outside claims. If a judgment is entered against the LLC, the creditor is limited to the accounts or property owned by the LLC to satisfy the creditor’s claims and cannot look to your personal accounts or property or those of the other members. Also, if a judgment is entered against you or another member for a claim unrelated to the LLC, it will be harder for a creditor to force a sale of the vacation home. This can be incredibly helpful if you wish to pass the vacation home on to the next generation without worrying about the individual financial situation of each new member.
Because rental property is an income stream rather than a residence, asset protection is usually the primary concern. As a landlord and owner of rental property, you face a higher probability of lawsuits arising in connection with the property because the occupants can change over time. Transferring ownership of the rental property to an LLC is a great option. If a renter gets injured on the property, sues the LLC that owns the property, and obtains a judgment that exceeds any property insurance you have, the renter can seek satisfaction of any claims only from the accounts and property owned by the LLC, not from your personal accounts and property or those of any other owners of the LLC.
In addition, ownership by the LLC may protect the rental property from your personal creditors. However, if you are forming a single-member LLC, it is important to have us check state law to make sure creditor protection is available.
Whether you are concerned about your primary residence, family cabin, or rental property, we are here to assist you. Given the various considerations for selecting a form of ownership, it is important to have the right advisors helping you along the way.