The best way to own real estate really depends on the type of real estate you own. Is it your primary residence, or investment property such as a vacation home or other rental property? Below, we take a look at the different types of real estate and offer advice about the best form of ownership for each. Austin and Pethick Law Firm has experienced attorneys that can assist in protecting your real estate assets and structuring your ownership.
Your primary residence receives special tax treatment, which is why you should carefully consider how your home is owned. In some states, tenancy by the entirety offers married couples creditor protection from the creditors of one of the spouses, (though there is an exception regarding federal tax liens) while still preserving relevant tax benefits. This also allows automatic transfer of ownership to the surviving spouse upon the death of the other without having to go through probate.
Transferring ownership of the primary residence to a joint revocable trust might be an option if you live in a state that allows the tenancy of the entirety protection to transfer to the joint revocable trust. If the property is owned by a trust, it will not go through the lengthy, expensive and often cumbersome probate process but will be handled according to your wishes in the trust document.
As a general rule, South Carolina will treat a tenancy by the entirety created in another state as a joint tenancy with right of survivorship. Though the preferred method offering the most protection would be the holding title in a Tenancy in Common with an Indestructible Right of Survivorship as recognized in Smith v. Cutler, 623 S.E.2d 644 (2005).
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 might allow you to retain the tax benefits with the added benefit of avoiding the probate process.
Owning a vacation home by a trust or limited liability company (LLC) often 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. You also can designate what happens to the vacation home after your death. This can be a great solution if you want to ensure that the vacation home stays in the family with minimal conflicts.
Having an LLC own your vacation home 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. Conversely, 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.
Talk with us about the various considerations for transferring ownership of your vacation home to a trust of LLC to avoid any unintended tax consequences.
Rental property is considered to be an income stream, not a residence. Most owners have serious concerns about the risks and potential liability involved in owning rental property. Because the occupants change over time, the owner of the property faces a higher probability of lawsuits being filed in connection with the property. Again, this is where LLC ownership might be helpful.
If a renter gets injured on the property, sues the LLC that owns the property and wins a judgment that exceeds property insurance, the renter can seek satisfaction of any claims only from the accounts and property owned by the LLC, not from the personal accounts and property of the owners of the LLC. Similarly, the LLC may protect the rental property from the owners’ personal creditors.
We are Right There with You
You’ve worked hard to acquire your various real estate holdings. We are here to assist you with protecting your assets. There are many considerations concerning real estate ownership. Know your options, call Austin and Pethick Law Firm. We are experienced in the areas of estate planning, asset protection and tax all of which carry significant impact on your real estate.