New York Estate Planning for Real Property – Trusts and LLCs

No matter the size of your estate, it is important to have an estate plan in place.  Setting up a trust or a Limited Liability Company are the most widely used estate planning techniques that many people choose, especially if they own real estate. Since real estate is usually the largest asset a person owns, it makes sense to protect that asset and preserve it for your heirs and beneficiaries.

Estate Planning Strategies

Settling up a Limited Liability Company gives a family the benefit of managing the property together while being able to apply a discount of about 25% on the value of the property upon the death of the person who contributed the property to the partnership. The discount is accepted by the IRS due to the lack of marketability and control that an LLC brings to real property. An additional benefit of an LLC is the protection is provides to your other property from creditors of the property in the LLC.

Using a trust, gives you the flexibility to give your assets to whom you want and save your heirs money. The terms of your trust dictate how and when your beneficiaries receive the real estate and any income generated from it. When you set up a trust, you transfer your assets to the trust including title to your real estate holdings.  After you pass away, the trust assets pass outside your estate to your heirs and beneficiaries tax free as long as the value is within the federal estate tax exemption. Your family benefits from the estate tax savings and the protection of the assets against your creditors. Through December 31, 2012, the Federal estate tax exemption is $5,120,000, although it is set to decrease to $1,000,000 on January 1, 2013.

There are two kinds of trusts that most people use. One is an irrevocable trust, which cannot be changed or revoked. A revocable trust allows you to manage your assets while you are alive and make changes or revoke the trust if you choose.

Other estate planning strategies include gifting your assets to your loved ones while you are alive reducing the value of your estate as part of your estate planning.  The annual gift tax is $13,000 or $26,000 for a married couple. Gifts can be made to as many persons as you want. So if you have two children and you are married, you and your spouse can gift your children a total of  $52,000. If the value of your estate exceeds the estate tax exemption, you can also purchase a life insurance policy for your beneficiaries that they can use to pay any estate taxes that they may owe on their inheritance after your death. Having an LLC confers an additional advantage of passing discounted value during your lifetime, because transferring a $13,000 discounted interest has a similar effect to transferring about $16,000 in undiscounted interest.

Assets that are held jointly such as bank accounts, stocks or other financial accounts or real estate not placed in a trust pass automatically to the surviving joint owner. Assets with designated beneficiaries transfer to the named beneficiary after your death. So if you own a life insurance policy, the beneficiary named in the policy automatically receives the proceeds after your death. Life insurance proceeds are exempt from estate taxes. Assets held jointly or that designate beneficiaries are not subject to a New York probate proceeding.

Your New York probate and estate attorney can design estate planning strategies that meet your financial needs and help you maximize the value of your real estate and other assets so that your heirs and beneficiaries will inherit more of your assets and reduce their estate taxes.

If you wish to speak to a New York estate attorney, call the Law Offices of Albert Goodwin at (212) 233-1233.