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Estate planning strategies for multifamily property owners

With the right team and preparation, property owners and investors can successfully hand down their portfolio.


Deciding how your assets—including multifamily rental properties—will be passed on may seem too complex or distressing to delve into. But it’s important that you start planning, sooner than later.

“Don’t let the fear of an unknown future keep you from taking action now,” said Emily Brunner, Executive Director and Wealth Advisor, J.P. Morgan Private Bank.

There are distinct benefits and challenges of real estate in estate planning, so it’s crucial that owners and investors start planning early and revisit their plans often.

 

Real estate’s role in estate planning

Aside from holding a special place in your family’s legacy, apartment buildings and other commercial real estate can be a uniquely beneficial asset for gift and estate tax purposes.

“There may be a chance to pass down properties to children at discounted values that take into account shared decision-making inherent in fractionalized ownership. Targeted giving during times of depressed asset value can also be effective,” Brunner said.

Once the asset is in the children’s hands, growth and income isn’t subject to estate tax at the parents’ level. “Real estate is a gift of wealth-building opportunity that isn’t available to parents whose primary income derives from wages,” she said.

 

How to prepare for estate planning

Estate planning takes time, Brunner said, and the best results happen when you start early and assess your plan every few years.

As you begin the process, you should focus on three key areas: building the right team, communicating with your family, and collecting or creating important documents.

 

A collaborative team

A team of experts can help you draft the most effective plan:

  • Wealth and financial advisors can help you gather the necessary asset and balance sheet information.
  • Trust and estates attorneys can offer insights on the estate and gift tax ramifications of assets.
  • Accountants can help you understand the income, estate and gift tax features of assets.

It’s important these professionals work together so that they each know all the critical elements. A lawyer, for instance, needs to look at the legal aspects of your estate plan and connect them to your portfolio and title structures. If your team isn’t making those connections, implementing changes later could result in you creating asset dispositions that supersede the will, unless your team is connecting.

 

Healthy family dynamics

Communication is key—the more issues you can discuss and resolve during the planning process, the better.

If there are already challenging family dynamics, you may want to include a psychologist or other mediator in the process.

The children may or may not like decisions the parents make, but at least they can have an understanding of why those decisions were made. No business owner wants the way they structure their plan to cause a rift among their children.

Emily Brunner, Executive Director and Wealth Advisor, J.P. Morgan Private Bank

Important estate planning documents

Every commercial property owner or investor should have four documents for their first estate planning meeting:

  1. Existing wills
  2. Revocable trust
  3. Living will and healthcare proxy
  4. Power of attorney

Other helpful documents include balance sheets, documentation of property ownership, gift tax returns, life insurance information, any prior estate planning documents, and agreements with the properties’ co-owners (including buy/sell agreements).

40%

 Federal estate tax rate

$12.06M

Individual exemption from federal estate and gift taxes in 2022 (inflation-indexed)

2025

When the current exemption sunsets and gets cut in half

Source: irs.gov

 

The estate planning process

With the necessary documents and relationships in place, multifamily property investors can begin the process, which generally takes place over three or more meetings:

  • Meeting 1: The estate planner will gather as much information as possible. They’ll get to know your family and review your goals, relevant documents and prior estate plans, if applicable.
  • Meeting 2: From there, the planner will offer notes and observations and suggest proactive estate planning strategies that might be suitable for you.
  • Meeting 3+: It’s time to refine your plan. Your estate planner will work with your team to advise on execution, monitoring and ongoing transactional requirements. Remember to revisit your plan regularly, but especially after asset changes or major life events.

 

The bottom line

  • Estate taxes aren’t the same as income taxes. Estate taxes shouldn’t come as a surprise. The current federal estate tax is 40% of the value of your net worth and due within nine months of the date of death. (Spouses almost always defer the tax payable until the second death.) As you draft your estate plan, make sure you have an estimate of your estate tax and a plan to pay for it.
  • Planning—or not planning—can impact family relationships. A professional team can help you craft your estate plan and avoid creating or intensifying difficult relationships. “It’s your financial and legal advisors’ job to tell you how other families have dealt with these issues, so you can filter it through the lens of your own family and do what works for you,” Brunner said.
  • Estate planning is an ongoing process. Initial meetings lay the groundwork, but you should revisit the plan after a marriage, divorce, new child or other major life event and after a purchase, sale or change in net worth or liquidity.

We’re here to help

JPMorgan Chase’s Commercial Real Estate team is here to help you navigate the changing landscape for success—both today and in the future.

© 2022 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC. Visit jpmorgan.com/cb-disclaimer for disclosures and disclaimers related to this content.

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