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.
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.
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 team of experts can help you draft the most effective plan:
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.
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."
Every commercial property owner or investor should have four documents for their first estate planning meeting:
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).
Federal estate tax rate
Individual exemption from federal estate and gift taxes in 2022 (inflation-indexed)
When the current exemption sunsets and gets cut in half
With the necessary documents and relationships in place, multifamily property investors can begin the process, which generally takes place over three or more meetings:
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