Real estate trust for rental property

Real estate trusts are a way to house rental properties other then owning them as an company or individual. Trusts usually serve estate planning purposes to avoid estate taxes and probate and keep rental property within the family.

There are 2 types of real estate trusts for rental property: revocable and irrevocable. In both cases, rental property is transferred from the original owner (the grantor) into a trust, but the control that the grantor has is different.

A revocable trust allows the grantor to make changes to the trust during the grantor’s lifetime, to directly control and manage the assets in the trust, and to terminate the trust. However, once the grantor dies, a revocable trust becomes irrevocable.

In an irrevocable trust, the assets are overseen and managed by a trustee, and the grantor no longer has control over the trust assets. Instead, the trustee manages the assets according to the instructions in the trust. Upon the grantor’s death, assets are distributed by the trustee according to the trust instructions.

Pros of Creating a Real Estate Trust

·       After a trust is created, there are no recurring fees to maintain the trust, as there are with an LLC.

·       A real estate trust may be a good estate planning option for investors seeking to avoid estate taxes and pass along property to heirs.

·       A trust avoids a lengthy probate process because it, rather than an individual, has ownership rights to the rental property held in the trust.

·       Real estate trusts also may be used by multiple owners of a rental property as a way to document ownership interests and relationships.

·       Assets held in a trust are not treated as part of the grantor’s personal assets, which may help to lower an individual’s tax liability.

·       Trusts may provide some anonymity, although it is becoming increasingly difficult to do so when deeds and tax information are available online from counties.

Cons of Creating a Real Estate Trust

·       Because a trust is not a business entity like an LLC, a trust does not protect other business and personal assets in the event of a lawsuit or creditor claim.

·       A trust also may be more complicated and expensive to set up compared to a will or an LLC, depending on the grantor’s personal situation and assets being transferred.

·       Creating a will may still be required to address property that is not held in a trust.