Estate planning is vital for anyone with significant assets – most of you already know this. But it comes with a variety of considerations and often involves a multi-pronged approach to ensure every aspect of your estate plan furthers your goals for your family and your business and is aligned with your core values.

This can be especially true for real estate investors. Estate planning which encompasses a considerable real estate portfolio has its own unique aspects – and pitfalls.

Avoiding those pitfalls while devising a comprehensive estate plan will require the input of expert professionals – you will want to consult:

• Your virtual CFO, CPA, or other trusted financial advisor,
• Your estate attorney, and
• Your real estate attorney

Together, these advisors can guide you toward the best way – for you and your family – to protect your heirs and your assets as you would like them to be.

One significant potential pitfall you’ll want to ensure your heirs won’t have to deal with if your assets are over-concentrated in real estate holdings is:

Ensuring Liquidity

Please don’t leave your heirs with a potential tax bill they can’t pay with the cash they have on hand, either from their own assets or your estate.

Ensure your assets have sufficient diversification and your estate plan is arranged to avoid this situation.

Arrange liquidity protection for your family now, before they, amid their grief, have the unwelcome surprise of receiving a whopping tax bill on an estate with high-value assets but insufficient cash to pay the tax liabilities.

LLCs – Protection for Yourself, Your Assets, and Your Heirs

We strongly recommend that real estate investors place each separate property within a dedicated LLC. This provides protection for your other assets against potential liability claims brought against any given property in your portfolio.

When you pass the LLCs to your heirs, that same protection goes along with them, ensuring their other assets remain safe from such potential claims.

Basic Components of Estate Planning

Any good estate plan will be comprised of certain non-variables.

As a real estate investor, you will likely need:

• A will
• Powers of attorney (POAs), both durable (usually for your spouse, but you can choose someone else you trust), and medical (ditto)
• A trust, or more than one – you may already have a real estate investment trust set up but ask your vCFO and your estate and real estate attorneys whether using an irrevocable grantor trust would be a good idea

Trusts

An essential feature of trusts is that, in most cases, the assets they hold do not have to go through the probate process before passing to the trust’s designated beneficiaries, unlike assets inherited through your will. This saves your heirs time and money, which can be a real benefit to grieving families.

However, it’s essential to understand that in most cases, trust-held assets, unlike assets inherited via your will, receive no step-up in basis – this means that potential tax liabilities to your heirs and beneficiaries would be based upon the assets’ value at the time they are placed in the trust, not their value at the time of your death. Assets left to your heirs via your will do receive the step-up in basis; therefore, there is the potential to avoid paying tax on significant capital gains.

One potentially mitigating factor is that with an irrevocable trust, you can retain the right to swap assets in and out of the trust so long as they are of equivalent current value. That means you can remove a long-held asset that has appreciated significantly over time from the trust and replace it with an asset of equivalent value that has appreciated less.

Consult with your advisors to ensure that the choices you make will best benefit your family and protect the value of your assets on their behalf.

Other Considerations

At RFG, we strongly recommend that if your estate’s value is more than ~$14 million, you take advantage of the estate and gift tax exemptions at their current level, as provided for in the 2017 Tax Cuts and Jobs Act (TJCA). While the exemption level for 2025 has yet to be announced, for 2024, it is $13.61 million per individual and $26.22 million for married joint filers.

This provision of the TCJA expires on December 31, 2025, absent Congressional action to extend it, which remains an open question. As of January 1, 2026, the exemption will revert to its pre-TCJA level, adjusted for inflation, and is expected to be ~$7 million for individuals and ~$14 million for married joint filers.

You can gift portions of your assets tax-free during your lifetime, removing them from your taxable estate. The IRS has confirmed that gifts made up to the highest amount of the exclusion (which will likely be increasing in 2025) – there will be no tax consequences since the exclusion level used will be the law when the gifts are made.

Of concern for real estate investors, too, is the potential use, when making gifts to your heirs, of the IRS’ allowable valuation discounts on assets gifted for “lack of control” and “lack of marketability.” These should be discussed in depth with your advisors, as the discounts can be as much as 30% to 40% of the assets’ value and can provide your heirs with significant tax savings – if they are correctly applied and the gifts appropriately structured to take advantage of them.

We cannot recommend highly enough that you take advantage of your trusted advisors — your virtual CFO and your estate and real estate attorneys.

Your virtual CFO or other trusted financial and estate advisor knows you, your assets, your family, and your financial situation. She can help you determine the best plan for you.

Because your family and your goals, your situation, and your dreams for your legacy are as unique as you are, the virtual CFOs at RFG don’t just know this – we celebrate it! Our solutions are bespoke and tailored to fit your needs, goals, dreams, and your family’s welfare.

We are experts and experienced advisors for real estate investors. If you have any questions about how to plan for the disposition of your real estate to your heirs, we invite you to consult with us.

Please click here to email us directly – at RFG, helping you is what we are all about!

Until next Wednesday –

Peace,

Eric