Real estate includes not only your primary residence (aka Homestead) but also other real estate like a vacation home or a rental property. The ideal form of ownership for each property depends on the type of real estate that you own. Here, we take a look at the different types of real estate and offer some things to consider regarding the best form of ownership for each.
Primary Residence (aka Homestead)
Because your primary residence receives special tax treatment, you should carefully consider how your home is owned.
In Minnesota, most married couples own their home as Joint Tenants. Owning property as joint tenants will allow for the property to automatically pass to the surviving joint owner upon one owner’s death. This means that if there are surviving joint owners, you do not need probate to transfer the title to the remaining joint owners.
If, on the other hand, you own your home with your spouse as tenants in common, if one owner dies, probate will likely be needed to transfer the interest of the deceased spouse to the surviving spouse. If you are wondering whether you own your home as joint tenants or as tenants in common, you should review your deed. If there is no language on the deed specifying that you own the property as joint tenants, then the presumption in Minnesota is that you own the property as tenants in common.
If you are married, eventually both spouses will die. Upon the death of the surviving spouse, probate is typically needed to transfer the real estate to the next generation (your children). Because of this, transferring ownership to a revocable trust can allow you to avoid probate if both spouses were to die. (Trusts aren’t the only solutions for avoiding probate – Transfer on Death Deeds are another option, but those types of deeds do not change the ownership of the real estate while you are living, and therefore they are not discussed in this post).
If you are single, owning the property in your name allows you to take advantage of tax advantages for primary residences. Upon your death, if you are single and own real estate, probate would likely be needed to transfer the real estate to your heirs. Transferring ownership to a revocable living trust may also allow you to retain the applicable tax benefits with the added benefit of avoiding the probate process. If asset protection is a major concern during your lifetime, certain types of irrevocable trusts are best suited for your needs but may require you to give up some control of the property.
Vacation Home (e.g. Beach Home, Family Cabin, etc.)
For many families, a vacation home (or for many Minnesotans, a cabin) has not only high monetary value but also significant emotional value. Ownership of a vacation home or cabin by a trust or limited liability company (LLC) can be optimal because it addresses two main priorities: ease of transfer to the next generation and asset protection.
With a trust or LLC, you are able to establish a rule book for how the property is to be used and maintained, as well as designate what is to happen to the property after you pass away. This can be a great solution if you want to ensure that the vacation home stays in the family for many generations to come with minimal conflict among family members.
A benefit of having an LLC own your vacation home, rather than your revocable trust, is that it provides limited liability from outside claims. If a judgment is entered against the LLC, the creditor is limited to the accounts or property owned by the LLC to satisfy the creditor’s claims and cannot look to your personal accounts or property or those of the other members. Also, if a judgment is entered against you or another member for a claim unrelated to the LLC, it will be harder for a creditor to force a sale of the vacation home. This can be incredibly helpful if you wish to pass the vacation home on to the next generation without worrying about the individual financial situation of each new member. This becomes even more important if you are renting out your vacation home to individuals outside of your family.
Note: In some states (not in Minnesota currently, but the law could certainly change), a single-member LLC (an LLC in which you are the only member) does not enjoy the same protection from your personal creditors. The rationale of these laws is that your creditors should be able to seek relief through your LLC interests to satisfy their claims because there are no other members that will be negatively impacted by seizure of money and property owned by the LLC.
If the vacation home has been in the family for a long time, it is important to consult with us to determine whether transferring your vacation home to a trust or LLC is right for your family.
Because rental property is an income stream rather than a place to live, asset protection is usually of utmost concern. As a landlord and owner of rental property, you face a higher likelihood of lawsuits arising in connection with the property because the occupants will change over time. Transferring ownership of the rental property to an LLC is typically a good option. If a renter gets injured on the property, sues the LLC that owns the property, and obtains a judgment that exceeds any property insurance you have, the renter can seek satisfaction of any claims only from the accounts and property owned by the LLC and not from your personal accounts and property or those of any other owners of the LLC.
Call Our Office Today
Whether you are concerned about your primary residence, beach house, family cabin, or rental property, we are here to help you with protecting your whatever real estate you own. Given the various considerations for selecting a form of ownership, it is important to have knowledgeable professionals helping you along the way. Give us a call at (952) 658-6503 or send us an e-mail at firstname.lastname@example.org so we can discuss your current and future real estate ventures and the best way to protect them for generations to come.
Zach Wiegand is a Minnesota probate attorney and estate planning attorney and the owner of Gold Leaf Estate Planning, LLC. Gold Leaf Estate Planning is an estate planning law firm that also handles probate and trust administration in Minnesota. We serve the Twin Cities metropolitan area with a focus on estate planning for clients in Burnsville, Eagan, Savage, Prior Lake, Lakeville, Apple Valley, Eden Prairie, Farmington, Rosemount, and the South Metro as well as clients in Woodbury, Lake Elmo, Maplewood, Oakdale, St. Paul and the East Metro. Our firm has offices in both Burnsville and Woodbury (Lake Elmo). The firm also handles probate in Dakota County, Washington County, Scott County, Hennepin County, and Ramsey County and most other counties in the Twin Cities Metro area. Zach has been named a Super Lawyer – Rising Star for 2017, 2018, 2019 and 2020. In addition, Zach is a member of the Society of Financial Service Professionals, the Twin Cities Estate Planning Council, and WealthCounsel – a national organization of estate planning attorneys dedicated to practice excellence. You can contact Zach via e-mail at email@example.com or by calling (952) 658-6503. Gold Leaf Estate Planning is located in Burnsville at 3000 County Road 42 W., Suite 310, Burnsville, MN 55337 and in Woodbury/Lake Elmo at 8653 Eagle Point Boulevard, Lake Elmo, MN 55042.