Owning rental property in Los Angeles County can be a valuable source of income and a significant part of your estate. But it also creates questions that other assets do not. Who will manage the property if you become unable to do so? What happens to the tenants and rental income after your death? Will your beneficiaries keep the property or sell it?
Consider Whether a Living Trust Fits Your Plan
A revocable living trust can be an effective way to incorporate rental property into an estate plan. When real estate is properly transferred to the trust, the successor trustee can step in to manage the property according to the trust instructions if the owner becomes incapacitated or dies.
This can be particularly useful with income-producing property. Rent still needs to be collected, bills and property expenses need to be paid, and tenants may need to be contacted. A trust can provide a framework for continuing those responsibilities without waiting for a probate proceeding to determine who has authority over the property.
However, creating the trust alone is not enough. The property must be properly connected to the estate plan, which may require transferring title to the trust. If the rental is owned through an LLC or another business entity, the planning may instead involve the owner’s interest in that entity.
Decide What Should Happen to the Property
Rental property does not necessarily have to be sold when its owner dies. Some owners want their children or other beneficiaries to continue owning it as an investment, while others would prefer to sell the property and distribute the proceeds.
If multiple beneficiaries will inherit the property, consider how decisions will be made. One beneficiary may want to keep the rental, while another would prefer cash. They may also disagree about repairs, management, tenants, or when to sell.
Clear trust instructions can address how the property should be managed or distributed and give the trustee guidance when those decisions arise.
Plan for Property Management
Estate planning for rental property owners should account for more than ownership. It should also address who can step in when the owner is unable to manage the property.
If you personally handle rent collection, repairs, leases, insurance, or communications with tenants, your successor may need access to that information quickly. Keeping organized records and selecting someone capable of overseeing the property can help prevent a management gap.
Owners who use a property management company should also make sure their estate-planning documents and records identify the company and provide information about the management arrangement.
Pay Attention to California Property Tax Rules
Property taxes deserve special attention when California real estate passes to the next generation. Under Proposition 19, the previous parent-child reassessment rules changed significantly. The current exclusion generally applies to transfers of a family home that becomes the eligible child’s or grandchild’s principal residence, subject to additional requirements and value limitations.
That distinction is particularly important for a property held strictly as a rental. Owners should not assume that children who inherit a Los Angeles rental property will automatically retain the owner’s existing property tax assessment. A reassessment could affect the cost of holding the property and, in turn, whether keeping it makes financial sense.
Transferring rental property into a revocable living trust during the owner’s lifetime generally does not trigger reassessment. However, placing the property in a trust does not shield it from reassessment when the owner dies. Whether the property is reassessed will depend on the transfer and whether an exclusion applies.
Make Your Rental Property Part of the Plan
A rental property can represent years of investment and substantial value, so it should not be treated as an afterthought in an estate plan. The right approach depends on how the property is owned, who should eventually receive it, and what you want your beneficiaries to do with it.
JPS Law Offices helps individuals and families in Burbank, Los Angeles County, and throughout California create estate plans that account for real estate and other significant assets. If you own rental property, contact JPS Law Offices to discuss how it fits into your overall estate plan.
