High-net-worth families often hold significant real estate. This article reviews strategies for incorporating these assets into a comprehensive estate plan.

Strategies for Including Real Estate in Your Estate Plan

Real estate often represents both significant financial value and personal meaning within a family. Homes, vacation properties, rental units, and investment holdings can play an important role in legacy planning. Potential benefits of incorporating these assets in your estate plan include:

• Potential probate avoidance in certain cases
• More predictable transfer of ownership
• Opportunities for tax efficiencies
• Liquidity planning for estate expenses
• Philanthropic giving through charitable structures

Each estate is unique, and the right approach depends on your family dynamics, goals, and state-specific laws. Working with a team of professionals, including a financial planner, an advisor, and an estate planning attorney, could be essential to determine how real estate may fit into your broader plan.

Common Mistakes When Planning for Real Estate

Some families delay decisions about how to address real estate in their estate plans, assuming those assets will naturally pass to heirs without complications. This can create challenges such as:

• Titling that inadvertently triggers probate
• Triggering probate rules in multiple states, due to property ownership
• Retaining too much control over transferred assets, which can bring them back into the taxable estate
• Overlooking liquidity needs to pay estate taxes or expenses, forcing the sale of properties at unfavorable times
• Assuming basis step-ups apply automatically in certain entity structures without elections in place
• Using strategies such as Transfer-on-Death deeds without verifying state requirements

These pitfalls highlight the importance of proactively addressing real estate within a coordinated estate planning strategy.

Several Key Considerations When Including Real Estate in an Estate Plan 

Strategies for Including Real Estate in an Estate Plan

Revocable Trusts and Titling Decisions

A revocable trust can serve as the record owner of a property, helping streamline management in the event of incapacity and allowing the property to transfer outside probate. For married couples, decisions around how property is titled are particularly important. Tenancy by the entirety, for example, may offer creditor protections and survivorship rights in some states, but moving property into a trust or LLC may change those protections. Knowing how state law applies can be critical before making changes to ownership structures.

Using LLCs or Family Limited Partnerships

Investment and rental properties often benefit from being placed in an LLC or Family Limited Partnership (FLP). These entities can help centralize liability management, provide governance structures for succession, and simplify lifetime gifting by transferring membership interests instead of fractional deeds. However, families should avoid retaining excessive control, as doing so can risk IRS challenges under Section 2036, potentially pulling assets back into the estate.

Probate-Avoidance Deeds

Some states allow Transfer-on-Death (TOD) deeds, which transfer property outside probate upon death while retaining full control during life. Enhanced life-estate or “Lady Bird” deeds are available in a limited number of jurisdictions. With this arrangement, the owner keeps complete rights to the property while alive, including the ability to sell, mortgage, or change beneficiaries without the consent of those named to inherit. At death, the property automatically transfers to the named beneficiaries, bypassing probate.

While these tools can be effective, they are highly state-specific, and missteps in recording requirements may invalidate their intended effect.

Qualified Personal Residence Trusts (QPRTs)

A QPRT allows you to transfer a primary residence or vacation property to heirs at a discounted gift value, while retaining the right to live there for a set term. If you outlive the term, the property passes to beneficiaries at the previously discounted value. If you do not, the property reverts to your estate. Post-term, if you wish to continue living in the residence, rent must be paid to heirs at fair market value, creating additional planning considerations.

Addressing Capital Gains and Basis

Real estate often carries significant unrealized gains. Heirs typically receive a step-up in basis at death, which can reduce embedded gains. When real estate is held in an entity such as an LLC or partnership, the step-up usually applies only to the ownership interest, not the property inside the entity. In these cases, a Section 754 election may be needed to adjust the basis of the underlying real estate as well.

During life, some owners use Section 1031 exchanges to defer gains by reinvesting sale proceeds into another qualifying property. Delaware Statutory Trusts can sometimes serve as replacement properties in these exchanges, allowing investors to diversify or reduce direct management responsibilities, though these structures involve added complexity and considerations.

Charitable Strategies

Families who are charitably inclined may consider a Charitable Remainder Trust (CRT) funded with appreciated real estate. The CRT can sell the property without immediate capital gains recognition and provide an income stream for a period of years or for life, with the remainder going to charity.

Conservation easements may also be used for tax benefits and land preservation, though recent IRS restrictions limit deductions in certain syndicated transactions.

Planning for Liquidity Needs

For estates subject to federal estate tax, liquidity planning can be essential to cover taxes, debts, and equalization among heirs. Without adequate liquidity, families may be forced to sell real estate under pressure. Tools such as life insurance owned by an Irrevocable Life Insurance Trust (ILIT) or carefully arranged credit facilities can provide options to meet these obligations.

The Role of an Advisor in Coordinating Your Estate Team

Real estate planning touches on multiple areas of law, taxation, and family governance. A financial advisor can help model liquidity needs, analyze ownership structures, and work alongside your attorney and tax professionals to align strategies with your broader wealth goals. Coordination across your professional team helps ensure that decisions around real estate integrate effectively with investment planning, tax considerations, and the legacy you want to leave for future generations.

Contact an advisor to start the conversation.

DISCLOSURES

• Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
• EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission, nor does it indicate that the advisor has attained a particular level of skill or ability.
• Hiring a qualified advisor and/or financial planner does not guarantee investment success and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made so that any direct or implied results or projections being represented here will be met or sustained.
• The need for a financial advisor or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. There is no guarantee or guarantee that the services offered by EP Wealth Advisors, LLC will satisfy your specific financial services requirements. Services offered by other advisors may align more to your specific needs.
• Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
• EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. All expressions of option are subject to change without notice.
• The content of this report is believed to be accurate as of the date of publication and cannot and does not accurately forecast future economic, market, or financial conditions, including changes to retirement benefits, social security, and/or Medicare. For this reason, any subsequent changes, and/or that occur after the publication of this presentation may cause the analysis encompassed herein to become inaccurate. Any references to future market or economic forecasts are based on hypothetical assumptions that may never come to pass.
• All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment strategy will be suitable or profitable for a client’s portfolio. The risk of loss can never be eliminated even if working with a professional.
• Please consult with a CPA, tax professional, and/or attorney regarding your specific situation before implementing any of the strategies referenced directly or indirectly herein.