Estate Planning Essentials: How Smart Real Estate Titling Can Save You

July 13, 2023

When planning your estate, the way you title your real estate holdings can significantly impact the transfer of your assets after your passing. Key considerations include avoiding probate, minimizing estate taxes and liability protection.

Avoiding Probate

Titling assets correctly can help your heirs avoid probate — a time-consuming and potentially costly court process. Common ways to avoid probate include:

  • Trusts. Assets held in trusts bypass probate. The most common type of trust is a revocable living trust. 
  • Joint Survivorship. When one owner dies, title automatically transfers to the surviving owner. Very common for spouses without trusts.
  • Transfer on Death Instruments (TODI). Not all states recognize this, but states that do (like IL and OH) offer a simple, inexpensive alternative to trusts. Buyer beware, however, as trusts are often a better, more robust solution. 

Estate Tax Considerations

In certain cases, the way you title your property can affect your estate’s tax liability. For example, for states that do not recognize “portability” a couple with simple revocable trusts may want to have real estate titled in only one spouse’s trust to help equalize the value of each respective spouse’s trust share. Doing so can help utilize QTIP provisions that allow couples to “bank” the first spouse’s state estate tax exemption, potentially doubling the total amount exempt from state estate taxes. 

Creditor Protection

Two common methods of achieving some level of creditor protection are limited liability companies (LLCs) and Tenants by the Entirety (TBE). If you own a rental property and create an LLC you should make sure the property is titled in the name of the LLC, otherwise creditor protection may be lost. 

TBE ownership offers joint survivorship with added creditor protections. With TBE, creditors of one spouse cannot claim the property as long as the other spouse is alive. While many states do not recognize TBE ownership, notably, Illinois is one of the few states that allows spousal trusts to hold title as TBE, offering increased flexibility and protection.

Remember, estate planning is a complex process and these are just some considerations. Always seek professional advice when titling real estate.

If you are interested in learning more about titling your real estate properties or any estate planning matter, please reach out to one of Chuhak & Tecson’s experienced estate planning attorneys to discuss how such transactions may be right for you, your family and your business.

Client alert authored by Bryan M. Montana (312 855 6105), principal.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.