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What Makes Up An Estate? A Series-#2- Real Estate

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What Makes Up An Estate? A Series-#2- Real Estate

  1. Real estate often forms a substantial part of your estate. Whether it’s your home, rental properties, or undeveloped land, these assets have both financial and emotional implications for your heirs. Whether it’s your cherished family home, investment properties, or vacant land, these assets hold both financial and emotional value for your heirs. In this article, we delve into the crucial considerations and strategies involved in including real estate within your estate plan. From navigating tax implications to ensuring a smooth transition of these valuable assets, we’ll provide insights to help you make informed decisions about the real estate component of your estate plan.   

Types of Real Estate in Your Estate

        1. Primary Residence: This is your main home where you reside.
  1. Rental Properties: If you own properties that you rent out, they can provide ongoing income for your heirs.
  2. Undeveloped Land: This can be a long-term investment or a place where your heirs can build in the future.

The following is a DRAMATIZATION AND IS NOT AN ACTUAL EVENT: Sarah, a 50-year-old entrepreneur, owns a primary residence and two rental properties. Her will clearly states that her daughter will inherit the family home, while her son will receive the rental properties, owing to his interest in real estate management.

Tax Considerations

Just like securities, real estate has financial consequences associated with ownership, including property levies, potential capital adjustments affecting your net worth, and potential inheritance considerations. When it comes to navigating these complex tax considerations, it’s advisable to seek guidance from an experienced estate planning attorney who can provide specific and tailored information to your situation.

Best Practices in Estate Planning for Real Estate

  1. Clarity in Will or Trust: Clearly specify who will inherit each piece of real estate in your estate.
  2. Consider the Emotional Aspects: Sometimes, the home may have sentimental value for certain family members. Be mindful of this when planning.
  3. Professional Consultation: Tax laws and real estate laws can be complicated. Always seek professional advice to avoid potential pitfalls.

Real Estate and Estate Planning

Keeping or Selling: Making The Decision

One of the biggest questions in estate planning with real estate is whether the property should be kept or sold. This can depend on various factors such as the current market, the beneficiaries’ wishes, and the potential for rental income.

The following is a DRAMATIZATION AND IS NOT AN ACTUAL EVENT: Sarah consults with her children regarding their interest in managing the rental properties. Her son suggests converting one property into a short-term rental, foreseeing the income potential. Sarah decides to include this option in her will.

Joint Ownership

In some cases, multiple beneficiaries may jointly inherit a property. If this is the route you’re considering, ensure you understand the different forms of joint ownership:

  • Joint Tenants with Right of Survivorship: Here, if one owner dies, their share automatically goes to the surviving owners.
  • Tenants in Common: Each owner has a distinct share that can be sold or transferred.
  • Tenancy by the Entirety: This is similar to Joint Tenants but is typically only for married couples.

Advantages and Disadvantages of Types of Joint Ownership in Real Estatewhat makes up an estate plan? a series- 2-real estate

Your choice of holding real estate within your estate plan can greatly affect its overall accessibility, transferability, and potential tax implications.  In the United States, there are several types of joint ownership that you may use for estate planning, each with its own advantages and disadvantages.

Tenancy in Common (TIC)


  • Flexibility: Each owner (tenant) can own a different percentage of the property.
  • Independence: Each tenant in common can sell or transfer their share independently without needing the consent of the other owners.


  • Probate: At the death of one tenant, their share goes to their estate, not automatically to the other owners, which means it has to go through probate
  • Potential Conflict: If one owner wants to sell the property and the others do not, it could result in conflict.

Tax Issues:

  • Each owner can claim deductions such as mortgage interest and property taxes based on their ownership percentage.
  • Capital gains from a sale will also be divided based on ownership percentages.

Joint Tenancy with Right of Survivorship (JTWROS)


  • Automatic Transfer: Upon death, the decedent’s share automatically passes to the surviving joint tenants without the need for probate.
  • Equal Ownership: Each tenant owns an equal share of the property.


  • Loss of Control: You can’t easily leave your share of the property to someone other than the joint tenant when you die.
  • Unilateral Actions: Any joint tenant can sell their share without the permission of the others, though the new owner will become a tenant in common.

Tax Issues:

– Due to the right of survivorship, the whole property will get a step-up in basis upon the death of one owner, potentially reducing capital gains tax if sold.

Tenancy by the Entirety (T by E)

Note: This is only available for married couples in some states.


  • Creditor Protection: In many jurisdictions, creditors of one spouse cannot attach a lien or force the sale of the property.
  • Automatic Right of Survivorship: Like JTWROS, the property automatically passes to the surviving spouse without probate.


  • Limited Control: Neither spouse can dispose of the property without the consent of the other.

Tax Issues:

  • Often treated similarly to JTWROS for tax purposes, but additional protections may be available depending on the state’s laws.

Community Property what makes up an estate plan? a series- real estate-properties and homes

Note: This is only applicable in community property states and generally for married couples.


  • Equal Ownership: Both spouses own an equal share of the property.
  • Step-Up in Basis: Upon the death of one spouse, both halves of the property may receive a step-up in basis, potentially reducing capital gains tax if sold.


  • Limited Control: Both spouses must agree to sell the property, and upon death, the decedent’s half is subject to their will.

Tax Issues:

  • At the death of one spouse, the entire property typically receives a step-up in basis, which can minimize capital gains tax.

Understanding the advantages and disadvantages of these joint ownership types, along with their tax implications, can help you make a more informed decision in your estate planning. Always consult professionals for tailored advice to your specific situation.


Real estate is a component of your estate, it’s crucial to recognize that owning property is not just about possession—it’s about thoughtful management, particularly when considering your long-term estate planning. Whether you own property solely or in joint ownership, each form comes with its own set of advantages and disadvantages, including complex tax implications. Understanding these nuances will not only help you manage your current portfolio more effectively but will also ensure that you’re optimizing the benefits for your heirs. From tenancy in common to joint tenancy, and from community property to tenancy by the entirety, each type of joint ownership has its own implications that need to be considered carefully. Consulting with legal and financial experts can provide you with the personalized advice you need to make the best decisions for your unique situation. Real estate is often one of the most significant assets in one’s estate; therefore, its careful planning should not be overlooked.

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