What happens to your rental real estate when you pass away? The answer depends on how you own it. Investment properties can move through probate, pass to a surviving co-owner, go to a named beneficiary, or remain in a trust. Each option carries its own set of legal procedures, tax implications, and consequences for your loved ones.

Without thoughtful estate planning, your properties may end up stuck in probate court, creating confusion, delays, and unnecessary expenses for your family. Right now, you can take the necessary steps to avoid those complications. By making intentional choices, you ensure your real estate continues to support your loved ones the way you intended.

There are 11 effective ways to transfer rental property to your heirs, avoid unnecessary costs, and stay aligned with your long-term goals. These strategies are especially relevant for those focused on estate planning for rental property owners and seeking long-term legacy planning for landlords.

Some strategies work best when combined, creating a powerful and flexible estate plan that’s built to last.

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Key Takeaways

• Real estate investments don’t automatically pass to your loved ones. You need the right type of trust in place.
• Property titled solely in your name can trigger multiple probate proceedings and costly delays.
• Using tools like living trusts, LLCs, and beneficiary designations can help your beneficiaries privately and efficiently inherit real estate.
• The way your real estate is structured today will shape how smoothly it supports your family in the future.
• A well-planned estate ensures your properties remain a source of security—not stress—for future generations.

1. Joint Tenancy with Right of Survivorship

Joint tenancy is a widely used method among spouses or close family members. It grants equal property ownership to two or more individuals. When one owner dies, the survivor automatically inherits full ownership.

• Bypasses probate, simplifying the short-term transition.
• Fails to address long-term estate planning; probate becomes inevitable when the second owner passes.
• Disinherits other heirs unintentionally and forfeits the step-up in basis, creating capital gains tax exposure.

This method offers simplicity now, but creates complications later.

2. Community Property with Right of Survivorship

In states like California and Texas, married couples can hold real estate as community property with survivorship rights. Upon one spouse’s death, the other assumes full ownership.

• Skips probate, offering convenience.
• Exposes property to the creditors of either spouse.
• Eliminates the step-up in basis, increasing future tax liability.

While convenient, this method introduces financial and tax risks that may outweigh its ease.

3. Tenancy by the Entirety

This ownership form, exclusive to married couples in certain states, provides joint control and a degree of asset protection.

• Avoids probate and offers a layer of shielding from individual creditors.
• Still vulnerable to tax disadvantages and eventual probate upon the second death.

Tenancy by the entirety offers benefits but lacks comprehensive estate protection.

4. Transfer on Death (TOD) Deed

A TOD deed, available in over 30 states, allows you to name a beneficiary who inherits the property directly upon your death.

• Skips probate, much like a payable-on-death bank account.
• Lenders may block financing or refinancing because future ownership interests are already recorded.
• Not available in all jurisdictions, adding legal uncertainty.

This tool provides a quick fix, but not a durable strategy.

5. Lady Bird Deed (Enhanced Life Estate Deed)

In select states like Florida, Texas, and Michigan, property owners use this deed to retain full control during life while assigning a beneficiary at death.

• Avoids probate while maintaining control.
• Encumbers the property with future interest. If you need to refinance or sell the property, the future interest holder may need to approve the transaction.
• Triggers beneficiary consent for significant financial transactions.

This niche strategy supports specific planning goals but lacks flexibility.

6. Life Estate

This approach allows you to live on the property while transferring the remainder interest to your heirs.

• Reduces the taxable estate, depending on your situation.
• Removes flexibility and is irrevocable.
• Strips away the step-up in basis, leaving heirs exposed to capital gains tax.

A life estate may offer strategic advantages in narrow scenarios but imposes serious restrictions.

7. Outright Gift

Transferring property during your lifetime can reduce your estate size, but it comes with consequences.

• Lowers estate tax exposure, especially if exemption thresholds change.
• Eliminates your control, making you reliant on recipients.
• Triggers potential gift taxes and forfeits the step-up in basis.

While generous in intention, this method can create long-term tax burdens for your heirs.

8. Do Nothing (Intestate)

If you pass away without a will or trust, your estate enters intestacy. The state decides who receives your property.

• Requires probate in every state where you own real estate.
• Drains your estate with legal fees—California probate alone can top $20,000.
• Surrenders all control over your estate’s outcome.

This default route leads to high costs, legal delays, and family frustration.

9. Use a Will

Drafting a will gives you the power to direct who inherits your assets.

• Clarifies your wishes, helping to prevent disputes.
• Requires probate, exposing your heirs to court proceedings, delays, and fees.
• Triggers multiple probates if you own properties across state lines.

Although better than nothing, a will alone cannot protect your estate from legal and financial inefficiencies.

10. Living Trust

A revocable living trust serves as the cornerstone of effective estate planning.

• Completely avoids probate, even across multiple states.
• Maintains full control during your life and allows easy updates.
• Preserves the step-up in basis, helping heirs avoid capital gains taxes.
• Empowers your trustee to administer your estate efficiently and privately.

This tool offers the best combination of control, privacy, and tax efficiency for landlords and owners of real estate assets.

11. Living Trust + LLCs (Best Combo)

Anderson Advisors recommends combining a living trust with limited liability companies (LLC) to maximize protection and flexibility.

• LLCs isolate liability, so issues with one property don’t jeopardize your entire portfolio.
• LLCs remain intact after death, transferring ownership through the trust without disrupting property management or affecting rental property and trust arrangements.
• Because the LLC continues after your death, it also maintains existing lease agreements, ensuring uninterrupted operations.
• This structure also protects your rental income stream, allowing trustees to manage distributions or reinvest returns for future generations.
• Avoids probate, preserves tax benefits, and enables multigenerational control.

This strategy builds true legacy planning—designed not just to pass on assets, but to protect and sustain them across generations.

The Smart Move: Avoid the Mess, Preserve the Wealth

Many estate planning strategies exist—but most create more problems than they solve. Whether it’s probate costs, tax exposure, or lack of control, the risks are real.

What is the best estate plan for real estate investors? A combination of a living trust paired with an LLC.

This solution keeps your properties protected, your wishes honored, and your family out of court.

Secure your legacy, safeguard your personal assets, and achieve true peace of mind with a plan tailored to your needs.

Schedule your free 45-minute Strategy Session with an Anderson Advisor today. Our team will help you design a customized estate and tax planning strategy that protects your real estate, preserves your rental income, and ensures a smooth transition for your heirs.

Click here to book your free session