Legal Strategies for Building Generational Wealth in Real Estate

Real estate is one of the most common ways families build wealth to pass to the next generation. It can produce income and appreciate over time, but holding and transferring it well takes legal planning.

The role of legal structures

Limited liability companies (LLCs)

An LLC can separate each property's liabilities from your personal assets, provided it's properly formed, adequately insured and run as a separate business. An operating agreement can also set out how interests pass to the next generation. See business law.

Trusts

Trusts let families decide how and when property passes to heirs, can avoid probate and, in some cases, help with estate taxes. See estate planning.

Family partnerships

Family members can pool resources and share responsibilities. Ownership can be transferred gradually to younger family members over time.

Tax considerations

Capital gains

Selling property can trigger capital gains tax. If a home was your primary residence for two of the last five years, you may be able to exclude up to $250,000 of gain ($500,000 for married couples filing jointly). Inherited property generally receives a "stepped-up" basis, which is an important planning consideration.

Income property

Rental owners may be able to deduct mortgage interest, property taxes, depreciation and operating expenses. Work with a tax professional.

Estate taxes

Illinois has its own estate tax, with a much lower threshold than the federal exemption, so Illinois families should plan even if federal estate tax isn't a concern.

Estate planning essentials

• A will, and often a living trust, so property passes as you intend
• Powers of attorney for property and health care, so someone can act if you can't
• Periodic reviews after marriages, births, divorces, moves or new purchases

Preparing the next generation

Wealth lasts longer when heirs understand it. Hold family meetings about goals and responsibilities, share how the properties are managed, and connect younger family members with the professionals who advise you.

Final thoughts

The right structures, tax planning and estate plan help families build wealth in real estate and pass it on smoothly. See estate planning or schedule a consultation.

By Attorney Shara Kamal. General information for Illinois readers; not legal advice for a specific situation.