Welcome to this essential guide from The Stejkowski Law Firm, LLC. Whether you’re purchasing your first home, investing in rental properties, or expanding your real estate portfolio, acquiring real estate is a major life event—and one that should trigger an immediate review of your estate plan.
Far too often, individuals purchase property but forget to update their estate planning documents accordingly. This oversight can lead to unintended consequences, including costly probate proceedings, unclear ownership rights, and increased tax liabilities. In this article, we’ll explore why updating your estate plan after acquiring real estate is a smart move, and how doing so can protect your legacy, your loved ones, and your investment.
Why Real Estate Ownership Impacts Your Estate Plan
When you acquire real estate, you’re not just buying property—you’re also adding a significant asset to your estate. How that asset is titled, managed, and transferred can affect everything from your estate tax exposure to how efficiently your heirs inherit it.
Failing to reflect new real estate in your estate plan could mean:
- The property is subject to probate.
- It’s distributed contrary to your wishes.
- It lacks proper protection from creditors or lawsuits.
- It creates confusion or disputes among heirs.
Estate planning is not a one-time event—it’s an ongoing process. Major life changes, like buying property, should always trigger a comprehensive review and update.
Key Ways to Incorporate Real Estate into Your Estate Plan
1. Add Property to Your Will or Trust
If you’ve purchased real estate and your estate plan includes a Last Will and Testament, you’ll want to ensure the property is explicitly mentioned. However, keep in mind that wills go through probate, which can be time-consuming and costly, especially in Illinois. You can expect an Illinois probate to cost thousands of dollars and take 6-12 months to resolve.
A more streamlined approach is to place real estate into a revocable living trust. This allows the property to bypass probate, ensuring faster and more private distribution to your beneficiaries. Additionally, a trust allows you to appoint a successor trustee to manage the property if you become incapacitated. Sometimes lenders will not allow you to have the property deeded directly into your existing trust when you buy a home, but we can help provide solutions for this issue after you buy the house to plug that potentially expensive gap in your plan.
2. Consider a Transfer on Death Instrument (TODI)
If you’re seeking a simple, cost-effective way to pass real estate to a loved one without involving a trust, a Transfer on Death Instrument (TODI) may be the right fit. This legal tool allows you to name a beneficiary who will automatically inherit the property upon your death, avoiding probate.
However, TODIs only apply to real estate and don’t offer protection in the event of incapacity, which is why they work best in limited scenarios. They also work best when you have a small number of heirs – one is best! – who all get along, because any heir who disagrees with how to deal with a property they inherit can lead to disputes and major problems.
3. Title Property in an LLC (For Investment or Commercial Real Estate)
If you’ve purchased real estate for business or investment purposes, placing the property into a Limited Liability Company (LLC) can offer valuable liability protection and estate planning advantages. LLC membership interests can be transferred through your estate plan, often avoiding probate and preserving your privacy.
This approach also separates your personal assets from your business holdings, shielding you from potential lawsuits or debts tied to the property.
4. Update Powers of Attorney and Healthcare Directives
Any time you acquire a major asset like real estate, you should also revisit your powers of attorney—both financial and healthcare. This ensures that someone you trust is authorized to manage your property and make decisions on your behalf if you become incapacitated.
Failing to update these documents could leave your new property unmanaged in the event of an emergency.
The Risks of Not Updating Your Estate Plan
When new property is left out of your estate plan, it can create avoidable legal and financial complications for your heirs. These include:
- Intestate succession: If your plan doesn’t cover the property, it may be distributed under state law, not according to your wishes.
- Increased costs from probate: Unplanned assets add time and expense to the probate process.
- Family disputes: When intentions aren’t clearly laid out, misunderstandings and disputes can arise among loved ones.
An up-to-date estate plan ensures that your new property is accounted for, protected, and passed on in a way that reflects your goals.
Work With an Experienced Estate Planning Attorney
Real estate is one of the most valuable and impactful assets in your estate. Whether it’s your family home, a vacation property, or a growing investment portfolio, incorporating it into your estate plan is crucial for long-term peace of mind.
At The Stejkowski Law Firm, LLC, we understand the nuances of estate planning for real estate owners because of our decades of experience in real estate transactions. We’ll work with you to review your current plan, identify any gaps, and make strategic updates that protect your property, minimize taxes, and ensure a smooth transition for your loved ones.
Final Thoughts
Buying real estate is a significant milestone—but it shouldn’t be the end of the story. Updating your estate plan to reflect new property acquisitions ensures your investment is protected and distributed according to your wishes.
Whether new to estate planning or looking to revise an existing plan, The Stejkowski Law Firm, LLC is here to help. Contact us today to schedule a consultation and take the next step in safeguarding your legacy.
