Legal Strategy forReal Estate Investors

Each investment property should be held in a separate LLC for liability protection. The LLCs are owned by a holding company LLC or trust. Use a revocable living trust as the top-level entity to avoid probate. For properties in multiple states, consider a series LLC (valid in Texas) to reduce filing requirements. Include clear succession provisions for who manages the properties and receives rental income.

Yes. A 1031 exchange defers capital gains tax, but the deferred gain transfers to your heirs as part of their cost basis under current law. However, if you hold the replacement property until death, your heirs receive a stepped-up basis — effectively eliminating the deferred capital gains tax permanently. This makes 1031 exchanges one of the most powerful estate planning tools for real estate investors.

Options include: annual gifting of LLC membership interests (up to $18,000/year per child), using a GRAT to transfer appreciation, creating a family LLC with discounted interest transfers, selling to a defective grantor trust (IDGT), or holding until death for stepped-up basis. Direct property transfers may trigger reassessment or transfer taxes in some jurisdictions. Always transfer LLC interests, not the property directly.

A land trust holds real estate title with a trustee, providing privacy for the beneficial owner. In Texas, land trusts are recognized but less common than LLCs. They're useful for privacy (your name isn't on public records) but provide minimal asset protection. Most Texas real estate investors use an LLC for protection with a land trust layered on top for privacy, especially for higher-profile investors.

Each state where you own property may require a separate probate proceeding (ancillary probate). A revocable living trust avoids this entirely — your trustee can manage all properties regardless of state without court involvement. Additionally, each out-of-state property should have its own LLC formed in that state (or a Texas series LLC with a registered agent in each state) for proper liability protection.