An Estate Planning Blog for Middle Tennesseans


Estate Planning for Rental Property Owners

Posted by Jim Foster | Oct 21, 2021 | 0 Comments

In all parts of the country, and certainly here in middle Tennessee, services such as Airbnb have grown in popularity over the past few years.  Indeed, these alternatives to hotel stays are popular among homeowners and vacationers alike.  If you have a home or other rental property that is generating income, you should understand the following asset protection and estate planning considerations.

Young black couple holding a key to their new home.

Protecting Rental Property Owners from Liability

Here, like in any other rental relationship, there is risk for the property owner.  If anyone is hurt on the premises during their stay – no matter how short – a property owner could be held legally and financially liable for injuries suffered.

The owner's first line of defense is typically general liability insurance – assuming there is proper and sufficient coverage on the property.  If there's a lawsuit, the insurance company should step in and defend the claim up to the policy's limits.  Any damages beyond that, however, may become a personal liability to the owner, depending upon how the property is titled.

If the property is owned by a limited liability company (LLC) instead of the individual(s), then the individual member(s) of the LLC may have some additional protection if the liability insurance coverage limits are not sufficient to cover the total amount of financial liability.  It is important to note, though, that in order to receive liability protection through the use of an LLC, the entity must be formed correctly and managed properly.  If the entity is viewed as merely an “alter ego” of the member(s)—because, e.g., members commingled personal and LLC funds—the court may disregard the liability protection, which could place the property owner(s) on the hook. To ensure that you have the most protection available, you should consult with an experienced attorney.

Estate Planning Considerations for Owners of Rental Property

Beyond creating liability protections, deciding how an asset will be passed from generation to generation is an important part of estate planning for rental property owners.  This is particularly true if such property is lucrative – like income-generating rental property.  If the real estate is held in an LLC, you have options.  You may choose to divide up the LLC's membership interests among multiple beneficiaries.  With an income producing asset, such as a rental property, it is important to keep in mind your family's situation—financially, relationally, and otherwise—in setting your ultimate goals for the property. 

Using an LLC is also helpful for estate planning purposes because you can gift some of the membership interests during your lifetime, transfer it at the time of your death to the beneficiaries, or have it held by a trust for the benefit of the beneficiaries.  Regardless of your personal situation or goals, there is a solution for everyone.

Determining whether or not to use an LLC for rental property is just one aspect, of many, in the overall estate planning process.  We can guide you through your legal options and help you ensure your that property is protected and distributed at your death according to your wishes.  Do not leave this to chance, contact us today to learn more.

Find out more about estate planning:

Estate Planning Overview

Estate Planning Basics & Benefits

Wills Versus Trust:  What Do I Need To Know? 

The Probate Process

Trust-Based Estate Plans


Posted by Jim Foster

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Jim Foster

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