How REIT Investing Can Help Leave the Right Legacy | The Peak Group

After all we’ve weathered as a nation as a result of the novel Coronavirus pandemic and ensuing recession; you’ve likely been breathing a sigh of relief as you continue to see consistent returns from your portfolio of residential rental properties. Indeed, rental homes (both single and multi-family units) have borne the storm far better than commercial assets. However, did you ever stop to consider that when you decide to parse your portfolio out as an inheritance to your beneficiaries—such as your favorite charity—that they may struggle to access the wealth of the empire you’ve developed over time?

Elderly couple walking

The real estate holdings you’ve grown over the years have likely appreciated—which is usually an excellent outcome! Unfortunately, this also means that all the wealth you’ve developed over time cannot simply be “enjoyed” by your devisees when you decide to draft your legacy. This leaves you with some difficult choices to consider as the current owner of the properties in your portfolio—and it’s exactly why you should be considering REIT investing as your estate management strategy.

If you’re not familiar with Real Estate Investment Trusts (REITs) as a viable approach to estate planning, we’re excited to explore what makes them such a potent way to preserve the wealth you’ve worked so hard to build. First, let’s explore why you may want to consider this option in the first place if you intend to leave a legacy your legatees will appreciate!

The Challenges Your Heirs Face

As an investor, you likely know firsthand just how much work it takes to maintain the properties you’ve acquired. Perhaps you started with a property or two and grew from there, knowing that the more real estate you acquired, the easier your golden years would be—or so you thought. With the workload of so many properties hitting home as your holdings expanded, it could be that you turned to whatever trustworthy property management company you could find to handle your rental’s day-to-day care.

Unless you’ve had firm pledges from your beneficiaries that they intend to carry on the “family business” and tackle the workload of those properties firsthand, it’s likely they’ll stay in the hands of property management. The workload of being hands-on with rental properties is often far greater than anyone could imagine until they find themselves in the business. However, if you intend to gift all that you’ve earned to charity, this could present an issue. It’s unlikely that they’ll know how to navigate managed assets of this nature.

If you decide to get around this issue with a hard sale, you face punishing (and in our opinion, excessive) capital gains taxation upwards of 20-30%, depending on the scope of your assets. If you’ve invested 30 years in the acquisition of your wealth, that’s essentially like saying goodbye to anywhere from six to ten of those hard-fought years in the form of taxation. At The Peak Group, we see this as the wrong move for investors because we’re investors ourselves!

Unfortunately, capital gains tax is not the only form of taxation you have to prepare for, even if you decide not to pursue a sale. You’ll still have to account for the dreaded federal estate tax if you have a considerable amount of assets in your portfolio to date, even if Oklahoma has no estate tax to speak of. Thankfully, the IRS raised the estate tax threshold in 2020 to $11.58 million per individual (up from $11.4 million in 2019) and $23.16 million per married couple.

If you happen to be married, this is very good news as it will likely shelter a generous portfolio from the worst of the estate tax. However, it does not protect your legatees from the capital gains tax we mentioned previously, and that is precisely where REIT investing comes to the rescue.

Cute elderly couple

The Benefits of an UPREIT Structure for Your Legacy

Choosing the right UPREIT as your investment vehicle allows you to not only continue enjoying the benefits of passive real estate investing into your golden years, but it allows you to easily manage the plans you have for your estate in a way that makes parsing your assets to future inheritors easier than you ever thought possible. Estate planning for investors is a unique experience compared to simply gifting a well-loved family home. It requires care—and careful planning. It also means you need an excellent guide to even begin the process.

At The Peak Group, we’re proud to be that guide! Let us show you the path to financial freedom by providing further insight into the benefits of converting your portfolio of properties rather than selling it. You can begin that journey by downloading your free copy of our guide, Let Freedom Ring! It’s designed to answer some of the additional questions you may have about REIT investing and how it can benefit you as both an investor and a benefactor.