Your portfolio of rental properties represents more than just financial gain. It represents who you are. It’s your legacy.
But what happens to that legacy when you’re no longer around to manage it?
For Coachella Valley rental property owners, estate planning is not just a good idea, it’s the best way to protect yourself and the future of your heirs and beneficiaries. Without a solid estate plan, your hard-earned assets could be tied up in probate, taxed unnecessarily, or even lost due to poor planning.
We like to help our investors and property owners protect their assets long into the future. So, we’ve put together some key strategies to help you protect your legacy, ensure a smooth transition of your properties, and provide peace of mind for your loved ones.
Estate Planning is Part of Property Management
If you own rental properties in the Coachella Valley, your estate planning needs are likely more complex than the average homeowner’s. Rental properties come with a unique set of legal, financial, and operational considerations. You need to think about:
- Ongoing income streams
- Tenant obligations and property management
- Capital gains and estate taxes
- Ownership structures (LLCs, partnerships, etc.)
- Succession planning
Without clear directives, there may be confusion around how to manage your properties. Your estate may need to sell the properties to cover debts and tax bills. Proper estate planning helps avoid these risks.
Step 1: Take Inventory of Your Assets
Before you can create an estate plan, you need a comprehensive picture of your real estate holdings. This includes organizing:
- Property addresses
- Ownership structure (individual, joint, LLC, trust)
- Estimated market value
- Mortgage and debt information
- Rental income and expenses
- Property management contracts
This inventory will serve as the foundation for your estate planning process and help your attorney and financial planner craft a tailored strategy.
Step 2: Choose the Right Legal Structure
One of the most common ways to protect your rental properties and streamline estate planning is to hold them in a Limited Liability Company (LLC) or a revocable living trust.
- LLCs
LLCs offer liability protection, allow for flexible ownership, and can simplify the transfer of assets upon death. If your rental properties are in your personal name, your estate could be exposed to lawsuits or creditor claims. With an LLC, you can also assign membership interests to heirs gradually during your lifetime.
- Revocable Living Trusts
A revocable living trust allows you to maintain control over your properties during your lifetime while avoiding probate upon death. This is especially important in California, where probate can be lengthy and expensive. By transferring your rental properties into a trust, your heirs can assume ownership quickly and privately.
For optimal protection, many investors use both structures—placing the LLC into a trust for maximum flexibility and protection.
Step 3: Designate a Successor or Partner with a Property Manager
Who will manage your rental properties when you're gone or incapacitated? If you haven’t identified a successor or appointed a professional property manager in your estate documents, your properties could fall into disrepair or generate legal issues. Designate a successor trustee or an executor in your will or trust. If you’re not already working with a property manager, it’s a good time to seek the type of support that a management company can provide. Outline clear instructions for whether the properties should be held, sold, or distributed among heirs
Consider the operational side: Will your heirs want to manage the properties? Do they have the skills? If not, you may want to include a provision to hire a professional management company in Coachella Valley.
Step 4: Minimize Estate and Capital Gains Taxes
California doesn’t have a state estate tax, but federal estate taxes still apply for estates exceeding the federal exemption (which is scheduled to decrease in 2026). Additionally, your heirs may face significant capital gains taxes if the properties are sold without proper planning.
Here are a few tax-saving strategies to consider:
- Step-up on basis. When your heirs inherit property, they receive a stepped-up basis, which can significantly reduce capital gains if they later sell. Ensure your estate plan doesn’t trigger unintended transfers that eliminate this benefit.
- Gifting strategies. Gradually gifting ownership through an LLC can reduce your taxable estate and potentially avoid estate tax, while still allowing you to maintain control.
- Qualified Opportunity Zones (QOZs). Some areas in the Coachella Valley may fall under QOZs, offering deferral or reduction of capital gains when investing in these areas.
- Charitable trusts or donor-advised funds. If philanthropy is part of your legacy, these tools can allow you to donate appreciated property, avoid capital gains, and reduce estate taxes.
The information we provide comes from a property management expertise. We always encourage real estate investors to work with a CPA or estate planning attorney who understands California real estate and tax law.
Step 5: Keep Your Plan Updated
Estate planning is not something that ends as soon as you have an initial plan in place. Market conditions, tax laws, family dynamics, and your portfolio will evolve over time. Be sure to revisit your estate plan every few years, or after major life events such as marriage, divorce, and the birth of a child or grandchild. You might sell a property or acquire new investments. If there’s a significant change in tax laws, you might want to revisit your plan. An outdated estate plan can create just as many problems as no plan at all.
As a rental property owner in the Coachella Valley, you've built something valuable. Your properties may support your family and serve as homes for countless tenants over the years. Don’t risk what you’ve accomplished by neglecting your estate plan.
Questions about how to best position your portfolio for estate planning? We’d love to talk about it. Whether you’re just beginning to invest or you’ve been building a valuable portfolio over time, there are different things you can do now to put yourself in a stronger starting place when it comes to your legacy. Please contact us at Xepco Properties. We’re leasing, managing, and maintaining rental homes in Palm Desert and throughout the Coachella Valley.
