Estate Planning for Real Estate Owners

For many families, real estate represents the most significant asset in the estate — sometimes the only significant asset. A primary home, a vacation property, investment real estate, or farmland accumulated over decades (or through inheritance) can easily represent the majority of a family’s wealth. Yet real estate is one of the most frequently overlooked assets in estate planning, often handled with a handshake understanding that “the kids will figure it out.”

They often don’t — at least not without significant friction, delay, and expense.

The Probate Problem

Real estate titled solely in a deceased individual’s name typically must pass through the probate process before it can be transferred to heirs. In Missouri, that process can take months to years, costs money in court and attorney fees, and creates a public record of the assets involved. For heirs who want to sell, rent, or otherwise use inherited property, probate represents a significant delay at an already difficult time. The good news is that risk of probate is avoidable with the right planning.

The Beneficiary Deed

Missouri has a specific tool for avoiding probate on real property: the beneficiary deed (sometimes called a transfer-on-death deed). A beneficiary deed allows you to designate who will receive a specific piece of real estate upon your death, without the need for probate, while retaining complete ownership and control during your lifetime. You can revoke it, sell the property, or change the beneficiary at any time.

“Real estate titled solely in a deceased individual’s name must pass through probate before it can be transferred. With the right planning, that process is entirely avoidable.”

Beneficiary deeds are relatively simple and inexpensive to prepare and record, and they’re an excellent option for straightforward transfers — property going directly to a spouse or to adult children in equal shares.

Trusts and Real Estate

For more complex situations — multiple properties, blended families, beneficiaries who are minors or have special needs, or property owners who want flexibility in how the property is managed after their death — a revocable living trust is often the better vehicle. Property transferred into a living trust avoids probate entirely and can include detailed instructions about how the property should be managed, maintained, rented, or sold. A trust can also hold property that spans multiple states, avoiding the need for ancillary probate proceedings in each state.

LLCs and Real Estate Planning

For investment real estate in particular, holding property in a limited liability company (LLC) can serve both asset protection and estate planning purposes. A properly formed and administered LLC provides a liability shield between the property and the owner’s personal assets, and LLC membership interests can be transferred to heirs more efficiently than real property itself. There are trade-offs — financing, tax treatment, and administrative complexity all differ when property is held in an entity — so this approach requires careful analysis.

The Capital Gains Question

One of the most significant tax considerations in estate planning for real property is the step-up in basis at death. When a beneficiary inherits real estate, the property’s tax basis is generally stepped up to its fair market value on the date of death, meaning that a beneficiary who sells inherited property shortly after receiving it may owe minimal or no capital gains tax.

Strategies that transfer property during the owner’s lifetime may lose this step-up, creating a significant tax burden for the recipient. Understanding the interaction between estate planning strategy and capital gains tax is essential to making the right choice.

About John Gunn: John brings over two decades of specialized legal experience to AEGIS Law, with particular depth in probate and trust litigation, estate planning, and fiduciary matters. As a past president of The Missouri Bar, he has demonstrated leadership at the highest levels of the legal profession while maintaining a practice focused on helping individuals and families navigate complex personal and financial transitions.