Dividable Real Estate Assets for Balanced Estate Plans

Advisors helping clients with estate planning often encounter a familiar challenge: dividing real estate equitably among multiple heirs. Unlike liquid investments, real estate assets are traditionally indivisible, illiquid, and emotionally charged. These characteristics can complicate an otherwise well-structured estate plan, leading to potential family conflict, valuation disputes, or forced property sales.

Fractional real estate structures may offer a more flexible approach. By transitioning into dividable real estate assets, clients can facilitate wealth transfer in a format that may offer clearer ownership structures and continued real estate exposure.

Here’s one way advisors can integrate dividable real estate assets into estate planning conversations.

Why Real Estate Might Create Planning Challenges

Investment properties may represent some of the most valuable assets in a client’s portfolio, but they’re rarely structured for equitable distribution. A single commercial building or rental property cannot easily be split three ways. And even when technically co-owned, multiple heirs often differ in how they’d like to manage, monetize, or maintain the asset.

When left unaddressed, these issues can lead to:

• Forced liquidation of family assets
• Litigation between beneficiaries
• Misaligned financial goals and expectations
• Tax inefficiencies in transfer and execution

To reduce these risks, advisors may consider guiding clients toward fractional or dividable structures that offer more defined ownership and operational frameworks.

What Are Dividable Real Estate Assets?

Dividable real estate assets are fractional ownership structures that allow investors to hold shares or interests in real estate rather than owning entire properties. These structures include:

• Delaware Statutory Trusts (DSTs)
  : Allow 1031-eligible ownership of institutional-grade properties in fractional form, typically passive and managed by a sponsor.
• Real Estate Investment Trusts (REITs): Public or private vehicles offering exposure to diversified property portfolios through tradable shares, providing varying degrees of liquidity.
• Tenancy-in-Common (TIC) Arrangements: Joint ownership agreements allow multiple parties to own undivided interests in a property, though often with more operational complexity.
• Private Real Estate Funds: These pooled investment vehicles offer access to diversified real estate portfolios, often with structured income distributions and varying levels of investor control.

Unlike traditional sole-ownership real estate holdings, these structures are generally more divisible and assignable, which can provide additional flexibility for estate planning. They may allow clients to allocate interests among heirs in a way that reflects specific legacy and distribution goals.

Estate Planning Advantages for Advisors and Clients

Using dividable real estate assets may offer several potential advantages in the context of estate planning:

• Flexible Allocation: Shares can be split evenly or tailored to meet each heir’s needs and financial goals.
• Tax Efficiency: DSTs acquired via 1031 exchange may receive a step-up in basis at death, eliminating deferred gains for beneficiaries.
• Liquidity Options: Some fractional real estate structures offer scheduled redemption features or access to secondary markets, which may provide more flexibility than direct property ownership and reduce the need for immediate asset sales.
• Simplified Management: Operational responsibilities are typically handled by sponsors or managers, relieving heirs from day-to-day property oversight and landlord duties..

Risk Considerations for Advisors and Clients

While dividable real estate structures can support estate planning goals, they come with potential risks:

• Liquidity Limits: Many structures remain illiquid or offer limited exit windows, especially in private markets.
• Lack of Control: Investors and heirs typically have no authority over operations, sale timing, or capital decisions.
• Valuation Challenges: Determining fair market value for estate or tax purposes may be complex.
• Regulatory Uncertainty: Tax treatments like step-up in basis and 1031 eligibility depend on current law, which may change.
• Sponsor Dependence: Outcomes rely on sponsor or manager performance, which may vary.

These risks highlight the importance of aligning real estate strategies with broader financial and estate planning objectives.

Final Thoughts

Real estate doesn’t have to be a source of stress in estate planning. By transitioning to dividable real estate structures, advisors can help clients manage their real estate holdings in a way that supports value preservation and more flexible distribution among heirs—while avoiding some of the challenges associated with indivisible property.

The ability to structure real estate for easier division and transfer may be a valuable tool in an advisor’s estate planning toolkit, particularly for clients with long-term legacy goals.

The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

Article written by: Story Amplify. Story Amplify is a marketing agency that offers services such as copywriting across industries, including financial services, real estate investment services, and miscellaneous small businesses.

https://www.irs.gov/pub/irs-drop/rr-04-86.pdf

https://www.investopedia.com/terms/t/tenancy-in-common.asp

https://www.investopedia.com/terms/p/private-equity-real-estate-fund.asp