WA state estate planning, leaving real property in a Will

1. Explore trust-based estate planning for
a. asset protection and protection from long term care costs (Irrevocable IDGT = protection)
b. probate avoidance.
2. What fraction of the total estate does the vacant land represent? Investigate the estate tax possibilities.
3. Factors to consider Income vs Let it Be.
a. General economic conditions in the area;
b. Client's financial ability to respond to emergencies.
c. Lack of liquidity if 1031 exchange
d. Changes in cap gains rules are a-coming... maybe better sell now and pay 5 or 15% than wait and pay through the nose...

Mr. Carrier's answers are fine in a general sense but be careful -- Washington State has stringent laws regarding asset protection for long term disability. A trustor created irrevocable trust that benefits the trustor likely will not prevent the state from coming back against the estate for medicaid payments. Also, Washington State is a streamlined probate state and revocable living trusts -- while I do them -- are grossly oversold for the actual benefit realized. The question is really a subjective one. Vacant land takes less work but perhaps lower return. Rental income brings additional work. Perhaps at this age your client would opt for the former AS LONG AS she can afford the rising property taxes. I agree the capital gains tax will likely increase, but holding the property until she passes will eliminate that issue as the property will step up. But obviously if her estate is over $2mil. then capital gains tax is the lesser of two evils. I question the "risk" of keeping the vacant land. No more risk than the commercial rental in my mind and probably less risk. But again, very subjective decisions to make here.

Surrounding development would typically increase a property's value so I read into your question that the concern is the rising taxes due annually on the vacant property would potentially decrease her fixed income to the point that it is a concern.

One could also look at gifting the property to her children and compare the potential gift and estate tax issues versus their capital gains. You could also look at owning either property in a Family Limited Partnership and use the gifting rules to gift limited shares of the FLP thus decreasing her estate value.

The question her is a matter of values. Retaining personal income versus passing value to paying the least amount of tax.