The value of a family home is much higher than its market price. It’s where children grew up and where holidays were celebrated, and it might be a property you hope will remain in the family for generations. That emotional significance can make deciding what happens to the home one of the more complicated parts of estate planning.
Telling your children, “The house will be yours someday,” isn’t necessarily enough. Who should inherit it? What happens if one child wants to live there while another wants to sell? Who will pay the mortgage, taxes, insurance, and upkeep?
It’s essential to plan to make transferring the family home much easier for the people you leave behind.
Start With What You Want to Happen to the Home
What is your ultimate goal for the property?
Do you want one child to inherit the home? Should several beneficiaries share ownership? Would you rather have the property sold and the proceeds divided? Or do you want to keep the property within the family for as long as possible?
Once you know what you want to accomplish, an estate planning attorney can determine the appropriate legal tools to make it happen.
Possible Estate Planning Solutions
Leaving the Home Through Your Will
When there is a clear beneficiary in your will, the process is fairly straightforward. However, property controlled by a will generally becomes part of the probate estate. The probate process can add court involvement, time, and administrative work before ownership is ultimately transferred.
A will can still be an important part of an estate plan, but if you don’t want your family to have to go through probate, consider other options.
Placing the Home in a Trust
A revocable living trust is another option for passing down real estate.
You can transfer ownership of the property to your trust while retaining control of the trust during your lifetime. The trust can then specify what should happen to the property following your death.
Depending on your objectives, you can leave instructions for your successor trustee to:
- Transfer the property to a particular beneficiary
- Sell the property and divide the proceeds
- Continue holding the property in trust
- Establish conditions for how the home is managed
When properly established and funded, a living trust can also allow trust-owned property to transfer without probate.
Words of Caution
Think Carefully Before Leaving One Home to Several People
Leaving the family home equally to all of your children might initially sound like the fairest solution. In practice, shared ownership can create challenges.
Imagine three siblings inherit a house. One wants to keep it as a family gathering place, another wants to rent it, and the third needs their share of the inheritance in cash.
Now the family has more than an estate planning issue. They have to determine how to manage an expensive jointly owned asset despite having very different goals.
If multiple people will inherit your property, think through questions such as:
- Who will make decisions about the home?
- Who is responsible for maintenance?
- How will property taxes and insurance be paid?
- Can one beneficiary live in the property?
- Can a beneficiary sell their interest?
- What happens if one person wants out?
- Should one beneficiary have an opportunity to buy out the others?
The more decisions you make beforehand, the fewer your beneficiaries may have to negotiate later.
Account for Unequal Inheritances
Sometimes one beneficiary has a greater connection to the family home than another.
For example, you may want your daughter to receive the house while your son receives investments of approximately equivalent value. Depending on your assets, that could provide a practical way to divide an estate without forcing siblings to co-own real estate.
But equalizing an inheritance isn’t always simple. Property and investment values can change considerably over time. Make sure to review your estate plan periodically, so your original strategy still makes sense.
Don’t Forget the Costs of Keeping the Property
Inheriting a home and being able to afford one are two different things.
The future owner could be responsible for expenses such as:
- Property taxes
- Homeowners insurance
- Repairs
- Utilities
- Landscaping and maintenance
- Mortgage payments
If keeping the property is important to you, consider whether the beneficiary will realistically be able to afford it. Depending on your circumstances, you may be able to incorporate additional assets into your estate plan to pay the property’s ongoing expenses.
Understand How the Property Is Currently Titled
If you own property with another person, the form of ownership can affect what happens after you die. In some arrangements, an owner’s interest can automatically pass to the surviving owner. In others, the deceased owner’s share becomes part of their estate.
Therefore, it’s essential to review your property’s current deed alongside your will, trust, and overall estate plan. Don’t assume your will automatically overrides the property’s ownership structure.
Consider the Tax Consequences
Transferring real estate can have estate, gift, capital gains, and other tax implications depending on the circumstances.
This is particularly important if you’re considering giving the house to your children while you’re still alive rather than having them inherit it later.
Before transferring ownership, talk with your estate planning attorney and, when appropriate, a tax professional.
Have the Conversation With Your Family
You don’t necessarily have to disclose every financial detail of your estate plan, but talk with your family about your intentions for an important property.
You might discover that the child you assumed wanted the house has no interest in owning it. Or perhaps several children want it, but for completely different reasons.
Take the opportunity to create a practical plan rather than leaving your family to sort everything out after you’re gone.
Review Your Plan When Things Change
Review your estate plan when you:
- Buy or sell real estate
- Refinance a property
- Move to another state
- Get married or divorced
- Experience significant changes within your family
- Make substantial changes to your trust or estate plan
- Have gone 3-5 years without reviewing it
Also, periodically check that ownership and beneficiary arrangements continue to coordinate with your estate planning documents.
Make Your Family Home Part of the Bigger Picture
If your home is an important part of the legacy you want to leave, Music City Estate Law can help you evaluate your options and create an estate plan designed around your family, property, and goals.
Book a consultation to start planning for what happens to your family home and the rest of your estate at https://musiccityestatelaw.com/
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