Estate planning helps distribute your property according to your wishes after you die. One of the most critical decisions in this process is what will become of your home.
For many families, this decision can be complex due to its financial impact and emotional significance. Therefore, it’s crucial to develop a clear strategy for including your home in your estate plan.
Estate planning options for homeowners
Passing along a home involves several options, influenced by factors such as whether you have a spouse and your financial goals. Here are some common methods:
- Co-ownership: Adding heirs as co-owners on the deed. However, this can trigger gift taxes and complicate future financial situations
- Will: Directs who inherits the property but involves the time-consuming probate process
- Revocable trust: Allows control over assets during your lifetime and avoids probate after death
- Qualified personal residence trust (QPRT): Transfers the home to a trust at a reduced gift tax cost, with the original owner retaining the right to live there for a set term
- Beneficiary designation – transfer on death (TOD) deed: Names a beneficiary for the property, avoiding probate
- Sale: Selling the home if heirs are unlikely to want it, which can simplify matters but may have tax implications
Choosing the right option depends on your specific circumstances and goals. Each method has its benefits and drawbacks.
Other elements to consider
Before deciding a course of action, benefactors should also consider these issues:
- Discuss your wishes with your family to avoid future conflicts. For instance, if one child lives far away and already owns a home, sharing the family home might not make sense.
- Heirs may face legal fees, taxes and other costs. The home’s value could push them into owing estate taxes, possibly forcing a sale.
- A homeowner’s death may trigger a “due on sale” clause, requiring that a mortgage be paid off or the home sold.
An experienced estate planning attorney can help you find the best solution for you and your family. They can ensure that others honor your wishes while protecting your heirs’ interests.
Planning ahead can help create a smooth transition and reduce potential financial and emotional burdens on your loved ones.