Estate Planning Starts with Creating a Will
We look to take care of our family in the home that we buy, and we want that homeownership to continue throughout life and even past our death. For that, we need to make sure that all our assets are accounted for by taking a proactive approach to estate planning before it’s too late.
The Importance of a Will
Estate planning starts with crafting a Will. A Will accounts for the dispensation of your assets, and for most, there is probably no more valuable asset than your home. You want to make sure that your home stays in the family, or at the very least your surviving family is able to reap some benefit from its sale. For that, you’ll need to decide how you want to manage ownership of your home after you pass, and who you want to inherit the property.
For couples that own a home jointly, questions of estate planning for the home aren’t typically at issue when only one of the spouses has died. If the home has more than one person on the deed, generally ownership will pass to that other person (or persons) upon your death. That means your partner won’t be left out in the cold, but they will have to make sure they’ve planned for what to do with the home when they pass away. However, it’s prudent to have a lawyer check the type of ownership on the deed to ensure any transfer upon death is according to your wishes.
When a home’s sole owner dies with a Will, the home, like the rest of their property, enters into probate. Probate is the process whereby a court determines the legality and validity of the Will before the distribution of a person’s assets. While you might assume that a Will would allow your family to circumvent this process, estates with Wills still have to go through probate. With a Will, the executor or representative typically distributes the assets according to the wishes of the deceased once the Will is through probate, generally a few weeks or months for small estates.
What Happens if You Die Without a Will?
If you die without a Will, it’s called dying “intestate” and your assets are left to be distributed according to the laws of the state, usually to closest relatives in a systematic approach. The probate court will make decisions and although family members can apply to be the administrator or representative, the control is with the court.
That’s why estate planning for your assets is vital, and why it’s essential that you determine the manner you want your assets to be distributed and lay that information out in your Will. It might be the case that you have a son or daughter better equipped to handle managing your property, or more in need of the home and the value it could bring. You may want to leave your home to someone other than your direct heirs, like a grandchild or a niece or nephew; without a Will, a court would instead leave your home and other property primarily to direct family in accordance with state law.
There are ways to avoid the probate process for your home, however. A transfer on death deed, as the name suggests, transfers your home to your named beneficiary when you die (or, in the case of couples, when both owners have died.) There are a few drawbacks — not every state allows for such deeds, and the beneficiary also inherits the mortgage as well as any liens against the property — but it avoids a lengthy and expensive probate proceeding.
You can also choose to leave your home to a beneficiary through a trust, which offers the benefit of passing your assets on to your family without having to wait on the probate court. Trusts also offer the benefit of trustees to manage your property should you be incapacitated and unable to do so yourself. But trusts can be expensive to establish, and costs saved from avoiding probate may be lost later in taxes owed.
One of the most pressing questions most people have about estate planning and their home is whether their family will have to pay taxes on the home once they’ve inherited it. To determine that, you have to understand the difference between the estate tax, which is assessed on the person (or rather on their estate) bequeathing the home, and inheritance tax, which is assessed on and paid by the person receiving the property. While there is currently an exemption on federal estate tax for any estate of less than $11.58 million, a few states have their own estate taxes. There’s similarly no federal inheritance tax, but several states assess their own inheritance tax. This area is complex and the help of an estate attorney is needed.
Passing on your home to your family also assumes ownership of the property, which might not be the case if there’s a significant balance on your mortgage. Even in death, a mortgage needs to be paid unless there is mortgage insurance to eliminate the debt. In the event that insurance policies and liquidated assets won’t cover the full amount of the loan, and presuming that your heirs can’t or aren’t interested in assuming the mortgage, the home might be sold after your death. And while this shouldn’t necessarily alter your decision to buy or sell a home later in life, it is something to keep in mind when considering what you can leave to your family.
Estate planning isn’t something we’d prefer to think about, but our family’s care and well-being are deeply important to us, and having a home that we can leave in our Will or trust is our last opportunity to provide for them. That’s why it’s important to get started early in understanding estate planning basics and to work with a lawyer to plan for and manage your estate so that your home is passed to future generations.
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