For the majority of Americans, the most expensive item they will ever buy is a home. Thus, it comes as no surprise that properties tend to be a linchpin concerning estate plans. It is important that you weave your estate throughout your home buying process to ensure that you are well-placed in terms of taxation and inheritance.
My Home: Should It Go in My Will?
Given that this asset is probably one of your dearest, thinking about how you would like to pass it down is very important. Some people try to outmaneuver the system by putting their children on the deed to the home before they die or move out. Doing so means that the parents and the adult child are owners that hold the property jointly. Thus, the property will pass to the child upon the death of the parents without probate. However, there are many downsides to doing this. In fact, in some scenarios people have lost their homes or had to pay thousands of dollars in liens or legal fees in order to keep the property.
A better approach would be to put the property in your will, but this also comes with one major sticking point: probate. Probate is the legal process that starts immediately after a person's death, and it involves what happens to his or her estate. Any property that is in a will has to go through probate to ensure that the law settles any outstanding legal debts the deceased had. For instance, if the deceased was in a lot of debt, it is possible that the probate court could order the property sold off to pay the debts. Even if no debts existed when the person died, it can sometimes take a very long time for property to go through the process.
Is There a Better Option?
Generally speaking, for inheritance purposes, it is worth looking into a living trust. There are two main types of living trust: revocable and irrevocable. If you put your home into a revocable trust, you can make as many changes to it as you wish before death. The property also still belongs to you if you put it in a revocable living trust. This is a great option if you are hoping to help your heirs avoid probate. Anything that you put into a living trust will bypass the probate process.
An irrevocable living trust is a good option if your main goal is to help your heirs avoid estate tax. Anything put into an irrevocable trust also ceases to be your property, which protects the property from creditors. However, there are legal consequences if the law finds out that you have created an irrevocable living trust to defraud creditors.
What Else Should I Know?
If you are in the state of California, the passage of Prop 19 has drastically changed the face of property inheritance. It is important for you to ensure that your estate plan is set up properly to reflect these changes if necessary. Another thing is that poorly-designed estate plans can cause serious division in families. Taking the time to ensure that your estate is rock-solid and equitable to your beneficiaries (or if not-equitable, the reasons for this are clearly stated in black letter law) can be an investment in the continuation of good family relationships. Contact us today at AmeriEstate to learn more.