For many of you, your home is probably your most valuable asset and it’s likely that you are very clear about whom you want to end up with it when you die. For example, if you are a parent you probably want your children to inherit your home. However, ensuring that your wishes become reality takes planning – estate planning, specifically. For example, you may:
- Include your home in your will
- Transfer your home to a living trust
- Include the right “magic words” in the deed to your home
There are pros and cons to each of these options, so it’s advisable to meet with an estate-planning attorney. That way you’ll be sure that you choose the option that is best for you based on your finances, your estate planning goals and other considerations.
1. Include Your Home in Your Will
A will is a legal written document in which you specify who you want to inherit your assets when you die. You may name one person or multiple persons. Each of them is referred to as a beneficiary.
After you die, all of the assets you’ve included in your will go through a court-supervised process called probate. Among other things, this process ensures that the assets are legally transferred to your beneficiaries according to the terms of your will. Before that can happen however, any debts you may owe at the time of your death must be paid.
If you designate more than one person to inherit your home, each individual will inherit an undivided interest in it. Therefore, they must decide what to do with the house – keep it or sell it. And it’s possible that they may not see eye-to-eye. For example, let’s assume you left your home to your daughter and son, and that your daughter wants to hold onto it for sentimental reasons, perhaps, but your son has a lot of debt and wants to sell the house so he can use his share of the sale proceeds to pay off his creditors. Unless they can reach an amicable agreement about what to do, inheriting your home could create a rift between them, especially if your son decides to go to court in an effort to force a sale.
2. Set Up a Living Trust
A living trust is a type of trust that you create while you are still alive. You also transfer to the trust the assets that you want controlled by the trust; this is called “funding the trust.”
While you are alive, you can manage and benefit from those assets, just like you do now; but when you die, the assets get transferred to the beneficiaries you designated in your trust document.
Using a living trust rather than a will to transfer your home upon your death offers a number of advantages. One of them is that the home will pass to your designated beneficiary without having to go through probate, thus avoiding the delays and expenses associated with that process. As a result, your home can get transferred to that individual much more quickly. It’s important to note however, that any outstanding debts you may owe must still be paid before the transfer can happen.
A note of caution: If you set up a living trust, but do not transfer your house to it before you die, then the house will have to go through the probate before it can be transferred.
If you name more than one beneficiary for your home in your living trust document, you can avoid the potential for conflict among them about what to do with the house by stating in the document that the trustee of your trust — a person or institution named to oversee the distribution of your assets and the payment of your debts after your death — can decide who will get the house and who will receive other assets of equal value in your estate.
3. Include the ‘Right Words’ in the Deed to Your Home
Those words can either be Transfer on Death or Joint Tenant with Right of Survivorship. (Tenants by the Entireties is another option between spouses in some states). Either option lets you give your home to your loved one(s) at your death without the delays associated with probate or the cost of setting up a trust.
If you don’t have a spouse, it’s usually best to include the words Transfer on Death in the deed to your home, assuming a Transfer on Death (TOD) deed is legal in your state. (Currently, about half of the states plus the District of Columbia recognize this kind of deed, but other states are considering it.) With a TOD, you own your home 100% while you are alive, and you’re free to do whatever you want with it – borrow against it or get a reverse mortgage, for example. When you die, the home automatically and immediately transfers to the person(s) you named as beneficiary in the deed.
If you include the words Joint Tenant with Right of Survivorship in your deed, you and whoever else is on the deed are co-owners of your home. When you die, assuming you die first, the house automatically transfers to your co-owner(s).
One of the drawbacks to this form of ownership is that you won’t have full control over your home. For example, if you want to borrow against the house or refinance it, your co-owner might object and might even take you to court to stop you from doing what you want. Another drawback is that your home is subject to the debts of your co-owner. This means, for example, that if your co-owner is sued by a creditor for a past-due debt, the creditor might get the right to put a lien on the house.
Finally, Medicaid eligibility is something else you should take into account if you think you may need to apply for this federal government program at some point. If you do, including your home in your will rather than transferring it to a living trust is best. Again, consult with an estate-planning attorney if Medicaid eligibility is a concern for you.
Making that decision yourself could be problematic, so it bears repeating: A qualified attorney can help you determine the best way to ensure that your home will go to your intended heir/s when you die.
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