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Of all the assets that people pass on to heirs, in many cases the home is not only the most valuable. It is also the most emotional. That’s why it’s important to leave no stone unturned when it comes to ensuring that your home move goes the way you want.
GOBankingRates spoke to estate planning experts for advice on what steps to take if you want to pass your home on to your heirs.
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Talk to your heirs
Inheriting a home can be complicated, so talk to heirs before making a will.
“The hardest part of losing someone, after you’ve grieved, is figuring out what they had, how it was owned and how it is transferred,” says attorney Alison Harrison, CEO. ALH Law Group in Columbus, Ohio and St. Louis Park, Minnesota, told GOBankingRates. “Talking to your beneficiaries while you’re still alive adds a huge burden to them.”
It is especially important to warn heirs if there is a mortgage on the house that has to be paid off. Otherwise, the beneficiary may face foreclosure.
You should also confirm that they want the home.
“Beneficiaries with special needs may not want to inherit real estate because it impacts their government benefits,” Harrison said.
Things can become even more complicated if multiple people inherit a home.
“What might seem like a good idea, such as handing over a family cottage to multiple people, can actually lead to fights, especially if they are not allowed to sell it,” said author and certified financial planner (CFP) Jay Zygmont, Ph.D., founder and chief visionary. Childfree Trust In Mount Juliet, Tennessee.
Make an Information Binder for Home
Having a binder with important financial information makes things easier for loved ones, Harrison said.
“We recommend keeping a list of all your assets in the binder (such as bank name, last four (digits) of the account number and type of account) as well as all major debts and who they are owed,” he says.
Zygmont suggested creating a next-of-kin, or NOK, box.
“The NOK box includes not only all the documentation you need, but copies of the keys and much more,” he said.
decide how to make ends meet
You have several options for passing on the home to your heirs.
Desire
Including the house in your will means the will goes through probate and is public record. But probate takes time and can be expensive, Harrison said.
Gift
Offering the home as a gift seems like a simple solution, but Zygmont warned that the recipient could face a large capital gains tax bill if he ever decides to sell.
faith
A trust avoids probate and provides capital gains tax benefits, but the estate must pay the trustee.
“Often, the trustee is a loved one who has no experience being a trustee. This inexperience causes confusion, delays and unnecessary stress,” Harrison said.
Add to the deed while you are alive
“If you include someone in your home deed, it’s like giving them a gift,” Zygmont said.
It also makes them liable for the debt against the home and subject to action by the grantor’s creditors, Harrison said.
sell house
“If you sell your home to a family member, you either have to sell it at market value, or you’re gifting the difference,” Zygmont warns.
talk to a professional
Both Harrison and Zygmont recommended talking to a professional about the legal and tax implications of transferring your home to your heirs, and also to ensure a smooth deed transfer.
“Too often, we see in probate homes that the deed has been ‘transferred’ three times to different beneficiaries without being updated,” Harrison said. “It is much more difficult to handle (i.e., more expensive) if each transfer has to be handled close to the time of death.”