For many, your home or real property is probably one of your most valuable assets. Sometimes a home has been in a family for generations, or was built by a family member and holds sentimental attachments. Regardless of how you feel about your home now, you likely feel strongly about how it’s left after your passing.
First, let’s look at what’s involved in leaving a home or real property. Unless you are one of the few who own your real property outright, there is likely a mortgage. Whoever inherits the property, whether it’s one person or more, is now responsible for that mortgage, or your Will can make a specific statement that the Executor will pay off the mortgage from the estate before the beneficiary inherits the property. Either way, make sure you weigh the benefits and potential issues.
There are three common ways real property is inherited: as part of the general estate property, as a specific gift, and through a residence trust.
Leaving property as part of the general estate can cause conflict if all your beneficiaries are not in agreement. Common provisions like, “I leave all my assets equally to my children” can become complicated when real property is involved. Unlike a bank account, it’s much harder to split a house. What if one child wants to keep the home in the family and the others want the money? What if more than one child wants to live in the home? Stating that the Executor should sell the home and the sale proceeds should be divided equally, or leaving the home to a specific beneficiary as part of their share is a more direct way to assure the real property is left to the parties who have a true interest in it and prevents confusion and conflict down the road.
A specific gift of the property assures it passes to the beneficiary who has the most interest, but there are some issues to consider. Should the Executor pass the property to the beneficiary with the mortgage? Can the beneficiary afford to pay that mortgage? Should the Executor pay the mortgage before distribution? Does paying the mortgage from the estate now leave one party receiving more of the estate (a mortgage-free property)? Leaving real property to a specific person can avoid conflict but it also raises some hard questions.
Another common way to leave your property is through a Residence Trust. This kind of trust leaves a home in trust for a specific person, or persons, for use during their lifetime without giving them full control of the property. Only the Trustee can sell the property and the trust terminates at the beneficiary’s death. Some decisions need to be made for such a trust though. Is the beneficiary living in the home rent-free or paying rent? Is the beneficiary or the trust responsible for paying utilities, taxes, maintenance, HOAs, and other home expenses? What causes the trust to end? The beneficiary’s death? What if they move out? What if the beneficiary remarries or co-habitats with someone? The nice thing about a residence trust is that you can decide what the terms and restrictions are, while still providing a stable home for a beneficiary.
Leaving real property is more complicated than it first appears. An estate planning attorney can help guide you through decisions and create specific provisions to ease the process significantly. Contact the estate planning attorneys at Grissom Law, LLC today to find out the best way to leave your property to your loved ones. Our attorneys can help you find the right choice and the right language for your beneficiaries.
Disclaimer
This Blog/Web Site is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide legal advice. By using this blog site, you understand that there is no attorney-client relationship between you and Grissom Law, LLC.