How Should You Leave Your Family Home to Your Heirs?
Many people are reaching that point in their lives where they are faced with the decision of what to do with the family home upon their passing.
With the first optionThe house is sold and whatever is left of the proceeds at death are divided amongst the heirs. There is a simplicity that is attractive in this plan as well as the ability to potentially deter fighting amongst heirs after the owner dies. Yet, there are disadvantages to this plan. First, that pile of money will more than likely make it difficult for you to be eligible for Medicaid, the federal health care plan for older Americans, which is income-based. Another issue that arises is that if there is a large profit from the sale, it could saddle you with a heavy income tax obligation.
Often times, the better option is to maintain ownership and control of the family home while you are still alive, but leave the property to your heirs upon your death via either a will, a trust, or a deed. One benefit of this plan is that it allows you to "age in place", that is, stay in your home until you die. From an estate planning perspective, there are also some great benefits. With a will, you can spell out exactly what you want to happen with the property upon your death, whether it be a sale of the home and divvying of the proceeds, or a transfer of the property's title to a certain person or group of people. A will, however, does not avoid the probate court process, and it is more likely to lead to disputes amongst heirs.
With a deedYou can add other heirs to the title and share ownership with them while you are still alive. The deed should include rights of survivorship language so that the property automatically passes to your heirs upon your death without the need for probate. The drawback of this is that you cannot sell or mortgage the property while you are still alive without the permission and consent of your heirs. An enhanced life estate deed, on the other hand, allows you to maintain such control of the property while you are still alive and dictate who you want to own the property upon your death. These types of deeds may serve your estate planning needs, but they are not viable options in certain circumstances, such as when you have several children who you wish to leave the property to upon your death, or if you wish for the property to be sold upon your death and the proceeds to be split up amongst various heirs.
One of the best ways to implement the transfer of ownership is to put the house in a living trust. A trust, like a will, can be used to convey property from one generation to the next. Unlike a will, however, a trust does not have to go through the probate court process upon your death. This means that automatically upon your death, the title of the house will pass straight to the designated beneficiaries of the trust. Or, if you prefer, your trust can require that the property be sold upon your death and the proceeds distributed by the successor trustee. You can also name yourself as the beneficiary of the trust while you are still alive, with full rights to sell, mortgage or lease the property. If you anticipate inter-family squabbling over the house, a trust is also a viable option as trusts generally are more specific as to the instructions that the successor trustee must follow upon your death, which leads to a lower likelihood of litigation.
Trusts come in many different forms and their flexibility allows for them to be tailored to your particular needs and circumstances. Trusts can either be revocable or irrevocable. Revocable trusts can be amended or terminated at any time prior to the death of the trust's creator (also called the grantor or settlor of the trust). With an irrevocable trust, the person who creates the trust gives up the right to terminate the trust. These types of trusts do however offer tax benefits for large estate.