Best Ways to Leave Real Estate to Your Heirs
As a parent or grandparent, you want to make sure your heirs receive the inheritance you wish to give them. You have several options when that comes to your home and other real property. Here are some of the best ways to leave real estate to heirs after you pass or while you are alive.
Bequeathing Property After You Die
You can leave everything from primary homes to vacations houses to undeveloped land in your last will and testament. The benefit is that you can direct the disposition of the property—whether that means one or more people will inherit it or whether it will be sold and the proceeds divided among your heirs.
The downside is that the will must go through probate, which can be a long and expensive journey through the court system. The lengthy probate process almost seems to invite family disputes. If you are concerned about family squabbling over your legacy, you might consider a different way to leave your property to your heirs.
An alternative is to set up a revocable living trust. With a revocable trust, you transfer your assets into the trust and designate who receives the property after you die. Trusts avoid probate, so the transfer to your heirs is much faster. Meanwhile, you manage the trust while you are alive, and you can make changes or even terminate the trust if you like.
Keep in mind that your assets won’t be shielded from creditors just because they’re in a trust. Outstanding debts still need to be cleared, and if your estate is large enough to be taxed, a revocable trust won’t help you avoid taxation.
However, the assets you place in an irrevocable trust are removed from estate tax valuation and are shielded from creditors. But you can’t amend or terminate the trust without your beneficiaries’ consent.
Finally, some states, such as California, offer a “transfer on death” deed that allows you to pass your residence to your heirs upon your death. You continue to own your home—you can sell, refinance, make repairs, or do anything else you, as a homeowner, desire to do. Once you die, the deed avoids probate, and the residence gets transferred to your designee.
Leaving Property While You Are Alive
You may want to leave property to your family members while alive. Maybe they could use the financial help now, or perhaps you want to enjoy seeing them benefit from your gift.
You can sell the family home to them outright. As this Forbes article points out, this can be a great option if they want the home and you want to downsize. Be advised, however, that you can’t sell the house below its fair market value without incurring tax ramifications. If you lend them the money to buy the property, you must charge interest, or there can be gift tax implications.
Another option is to set up a joint tenancy with the right of survivorship. This makes your heir a co-owner of your property, and when you die, they own it in full without going through probate.
Be advised that joint tenancy can have significant downsides. You won’t be able to make decisions about your real estate without getting your joint tenant’s consent. That means if you want to refinance or sell it, you need their buy-in.
In addition, if your co-owner gets into financial trouble, creditors can go after the real estate you both own.
Alternatively, you can allow the future inheritor to live in the home you plan to leave them but have it transferred to them only after you die. That way, you still control the property and can make changes as you need to.
Final Thoughts
Whether it’s a primary house or a vacation condo, your property needs to be part of an estate plan so you can transfer it efficiently. Ideally, you will transfer your property—and all your valuable assets—so that you maintain family harmony.
In some cases, this may mean setting up a trust that pays for the taxes and costs on a vacation cabin you want the entire family to continue enjoying. Or you may need to leave real property to just one beneficiary since your children’s financial and personal situations are too varied to make a shared inheritance viable. In such cases, it can help to talk to a financial advisor or estate planning attorney about what to leave your other children and grandchildren so that the inheritance is equitable.
Our fiduciary wealth management firm in Folsom and Roseville, CA, helps clients make legacy decisions as part of their comprehensive financial plan. Schedule a complimentary, 15-minute call today to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.