Of all the assets people pass on to heirs, a home isn’t just the most valuable, in many cases. It’s also the most emotional. That’s why it’s important to leave nothing to chance when it comes to ensuring that the transfer of your home goes as you intend.
GOBankingRates spoke with estate planning experts for their advice on steps to take if you want to pass your home to your heirs.
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Talk To Your Heirs
Inheriting a home can be complicated, so talk to the heirs before committing to the bequest.
“The hardest part of losing someone, after you have grieved, is figuring out what they owned, how it was owned and how it transfers,” attorney Allison Harrison, CEO of ALH Law Group in Columbus, Ohio, and St. Louis Park, Minnesota, told GOBankingRates. “Talking to your beneficiaries while you are alive elevates a huge burden on them.”
It’s especially important to warn heirs if the home has a mortgage that must be paid. Otherwise, the beneficiary could 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 get even more complicated if multiple people inherit the home.
“What may look like a good idea, such as passing on a family cottage to multiple people, may actually result in fights, especially if they are not allowed to sell it,” said author and certified financial planner (CFP) Jay Zigmont, PhD, founder and chief visionary at Childfree Trust in Mount Juliet, Tennessee.
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Create an Information Binder for the Home
Having a binder with key financial information makes things easier for loved ones, Harrison said.
“We recommend having in the binder a list of all your assets (like bank name, last four [digits] of account number and type of account) along with all major debts and who they are owed to,” she noted.
Zigmont suggested creating a next-of-kin, or NOK, box.
“The NOK box not only contains all the documents you need but also includes copies of keys and more,” he said.
Decide How To Pass the Home
You have several options for passing the home to your heirs.
Will
Including the home in your will means that the bequest goes through probate and is public record. But probate takes time and can be costly, Harrison noted.
Gift
Offering the home as a gift seems like a simple solution, but Zigmont warned that the recipient could be hit with a big capital gains tax bill if they ever decide to sell
Trust
A trust avoids probate and offers capital gains tax advantages, but the estate must pay the trustee.
“Often, the trustee is a loved one with no experience being a trustee. This inexperience leads to confusion, delays and unnecessary stress,” Harrison said.
Add To the Deed While You’re Alive
“If you add someone to the deed of your home, it’s like giving them a gift,” Zigmont said.
It also makes them responsible for loans against the home and subjects them to action by the grantor’s creditors, Harrison noted.
Sell the Home
“If you sell your home to a family member you either need to sell it for market price, or you are gifting the difference,” Zigmont warned.
Talk To a Professional
Harrison and Zigmont both recommended talking with a professional about the legal and tax impacts of transferring your home to your heirs, and also to ensure a smooth deed transfer.
“Often, we see in probate houses that have been ‘transferred’ three times to different beneficiaries without the deed ever being updated,” Harrison said. “It is much harder to handle (i.e., more expensive) than if each transfer was handled near the time of death.”
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This article originally appeared on GOBankingRates.com: 4 Things To Do If You Want To Pass Your House Onto Your Heirs
