Putting the Primary Residence or Vacation Home in a Trust
A common question in the estate planning process is how to handle a house. For many families, a home – whether a primary residence or a vacation home or rental property – is the largest asset both in terms of financial value and emotional value.
Should the house be sold and the proceeds distributed to your beneficiaries or should the property be kept in the family? If the real estate is sold, should the proceeds pass outright to your beneficiaries or will it be held in trust for safekeeping? If the home is kept in the family, who will be the owner? Is having multiple owners a viable option?
Distributing Real Estate via Will
You can pass real estate onto beneficiaries in through a will. This approach is simple, but real estate left by will must go through probate, the court-supervised process of transferring assets after death. The probate process, especially when real estate is involved, can result in delays in the transfer of your home itself or the proceeds of the sale to your beneficiaries. In some situations, probate may be less burdensome.
If using a will to transfer property, probate may be simplified and expedited by ensuring the personal representative (also known as an executor) has specific authority to sell or transfer the real estate and the authority to hire professionals including real estate agents and attorneys to provide assistance should the need arise.
Distributing Real Estate via Trust
Using a revocable trust to transfer your real estate provides you with flexibility during your lifetime and efficiency after death for your beneficiaries. Revocable trusts avoid the probate process, thereby maintaining your privacy and ensuring a smooth and timely transfer or your real estate to your beneficiaries without the time and expense of court. During your lifetime, you retain full control of your home once it is titled into your revocable trust. You can live in the house, refinance it, or sell it as your life circumstances or wishes change.
Irrevocable trusts can also be deployed to hold a home on behalf of, and transfer it to, one or more beneficiaries. Irrevocable trusts can be used to minimize estate taxes. A home’s fair market value after death is factored into a decedent’s estate tax calculations. By transferring a home to an irrevocable trust, the far market value may be excluded from an individual’s estate.
Currently, Massachusetts has a $2 million estate tax exemption. Therefore, even relatively modest homes can chew into much of an individual’s estate tax exemption.
Asset for Beneficiaries
For individuals who want to leave their real estate to their children, trusts also create an opportunity to protect and manage the inheritance and ensure that the assets from the sale cannot be taken by your child’s potential divorcing spouse or lost to lawsuits by creditors. Trusts can ensure that real estate and the proceeds from the sale stay in your family.
Life Estate
In addition, a life estate deed is a deed that reserves the right of the owner to occupy a property for the rest of their life while naming who will assume the property upon death. An important feature of a life estate deed is that the transfer of ownership happens as an operation of law without the need for probate. A life estate deed is not always advisable because the occupant loses full control of the real estate during your lifetime, requiring the consent of remainder beneficiaries should the occupant decide to sell the home.
You have many options for deciding what should happen to your house upon your death. Your estate plan should capture your wishes, protect your family, and provide a smooth transfer of your most financially and emotionally valuable asset.
Conclusion
Thoughtful planning ensures your home continues to provide comfort, stability, and value for generations to come.
Curious about the best way to protect your home?
Schedule a consultation with Old Colony Law today.
