Estate PLanning Now for Your Home Makes Things Easier for Your Heirs



With the rise of the Baby Boomer generation into the ranks of the retired and semi-retired the businesses of estate planning has become a major industry. The children of the greatest generation are now coming to grips, albeit slowly, with their own mortality and are beginning to plan for what comes next. One of the largest considerations that they have to deal with is what they should do with their homes. For this generation, the idea of owning a home was one of the most paramount factors of their life. In most cases the home is the single most valuable asset that they have. And how they handle it is an essential part of effective estate planning.

There are some options, of course, one of which is to simply sell the home now and place the proceeds of the sale into a trust that can be included as part of the estate to be split up after your gone. Another option is to deed the home to one or more of your adult children to prevent infighting and ugliness when the time comes. Both of these options have an upside and a downside, and both are very popular. Let’s look at each one.

With the second option you have to deal with a number of factors, the first of which is where do you live after you have deeded the home to your adult children. If you decide to stay there, then you will of course be under the decision-making control of these children in regard to the home. You also have to deal with the concept of your children being “paper millionaires”, which is a condition which arises when the home was bought in an area that was not highly sought after in the past, but in today’s market has a huge up sale value. One example would be a brownstone in New York City which, when purchased sold for $18,000 at the time, can now go for as high as $5M. If you and your children get along, however, this might be your best bet as it does offer you the capacity to “age in place” which is what most boomers want to do.

You could also go with an inclusion in a basic will as to how you want the home to be handled. Again, this is the best done when all parties are on good terms, but since that is rare, and at the tie of a parental death emotions can run high, you should consider this as a very low level option for how to address this delicate matter. You can alleviate some stumbling blocks with the use of a wide variety of trusts that can be used to control how your assets are managed, and you should discuss these options with your lawyer and estate planner.

One consideration that you should think on right now is how to address the issue of choosing and executor. No matter how you choose to proceed with the handling of the home and other assets, in the end your dead, and the person that you choose to name as executor is charged with the task of making command decisions, and settling disagreements. You should keep in mind that unless the executor is a family member or close friend, i.e. if you choose to use a lawyer as executor, there will be fees that should be taken into account for their services. These fees are either paid upfront or are expressly named in the will. If they are paid upfront they should still be stated in the will, and a note should be made in the document about them and that they have been cleared. This is a good idea since many times, years may pass and staff at legal firms can change between the tie the will is draw and services are pre-paid, and when they are actually needed.

In many cases, probate and legal fees can run as high as 5 to 15 percent of the total value of the estate. The use of a trust can help to lower those costs, and they are taken care of up front, so there is less for your heirs and executor to have to worry about when the time comes. It can make things much simple also, due to the fact that when a trust is set up the named beneficiaries do not have to go through the probate process. The main thing to keep in mind here is that you are adding another person to the mix when it comes time to put your final wishes into motion. When you set up a trust you must establish a trustee.

It’s vital that the person that you choose to be your trustee have good organizational skills and a keen sense of financial matters. They should also be willing to take on the long-term responsibility of the task, as changing a trustee is not an easy thing to accomplish once the progenitor of the trust has departed this life. Another consideration is what kind of trust you want to establish. There are a wide variety and each has its advantages and pitfalls, both for you and for the trustee you name. The main two types are revocable and irrevocable. Irrevocable has lower costs and better tax benefits on the back end, but you waive off the right to change your mind, cancel the trust, or any other rights. This type of trust is also called a durable, binding, or forever trust in some states. The other kind, revocable, allows the grantor to name themselves as trustee while they are still alive, and then after your death the trustee position transfers to a named person of your choosing.

Back to dealing with the issue of your home, the final option in terms of a trust is what is called a Qualified Personal Residence Trust, in some states this is called a home trust, or a housing trust. If your home places your estate out of the exempt status bracket for estate taxes, you should consider this option. This further helps to reduce the burden of dealing with estate taxes and how your heirs address your home. This type of trust is great for those with a high value home as it allows the grantor to give the home a fraction of its value, usually what was paid for the home when originally bought, which helps to ease the tax burden. The homeowner transfers the home to an irrevocable trust, but they retain an interest in the home according to self-defined terms. This allows you to essentially be a tenant to a trust landlord and you get to live in the home still.

These are just some of the considerations that you need to keep in mind when you are dealing with the issue of how to handle your home in regard to your estate planning. Taking the time now to plan how things such as your home and other high value assets are handled can make life easier for your heirs after you are gone. They will be dealing with a lot of stressful situations and high emotions at a time when they will have to make key financial decisions that have a very narrow window to be addressed. Help them now by having a well-structured plan in place well before it is needed.

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