Most people want the satisfaction of knowing that their hard-earned assets pass to their children upon their death. A big part of responsible estate planning is to arrange your affairs in a way that ensures this outcome. Your affairs include real estate, financial accounts, life insurance, investment accounts, and many more. Your affairs are considered your “estate” whether you have $100.00 or multiple millions.
Having a will in place is an important part of this process, but you might be surprised to learn that a will alone may not be enough to ensure that your home passes to your children.
Here’s why, and what to do instead to make sure that your children get to keep your house after your death.
Why a Will Isn’t Enough
Having a will in place is the first step in estate planning. This important document organizes many affairs, not just property distribution.
A will should list your beneficiaries by name and identify which assets should pass to each. A will should also designate an executor, which is the person you trust to handle all of your affairs. In Florida, an executor is called a “personal representative” but the meaning is the same. If your children are still minors, a will should identify the guardians who will raise them until they come of age.
Unfortunately, a will alone is often not enough to ensure that your home will pass to your children. A will ends up going through the probate court process before assets are distributed.
Probate court has many downsides. It can be expensive and time-consuming. Smaller estates might take months to pass through probate, while bigger estates can take years. Additionally, your personal representative doesn’t have the legal authority to act on your behalf until they are appointed by the court. Even worse situations arise when beneficiaries contest the validity of your will making the court process take even longer. During that time, your assets are not available to your beneficiaries.
Why You Should Avoid Probate
Perhaps most importantly, probate will use all non-exempt assets, including bank account holdings and the value of your financial accounts, to first settle any outstanding debts. This means that if you have high levels of debt, your children risk losing their inheritance. Probate courts will only distribute assets to your heirs once debt and other financial concerns are handled.
One of the primary reasons for going through probate is the question of property ownership. When you are the sole owner of a property and you bequeath it to someone in your will, like one of your children, then your will needs to be probated to actually transfer the ownership of the property.
The only way to avoid this is to work with an estate planning attorney to arrange your estate in a way that bypasses probate. There are two primary methods people use to achieve this.
Make a Living Trust
A living trust is the most common and effective way to ensure that your home and other assets are removed from having to go through probate and avoid other challenges.
When you make a living trust, you fund the trust with your home and any other assets you have. During your lifetime, you maintain full control of your assets. You’re also free to make adjustments to the contents of the trust and the people who are to receive the trust assets.
Upon your death, control of the trust changes automatically to a designated person you selected who in turn can distribute your property to your beneficiaries, bypassing probate. You can even determine how to distribute your property, whether it’s outright, over a set amount of time, or at milestones in your childrens’ lives.
A living trust is a safe, reliable way to ensure your home will pass to your children, free from the hassle, expense, and delays of going through probate.
A common alternative option to a trust is to make your children co-owners of your home while you are still alive. When you’re the sole owner of your home, and you don’t have the home placed in a living trust, it will need to go through probate to transfer ownership to your beneficiaries. Adding your child to the deed of your home is a way to avoid this outcome without establishing a living trust.
While this option may be the cheaper alternative, great caution is suggested when turning to this option because there are some major problems with this method.
Co-ownership means that your child legally becomes an equal regarding decisions about your property. Placing a new roof on the home, obtaining insurance, refinancing, or selling the property all require the child to be involved with the decision regarding your home. If you want to sell the home, they could be entitled to obtain proceeds from the sale. It also means that your home becomes vulnerable if your child experiences financial issues like debt, bankruptcy, divorce, or lawsuits. Additionally, your child doesn’t obtain the capital gains tax advantages of inheriting the home through probate or through a trust. To learn more, contact our team today.