29 Dec How to Keep Your Family Home in the Family
For many long-time homeowners, the idea of passing the family house down to the next generation is assumed. Unfortunately, too many neglect to take the proper steps to make this inheritance official before it’s too late. Working together to draw up a clear and concise estate plan with your family can ensure that property is distributed with everyone’s best interests in mind. Here are some aspects your family should consider when preparing a multi-generational home.
Include the house in a will
A will is a legal document which states who will inherit your property at your death and appoints a legal representative to make sure that your wishes are carried out accordingly. This is considered to be less costly up front. However, there are fees/costs that your beneficiaries will incur to probate the will in court. Those fees include court costs and attorney’s’ fees. Whereas, with a living trust, you pay more now, but the cost to your family are minimal later. You will need to decide whether you want to pay less now and have your family pay more later or vice versa.
If you have multiple beneficiaries, they might not agree on what to do with the property after you die. For example, your daughter wants to keep the house and live there but your son wants to sell it. If this is the case, you can leave additional financial compensation to your son but your daughter will inherit the house.
Put your house in a living trust
A living trust (also called a “revocable trust”) is a compilation of assets (i.e. cash, real estate or investments) that are managed by its creator for the benefit of the person who establishes the trust and/or its beneficiaries. Unlike a will, a living trust goes into effect immediately upon its creation, enabling its creator to use it for disability planning, as well as death-related decisions.
Another advantage of a living trust is the ability to shield the identity of ownership.
Gift your house to family
When you give someone (other than your spouse) property worth more than $14,000 ($28,000 per couple) in one year, you have to file a gift tax form, according to the IRS. It is important to remember, however, that when you gift your house to family, your tax basis (the original cost of the house) becomes their tax basis.
Establish a land trust
A land trust is an arrangement where the recorded title to the property is held by the trustee, but all the rights and conveniences of ownership are exercised by the party who created the trust, the trustor, then the (beneficiary) after the trustor’s passing, both of whose interest is not disclosed. (source: Illinois Department of Financial Professional Regulation). This method of owning real estate can prevent many of the difficulties that otherwise may be encountered in acquiring, owning, selling or transferring real estate.
Sell your house to family
You also have the option to sell your house to your family at market price. If you reduce the price, the difference in the full market value and the sale price may be considered a gift. There may be tax implications associated with this gift.
When planning your multigenerational home, it is important to understand all of your options. You should consult with an estate planning attorney to help you decide which option is the best for you. If you are ready to learn more about keeping your home in the family, set up a consultation with us.