Category: Home

Avoid Pitfalls when Transferring Property to Heirs

Avoid Pitfalls when Transferring Property to Heirs

It is not difficult to ensure the smooth transfer of ownership of your property to a spouse, children, or other heirs, as long as you have an estate plan created by an experienced estate planning attorney and know what pitfalls to avoid. Most importantly, you want to avoid these pitfalls when transferring property to heirs, says the article “I’m a Financial Planner: Here Are 5 Mistakes You Must Avoid When Transferring Property to Heirs” from GoBankingRates.  If you die without a will, your state’s intestate succession or next-of-kin laws will determine who inherits your house if yours was the only name on the deed.

Next-of-kin succession varies by state, but for the most part, the priority order is first the surviving spouse, biological and adopted children, parents, and siblings, followed by grandparents, aunts, uncles, nieces, nephews, cousins and extended family members.

You’ll want to know how your state treats intestate property to avoid unwanted surprises for your family. For instance, in some states, full siblings are prioritized over half-siblings, while in other states, they are treated equally.

The biggest mistake is dying without a will and an updated deed. In some states, the property will need to go through probate if the surviving heir is not in co-ownership of the house, regardless of what’s stated in the will.

The solution is simple. Add an adult child or the person you intend to be your executor to the property’s deed via a warranty or quit claim deed. This prevents the family home from going through probate and seamlessly transfers to the individual you want to handle your estate after you’ve passed. In particular, this should be done once one spouse in a joint-owning couple dies.

There are four general types of property ownership. The legal system treats them all differently. They are property with the right of survivorship, property held in a trust, property subject to a will and property for which the spouse does not have a will.

If two spouses purchase and jointly own a property, the right of survivorship dictates that the surviving spouse automatically receives the decedent’s half and becomes the sole owner. This is the simplest and easiest outcome, since it avoids probate and the need to alter the deed. However, it’s not always the case.

A surviving spouse might need to change their deed if a partner dies and the deed didn’t automatically transfer property after death. If only one spouse was on the deed, they may have to go through probate (if there was a will) to transfer the home into the surviving spouse’s name. The spouse may need to file a survivorship affidavit and a copy of the death certificate to ensure that the title is properly in their name.

Should you transfer property while you’re still living? It may solve some problems but create others. If a primary residence is transferred to an adult child and they sell it not as their primary residence, it could lead to a large capital gains tax bill. However, if the child inherits the property after your death, the heir will enjoy a stepped-up tax basis and avoids capital gains taxation.

Before taking any steps to arrange for the transfer of the home after passing, talk with the person or people to make sure they want it and the responsibilities associated with owning a home. This is especially true if there’s more than one heir with different opinions.

If children don’t get along or are in different financial positions, leaving one property for all of them to manage together could lead to family fights. Talk with them before putting your wishes into your estate plan to avoid unnecessary resentment and, in the worst case, litigation. Working with an estate planning attorney can help you avoid these pitfalls when transferring property to heirs. If you would like to learn more about property management in your estate plan, please visit our previous posts. 

Reference: GoBankingRates (July 26, 2023) “I’m a Financial Planner: Here Are 5 Mistakes You Must Avoid When Transferring Property to Heirs”

Image by Paul Brennan

 

The Estate of The Union Podcast

 

Read our Books

Estate Planning issues in Multigenerational Homes

Estate Planning issues in Multigenerational Homes

Multigenerational planning is common today, where grandparents, parents, and children live in the same home. Estate planning issues can arise in multigenerational homes where grandparents, parents and children all reside, as explained in the recent article from Kiplinger, “How to Handle Estate Planning for Multigenerational Living Arrangements.”

For instance, if a grandparent pays for a separate apartment on their child’s property, who owns the apartment? What if an adult child living with elderly parents pays for updates on the property or provides caregiving services to the parents? Should these arrangements lead to unequal inheritances? All of these issues can be addressed through estate planning.

The first issue to address is home ownership. Should the title be taken jointly, as tenants in common, with a life estate, in trust, as a family partnership, or in some other manner? Which family members are allowed to live in the home? And again, how will this arrangement impact inheritances?

For many families, using a trust to detail all aspects of use and ownership is the best solution. The trust document can address everything, including the right of first refusal, language governing who has priority to buy the property upon the death of the parents, equalization language between beneficiaries to account for gifts to certain family members during life, and tax provisions to ensure beneficiaries pay applicable taxes, equally or proportionally.

The trust may also be used to address the incapacity or death of a family member and what will happen to the property for future generations. The level of detail can be extremely important when dealing with multigenerational shared real estate purchases and uses.

For some families, an LLC (Limited Liability Corporation) or LLP (Limited Liability Partnership) allows for easier fractional property ownership. LLCs and LLPs also help with asset protection and maintaining privacy.

An LLC operating agreement specifies which members will be in charge of the daily operation of the property, payment of expenses, and how ownership interests are divided. Intrafamily loans can be leveraged to pay for improvements on the property, and the agreement can be used to address many different scenarios for the family.

If one child provides care for an aging parent, or a grandparent provides regular daycare for working parents, should these arrangements be monetized and factored into the estate plan? What about a sibling who does not live in the home and does not provide any care for elderly parents or young children? There is no one answer for these or the many other situations arising from multigenerational living arrangements.

An experienced estate planning attorney can ensure your documents align with your wishes and address these estate planning issues in unique, multigenerational homes. Often, having a professional in the room when mapping out a plan can alleviate some family dynamics, making these matters less emotional. If you would like to learn more about estate planning for large, multigenerational families, please visit our previous posts. 

Reference: Kiplinger (June 29, 2023) “How to Handle Estate Planning for Multigenerational Living Arrangements”

Photo by Julia M Cameron

 

The Estate of The Union Podcast

 

Read our Books

Important to Evaluate your Planning before a Second Marriage

Important to Evaluate your Planning before a Second Marriage

Second marriage, goes the saying, is the triumph of hope over experience. It’s a happy event for everyone, but different from the first time around. You might have created an estate plan during your first marriage. Still, chances are your life is a lot more complicated this time, especially if you both have children from prior marriages and more assets than when you were first starting out as a young adult. It is important to evaluate your planning before a second marriage. This is why a recent article from The Bristol Press is aptly titled “Plan your estate before you remarry.”

Here are some pointers to protect you and your new spouse-to-be:

Take an inventory of all assets and liabilities. This includes assets and debts, life insurance policies, retirement plans, credit card debt and anything you own. It’s important to be open and honest about your debts and assets, so that both people know exactly what they are marrying. Once you are married, you may be liable for your partner’s debts. Your credit scores may be impacted as well.

Decide how you are going to handle finances. Once you know what your partner is bringing to the marriage, you’ll want to make clear, unemotional decisions about how you’ll address your wealth. Are you willing to combine all of your assets? Do you want to keep your investment accounts separate?

For example, if one person is selling a home to move into the home owned by the other person, what costs, if any, will they contribute to the cost of the house? If one person has significant debt, do you want to combine finances or make joint purchases? These are not always easy issues. However, they shouldn’t be ignored.

Decide what you want to happen when you die. You and your future spouse should meet with an experienced estate planning attorney to create a will, Power of Attorney, Health Care Proxy and other documents. This lets you map exactly where you want your assets to go when you die. If there are children from prior marriages, you’ll want to ensure they are not disinherited when you die. This can be addressed through a number of options, including creating a trust for your children, making them beneficiaries of life insurance policies, or giving children joint ownership of property.

Even if there are no children, there may be family heirlooms or items with sentimental value you want to keep in the family, perhaps passing to a cousin, nephew, or niece. Discuss this with your future spouse and ensure that it’s included in your will.

Meet with an estate planning attorney. You should take this step even if you don’t have many assets. If you have children, it’s even more important. You’ll want to update your will and any other estate planning documents. If you have significant assets, you may decide to have a prenuptial or postnuptial agreement. The estate planning attorney will also help you determine whether you need a trust to protect your children.

If you had planning done in the past, it is important to sit down with an estate planning attorney to evaluate it in before to a second marriage. If you would like to learn more about estate planning for blended families, please visit our previous posts.

Reference: The Bristol Press (July 14, 2023) “Plan your estate before you remarry”

Image by Lubov Lisitsa

 

The Estate of The Union Podcast

 

Read our Books

Family Vacation Home need Planning for Future

As terrific as it may be to have a family vacation home, the same reasons it’s a wonderful thing can make it one of the most complex assets to pass to future generations. Everything’s great when the parents are alive and well. Still, over time this changes, as explained in a recent article, “Do family vacation homes foster closeness or animosity?” from The Press-Enterprise. The family vacation homes needs planning if you want it to be around for future generations to love and enjoy.

When parents are relatively young and hosting their children and visitors, life at the family vacation home is easy. Everyone knows the routines of the day, who cooks, who cleans, who is in charge of the barbeque, and where the best swimming is. Parents envision their children’s children coming every summer and enjoying the same relaxed bonding experience.

But life changes, especially as generations pass on. Leaving the family vacation home to all children in equal shares in a will or even in a trust could be a prescription for a family disaster. An idyllic place could turn into a family feud.

Who will be in charge of the vacation home? The eldest child, or the one who lives closest to it? Is one child wealthier than the others and more able to shoulder the costs of maintaining a second home? And as grandchildren grow up and have families of their own, deciding who will have access to the house during peak summer weeks can become acrimonious.

Start by having a family conversation to determine if the children (and grandchildren, if appropriate) want the vacation home to remain in the family. Do they all want it, and how do they expect to use it? Are they considering tearing it down and building a larger home, or could it become rental property?

If only one child wants the home, do they want to inherit it instead of receiving any other inheritance? Are there enough assets to equalize the gift? If not, you could give the child who wants the property the right to buy it from the others or your trust upon your death.

If more than one child is interested in the property, you’ll want to talk with an experienced estate planning attorney to plan the property’s future.

Any time more than one person is going to own a property together, they need to have an agreement detailing the rights and obligations of co-ownership. If the decision is made to keep the vacation home in the family, it may be best to leave it in a trust with specific terms for the use of the property, naming a trustee to manage the trust—one or two people, but not everyone in the family. The trust language must address how and when the property can be sold, who will pay for property taxes, utilities, minor and major repairs, and the terms for passing the property through generations.

If the family decides they’d prefer the property to become a rental property to generate income, consider putting it into a Limited Liability Company (LLC). Each of the heirs may have a membership interest in the LLC, one is designated as a manager, and an operating agreement is created to set out the terms for selling or otherwise transferring a membership interest.

An asset as special as a family vacation home needs and deserves planning for the future. Meet with an experienced estate planning attorney to create a plan for the future, then go and enjoy your time with the family. If you would like to learn more about managing real property in an estate plan, please visit our previous posts. 

Reference: The Press-Enterprise (July 2, 2023) “Do family vacation homes foster closeness or animosity?”

Image by Monika Schröder

The Estate of The Union Podcast

 

Read our Books

Life Estate may be a good option for Older Homeowners

Life Estate may be a good option for Older Homeowners

A life estate may be a good option for older homeowners, but there are some potential drawbacks you should know. A life estate is an interest in real property that entitles the life estate owner (sometimes called the “life tenant”) to the right to occupy, possess, or otherwise use the property for the lifetime of one or more individuals (usually the lifetime of the person or persons who hold the life estate interest).  A life estate owner has the right to possess and use the property for the duration of the life estate. A “remainderman” has an ownership interest in the real property. However, they have no right to possess or use it until the life estate terminates, typically when the life tenant dies.

  • The Property Avoids Probate. Property held in a life estate isn’t required to go through probate but rather transfers ownership to the remainderman. This also eliminates the complications of stating your intentions for your property in a will.
  • The Property is no Longer Part of the Estate. Once your state’s Medicaid look-back period is over, a property transferred through a life estate won’t count against your eligibility for the program.
  • It Keeps Elders in Their Homes. Even though a life estate effectively transfers property ownership to the remainderman, the life tenant has guaranteed residency, if desired, for the rest of their life.

While life estates are helpful tools, they do have several drawbacks:

  • The Property is still Vulnerable to the Debts of the Heirs. Because the life estate transfers property rights to a designated heir, the heir’s creditors may have the right to seize the inherited assets to cover any outstanding debts, contradicting the life tenant’s wishes to pass their assets on directly to the heir.
  • The Heirs’ Rights to the Property Vest at Creation. Once you create a life estate, the property rights vest in the heir(s) and can’t be revoked without the heir’s consent.
  • The Property Can’t Be Sold or Mortgaged. If a life tenant wants to significantly alter the property, convert it into a rental, or even decide to sell, they must have the remainderman’s permission.

A life estate may be a good option for older homeowners because it allows them to set up a straightforward, legal directive for an heir to inherit property without probate. Life estates also let the owner control the property in most respects. If created in a timely manner, a life estate can even help its creator qualify for Medicaid assistance. However, life estates do have some disadvantages. Ask an experienced estate planning attorney if this is a good move for your situation. If you are interested in learning more about life estates, please visit our previous posts. 

Reference: Quicken Loans (Aug. 9, 2022) “What Is A Life Estate And What Property Rights Does It Confer?”

Photo by Terrillo Walls

 

The Estate of The Union Podcast

 

Read our Books

Deeding your House to your Child can Backfire

Deeding your House to your Child can Backfire

People often ask estate planning attorneys if it is possible to avoid probate after their passing simply by adding their adult children’s names to their real property deeds while they are living. As explained in the article “Think twice (and read this) before putting your kids on the deed to your home” from Coeur d’Alene/Post-Falls Press, this can theoretically work. However, deeding your house to your child can backfire, in a big way.

Here are the reasons to keep your property deeds in your name:

If your child has any financial problems, your home is vulnerable. Divorce, debt, litigation, or bankruptcy happen, even to the least likely children. You could lose your home. You could also end up needing to spend thousands on legal fees to convince a court that your home should not be part of the assets subject to your child’s legal or financial difficulties. Either way, you lose.

Adding your child’s name to a real property deed is a gift for tax purposes. Unless the value of your home is extremely low, which is unlikely, you’ll need to report this gift to the IRS.

If the child named on the deed passes before you, you may end up owning the home with their spouse, children, or whomever they named in their will. Did you want your daughter-in-law to be the joint owner of your home? Or your grandchildren? The outcome will depend upon the exact language used on the deed, making it vital to have an estate planning attorney draft the deed document if you use this method.

Medicaid look-back includes the transfer of any assets, including property. If you need to apply for Medicaid to help pay for long-term care, you’ll be asked if you have made any gifts or transfers of assets to anyone within the five years before submitting your Medicaid application. Adding another person’s name to a real property deed is considered a gift by Medicaid. This could prevent you from being eligible for Medicaid assistance for months or as many as five years.

Co-owners must agree on decisions about the property. Your co-owner has to agree before you can sell your home, rent it, or take out a loan against the home’s value. Can you be sure that your child or other co-owner will agree to your wishes?

Capital gains taxes as co-owners are different from inherited property. If a child inherits a property after death and then sells it, they will only be responsible for paying capital gains taxes assessed on any increase in value from the date of your death to when the property is sold. However, if their name is on the property deed while you are living, they will be deemed to have acquired their one-half ownership for half the price you originally paid. They will be responsible for the capital gains taxes applied to their half. They’ll have a hefty tax bill, which they would not have had if they inherited the home.

Deeding your house to your child can backfire. There are ways to plan for your estate to minimize probate without adding a child to your property deed. All of this can be done in a way that doesn’t put your property at risk if you or your child runs into financial trouble and protects your eligibility for Medicaid. An experienced estate planning attorney can help create an estate plan to protect you, your home and your heirs. If you would like to learn more about managing property in your estate planning, please visit our previous posts. 

Reference: Coeur d’Alene/Post Falls Press (June 11, 2023) “Think twice (and read this) before putting your kids on the deed to your home”

The Estate of The Union Podcast

Read our Books

 

There are Benefits to Creating A Life Estate

There are Benefits to Creating A Life Estate

Maintaining a home and transferring ownership after the death of a spouse can be complicated. There are some benefits to creating a life estate. While the life tenant is still alive, they’re in control of the property in all respects, except they can’t sell or encumber it without the consent of the remainderman. After the life tenant passes, the remainderman inherits the property and avoid probate. Life estates can simplify the estate planning process, so that a homeowner can easily pass property down to the next generation upon death.

Quicken Loans’ recent article entitled, “What Is A Life Estate And What Property Rights Does It Confer?” says that by understanding the features of a life estate and creating one at the right time, you can enjoy these benefits:

Property Avoids Probate. Property held in a life estate transfers ownership to the remainderman, saving everyone time and headaches. It also eliminates the complications that arise when trying to spell out your intentions for your property in a will.

Property No Longer Part Of The Estate. Once your state’s Medicaid look-back period has passed, a property transferred through a life estate won’t count against your eligibility.

Keeps Seniors In Their Homes. Even though a life estate effectively transfers property ownership to the remainderman, the life tenant has guaranteed residency, if desired, for the rest of their life.

While a life estate can be a helpful tool, it does have several drawbacks:

The Property Is Vulnerable To Debts Of Heirs. Because a life estate transfers property rights to a designated heir, the heir’s creditors may have the right to seize inherited assets to cover any outstanding debts. This would contradict the life tenant’s wishes to pass their assets on directly to the heir.

The Heirs’ Rights To The Property Vest At Creation. Once you create a life estate, property rights vest in your heir. You can’t take back those rights without the heir’s consent.

There are some real benefits to creating a life estate. Because you can’t reverse a life estate without the consent of both the life tenant and remainderman, you should understand each facet of the contract before committing to it. Ask an experienced estate planning attorney to help you. If you would like to learn more about managing property in an estate plan, please visit our previous posts. 

Reference: Quicken Loans (August 9, 2022) “What Is A Life Estate And What Property Rights Does It Confer?”

Pitfalls of Gifting and Joint Ownership

Pitfalls of Gifting and Joint Ownership

As with many things related to estate planning, do-it-yourself solutions appearing to be fast and easy fixes often become problems for parents and their children. Trying to simplify asset protection by gifting is loaded with risks, says a recent article, “SENIOR SCENE | Pitfalls of gifting and joint ownership of assets” from The Sentinel-Record. There can be many pitfalls of gifting and joint ownership.

Most notably, the laws governing eligibility for Medicaid used for nursing home care require a 60-month “look-back” period, where any transfer of assets for any reason makes the person ineligible for Medicaid benefits up to 60 months or even longer from the date the gift was made.

Secondly, creditors of the person making a gift could claim any transfer was a fraudulent transfer made in an attempt to defeat the rights of creditors to make a claim. Both parent and child could end up in costly, time-consuming litigation over creditor claims.

Third, and perhaps most problematic, is the chance for the child’s creditors to attach the assets in order to satisfy a claim against the child. This could also occur if the child is embroiled in a divorce—the assets could be considered a marital asset by the court.

Gifting assets was a popular estate planning strategy to reduce or eliminate estate taxes in the past. Nevertheless, in light of the very high current federal estate tax exemptions, this is only used for some families.

Another disadvantage of gifting is the transfer of tax cost basis from the parent to the child for capital gains tax purposes. As a result, the child would be forced to pay capital gains taxes on the increase in value from the parent’s tax cost—typically the original purchase price—versus the ultimate sales price.

Contrast this with a child who inherits an asset at death from a parent. When the child inherits the asset at death, the asset receives a step-up in tax basis to its date-of-death value. This is one of the most favorable tax rules remaining, which is lost when gifting during life is used.

Another problem occurs when seniors make assets jointly owned, especially bank accounts. The bank often encourages this, trying to be helpful so the child may pay the parents’ bills. However, by placing the child’s name on the account, the parent may be subjecting their account to potential creditor claims of their children.

In addition, the jointly owned account passes only to the surviving owner, so the estate plan may be circumvented by having the assets in the account pass to the one child rather than passing to all the remaining trust under a will or trust.

An estate plan created by an experienced estate planning attorney can eliminate many pitfalls of gifting and joint ownership. Before making gifts or establishing joint accounts, meet with an estate planning attorney to learn how to achieve your goals, including planning for Medicaid, without putting your assets at risk. If you would like to learn more about asset protection, please visit our previous posts. 

Reference: The Sentinel-Record (May 28, 2023) “SENIOR SCENE | Pitfalls of gifting and joint ownership of assets”

The Estate of The Union Season 3|Episode 3

The Estate of The Union Season 2|Episode 8 is out now!

The Estate of The Union Season 2|Episode 8 is out now!

Homelessness is not going away. How we manage it can be frustrating and sometimes seems futile.  It’s not. In Homeless But Not Hopeless, Brad and Alan Graham, the founder and CEO of Mobile Loaves and Fishes have a lively conversation on what he, Mobile Loaves and Fishes, and their Community First! Village program are doing to improve the lives of the homeless, and improve our city too.

If you’ve ever wondered about what to do when approached by a homeless person at an intersection, Alan has an answer for that too!

If you would like to learn more about how to volunteer or donate to Mobile Loaves and Fishes or Community First! Village, please visit mlf.org

Mobile Loaves & Fishes Logo

 

In each episode of The Estate of The Union podcast, host and lawyer Brad Wiewel will give valuable insights into the confusing world of estate planning, making an often daunting subject easier to understand. It is Estate Planning Made Simple! The Estate of The Union Season 2|Episode 8 is out now! The episode can be found on Spotify, Apple podcasts, or anywhere you get your podcasts. If you would prefer to watch the video version, please visit our YouTube page. Please click on the links below to listen to or watch the new installment of The Estate of The Union podcast. We hope you enjoy it.

The Estate of The Union Season 2|Episode 4 – How To Give Yourself a Charitable Gift is out now!

 

Texas Trust Law focuses its practice exclusively in the area of wills, probate, estate planning, asset protection, and special needs planning. Brad Wiewel is Board Certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. We provide estate planning services, asset protection planning, business planning, and retirement exit strategies.

www.texastrustlaw.com/read-our-books

Life Estate can be a Cost Effective Option

Life Estate can be a Cost Effective Option

A life estate can be a cost effective option for couples. The person who holds the life estate is known as the life tenant. He or she is entitled to live in and use the properly as they see fit. However, they don’t have the right to sell or transfer the property to someone else.

Realty Biz News’ recent article entitled, “What is a Life Estate and How to Use It,” explains that a recorded deed will reference that a property is a life estate and name the life tenant. Once the life tenant passes away, the property passes to the remainderman—those who will inherit the property after the life estate ends. Let’s look at some of the reasons why someone might want to have a life estate:

Estate Planning. By transferring property into a life estate, the original owner can ensure that the property will pass to a designated beneficiary without probate. It can be particularly useful for people who want to avoid the time, expense and complexity or the probate process.

Asset Protection. The original owner can protect the property from creditors and other potential liabilities by transferring the property into a life estate. This is useful for those in high-risk professions or with significant debts or legal issues.

Family Dynamics. A life estate can also be used to address family dynamics and ensure that everyone is taken care of. For example, a parent might create a life estate to ensure that their adult child can live in the family home for the remainder of their life without giving them outright ownership of the property.

Tax Planning. By transferring property into a life estate, the original owner can reduce their taxable estate and potentially lower their estate tax liability. This can benefit individuals with large estates who want to minimize their heirs’ tax burden.

When a life estate is created, the property is divided into two parts:

  1. the life estate; and
  2. the remainder interest.

The life tenant has the right to use and enjoy the property during their lifetime. The remainderman has the right to inherit the property after the life estate ends.

Remember, with a life estate; the ownership is broken down into possession and ownership. The life tenant has possession and ownership until they pass away; the remainderman has ownership only. When the life tenant passes away, the property passes to the remainderman, who becomes the new owner. The remainderman has the right to sell, transfer, or otherwise dispose of the property as they see fit. Speak with your estate planning attorney to see if a life estate can be a cost effective option for your family’s planning. If you would like to learn more about life estates, please visit our previous posts. 

Reference: Realty Biz News (March 20, 2023) “What is a Life Estate and How to Use It”

Photo by Kindel Media

 

The Estate of The Union Podcast

 

Read our Books

Information in our blogs is very general in nature and should not be acted upon without first consulting with an attorney. Please feel free to contact Texas Trust Law to schedule a complimentary consultation.
Categories
View Blog Archives
View TypePad Blogs