“As baby boomers age and head into retirement, estate planning has become a thriving business. How best to deal with our homes—often our most valuable asset—is among the most fraught questions that need addressing.”
Do you sell your home and downsize to leave more cash for the kids to divide?
Should you deed the house to your adult children now, to avoid fighting after you’re gone?
But then where do you live?
These questions are discussed in the recent New York Times article, “Estate Planning: Leaving a Home to Heirs While You’re Still Alive.” According to a report from the AARP Public Policy Institute and the National Conference of State Legislatures, many seniors want to stay in their homes and “age in place.” That means they may want to make a gift of their home, rather than selling and downsizing.
A home is typically left to an heir in a will. However, there are also several trusts that can be created to minimize costs and delays that add up in the transfer of your assets after you pass. Although it’s difficult for everyone involved, you should address this issue now.
A will can be used to transfer a home. However, if there are multiple heirs in different financial situations, fights can erupt over whether to keep or sell an inherited home. That’s where a trust might be a wise option. Creating a trust can reduce costs and be paid for by you upfront. It doesn’t have to go through probate, which makes it easier and quicker. To set up a trust, hire an experienced trust attorney and choose a trustee with good organizational and financial skills. This should be a person who’s comfortable with this responsibility. A trust can be irrevocable or revocable. In an irrevocable trust, the grantor surrenders the right to cancel the arrangement, but a revocable trust lets you appoint yourself trustee, so you can enjoy and control assets while you’re alive.
Aside from a trust, there are some tax and health care savings, if you transfer your property to your children while you’re still alive. It can help you qualify for Medicaid, which can provide long-term health and nursing care. However, the transfer must be at least five years before your Medicaid application. You can also use a Medicaid Asset Protection Trust. Another type of trust to look into, if your home has a high value is a Qualified Personal Residence Trust. For estates that exceed the tax-exemption limit ($5.49 million in 2017), you can place a primary or secondary home in a Qualified Personal Residence Trust. This lets the homeowner give the property to beneficiaries at a fraction of its value, reducing the estate tax burden. You transfer your home to an irrevocable trust but retain an interest in the home for a period of years. The longer the trust term, the more beneficial the gift is to the beneficiaries.
Help your beneficiaries avoid unnecessary stress during a difficult time and consider what will happen to your home after you die. Consult with an estate planning attorney to see if leaving your children your house is the best choice.
Reference: The New York Times (August 25, 2017) “Estate Planning: Leaving a Home to Heirs While You’re Still Alive”