Deciding when and how to relinquish the family home can be one of the most challenging issues seniors face. For many, a home is their most valuable asset and a cornerstone of the wealth they would like to transfer to their family.
If you are one of AARP's estimated 87 percent of older adults who want to stay at home and "age in place," you may be planning to stay put as long as possible with the goal of transferring your house to your heirs after you die.
Here is a review of the ways you can go about leaving your home to your children:
Wills
Perhaps the simplest way to do this is to leave the house to designated heirs in your Will. After you die, the house will pass on to your named beneficiaries in probate. Your heirs will incur normal probate costs to administer the transfer, typically anywhere from 5 to 15% of the value. If more than one person inherits your home, they must decide jointly what to do with it. If one child wishes to keep the home while another wants his or her share of the proceeds, for example, the conflict could create an ongoing rift among siblings.
Trusts
Other legal options, such as trusts, can reduce the costs and delays of probate. Establishing a Trust can simplify the process, lower the cost of transferring assets to your heirs, and allow you to cover certain expenses upfront. A trust can also help reduce family conflict as the Trustee can make distribution decisions himself.
An irrevocable trust can even provide significant protection from all kinds of creditors, including medicaid claims and beneficiary's divorcing spouses.
There are significant differences between revocable and irrevocable trusts, including cost, upkeep, and flexibility. There is a different type of trust used to solve each issue. Your circumstances are unique, and your trust-planning will be as well.
Deeds
A third option is to deed your home to a beneficiary, before your death, with or without retaining a life-estate. This solution is the least costly option, but comes with a number of significant issues. One major issue is that after such a transfer you would lose full control over the the home, including the ability to unilaterally refinance or sell the home. If you transferred the home without retaining a life-estate, you would also lose the legal right to continue to live in the home. For these reasons and others, transferring your home before your death is generally not the best option.
Before you plan to leave a home to someone, you should talk to them to find out if they really want it. If they don't have any intention of living in the home and don't want the responsibility of managing real estate, you should look at other less burdensome options.
Have a conversation with your kids, evaluate your own needs, and then consult with an attorney who will help you determine which option best fits your unique circumstances.