Leave a legacy, not a headache: Tips for passing real estate to heirs
Proper estate planning can help reduce issues associated with a mortgage or taxes when transferring property.
Planning to pass property on to loved ones is generally done with good intentions. However, without proper planning this “gift” could turn into a nightmare for the recipient. Below are some tips to help increase the odds that the inheritance will pass with ease:
Problems to watch out for:
Some of the more common issues that can arise when transferring property through an inheritance include:
- Intestacy. This legal term refers to the transfer of property when an estate plan is not present. The transfer is governed by state law and may not be a true reflection of the owner’s desires.
- Mortgage. Mortgages generally include a due-on-sale clause. This clause requires a mortgage be paid in full in the event of a transfer. However, federal law generally requires a mortgage remain intact when transferred from one person to another in the event of death. Additional issues also arise if a reverse mortgage was used on the property. This may lead to heirs selling the property simply to pay off the balance.
- Insurance. Home owner’s insurance policies generally expire shortly after the property is inherited. It is wise to review the policy and take steps to ensure the property is properly covered.
- Taxes. Depending on the details of the estate plan, the heir may be required to pay estate taxes. Certain steps can be taken to help reduce these obligations, including putting the home and other assets into a trust.
Legal tools are available to help better ensure property is transferred to desired recipients and help reduce tax obligations.
Legal tools that can help ease the transfer of property
Revocable and other forms of trusts can be used to help reduce tax obligations and protect property that an owner wishes to pass on to loved ones. A revocable trust is created during the creator’s, or settlor’s lifetime. Trusts allow the creator to place an array of terms on how the property is managed. They can be tailored to fit the creator’s needs, potentially including provisions that the home stay within the family or providing funds to help cover expenses associated with the home.
Determining the right legal tools to include in an estate plan to meet your needs can be difficult. As a result, those who are putting together or updating an estate plan are wise to seek the counsel of an experienced estate planning lawyer. This legal professional will be able to review your needs and wishes, better ensuring a plan is structured to meet your needs.
Keywords: estate planning