By Lee Sherman
Making sure your wishes are carried on when you pass is the primary goal of estate planning. But you will also want to make sure that this is as cheap and hassle-free as it can be for your beneficiaries.
There is nothing worse in life than when a loved one passes and you are left not only to grieve but to clean up any financial mess that has been left behind. This is especially true when it comes to your real estate holdings. Do you have a cabin in the woods, a beachy vacation home, or a mini-mansion that you are currently living in? Or a rental property that is bringing in income?
If you plan to pass on your real estate holdings to your kids, there are several options available to you including gifting it to them while you’re still alive (you may even make arrangements with them to continue living in it), bequeathing it when you pass or signing what’s called a “Transfer on Death” deed which is available in some states. All of which have legal and tax implications.
Once you have a good sense of the kinds of costs that can accrue when settling your estate, you will want to make sure you are doing all you can to keep those costs at a minimum. Follow these tips in order to ensure your real estate will remain a significant part of your legacy.
Include your property in your will. While this sounds like a no-brainer considering your property will most likely be among your biggest assets, not everyone takes this vital first step. A will is a legal way to determine who gets what. There may still be arguments amongst your heirs. That’s where a trust comes in.
Establish a trust. Putting property in a trust can help you avoid probate, reduce taxes and ward off creditors. Because it isn’t necessary to go through probate, your heirs should receive their inheritance immediately upon your passing and without having to pay any court or attorney fees. A trust provides the how and when that is missing from many wills. Keeping property in a trust also means that any financial dealings involving that property will be kept private. Trusts can be revocable, in your full legal control and ownership until you pass or they can be irrevocable, where you transfer ownership to the trust and management to a trustee. The trustee can be anyone, including a member of your family. Irrevocable trusts are sometimes mandated by the courts, in cases where the control is in the hands of someone with diminished capacity or when it is necessary to establish a conservatorship. But remember that when you establish a trust you hand over the title to the trust but the trustee is still legally bound to distribute the assets according to the parameters of the trust agreement.
The trust is responsible for paying all property taxes, mortgages, maintaining insurance, and keeping up with repairs on the property (not your heirs) however you must fund the trust so that it has the money to do this. In addition, as soon as your estate sells the property, there will be taxes on the proceeds from the sale.
Choosing to leave your real estate property to your heirs is much easier than deciding on how. For that, you’ll need the help of a trusted accountant and attorney.
Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.