How to leave real estate to your heirs can be easy for them or very difficult depending on how you set up your estate. Depending on your situation you may want to:
- Use a simple will that leaves your assets through probate
- Create a trust that bypasses the courts
These days estate planning is a big industry because people want to make things easier for loved ones, reduce taxes, and shield assets from creditors. What is best for you depends on your financial situation, your emotional state, and the competence of your loved ones.
Best Way to Leave Real Estate to Heirs
The best way to leave real estate to heirs depends on your situation. There are two ways you can accomplish this:
- Include your home in your will and let it go through probate. This ensures that your assets transfer legally to your heirs according to the will.
- Set up a living trust. Your heirs get the house faster, but a trustee decides how to dispense the proceeds.
Therefore, the best way to leave real estate to your heirs depends on how much control you want to have, but it also depends on how well your heirs can agree on how to manage it.1
How to Bequeath Property in a Will
How you bequeath property in a will is simple. If you have:
- An address – simply state it, such as my house at 16 Memory Lane in Hazlet
- A vacant lot – the lot next to the car dealership on Memory Lane in Hazlet
- Legal description from the deed
While you don’t have to include flowery language, you must be clear. If you can’t describe the property unambiguously you should go to the deed and use the legal description.2
Leaving Land in Trust
Real estate issues are always complicated, so the best solution may be to leave the land in trust. There are two types that you should consider:
- Revocable – You maintain full legal control and ownership until you pass
- Irrevocable – Passes ownership to the trust itself, and management to a trustee
Revocable structures allow you to add or remove assets. It also allows you to change beneficiaries. Finally, you can dissolve it if your situation changes. While this flexibility is nice it doesn’t protect your assets from creditors upon your death. It also doesn’t protect your property from estate taxes.
Irrevocable structures are less flexible. It may be discouraging to hand over control to the trustee but necessary if you are incapacitated. You can’t change or dissolve the document once you sign it. On the other hand, it removes your property from your estate and saves your heirs going through probate and estate taxes.
Put House in a Trust
What it means to put a house in a trust is that you transfer ownership to another entity. That may sound scary, but you think about it when you think about your estate.
- You retain control of your property until you become incapacitated
- It protects your assets from creditors and the taxes
While you give up ownership to another entity, you own the trust and can manage it. This may or may not be a good strategy for you, so you should consider the nature of your estate and what is best for your heirs.
Legal Title of Property in a Trust
The trustee has legal title to the property. When you set up the structure you hand over the title, but you set it up according to your wishes. The trustee can only distribute the assets according to the parameters off the agreement.
Property Taxes in a Trust
The trust pays taxes on the property, but you must fund the trust. So, as long as you live in your house continue to pay your taxes. A couple of things to remember are:
- The trustee must make sure the trust has the money to pay them
- When your estate sells the property, the government takes taxes from the proceeds of the sale
There is no way to evade taxes. You must pay the property taxes, and there will be taxes when your estate sells the house.
Why Put Property in a Trust
You would put a property in a trust to avoid probate, reduce taxes, and avoid creditors. There are definite advantages to doing this. Let’s look at a few:
- It spares your loved ones going through probate, the court-supervised process of distributing your assets to your beneficiaries
- Your beneficiaries won’t have to pay probate costs (like court fees) or attorney fees
- They are private because no courts are involved
- Your beneficiaries receive the property immediately
Basically, it saves time and money. You spare your heirs having to go to court.
Why Not Put Property in a Trust
While there are good reasons to put your assets into a trust, there are also reasons you would not put your property into one. Here are a few:
- It is more complicated and expensive to set up than a simple will.
- You must retitle your assets, including your home. This takes time and can be complicated, especially regarding insurance
For emotional reasons, many people find it hard to give up ownership of their home. Even beyond that, there is a risk that you may lose control if you don’t set up properly. Hire a good attorney to help you if you want to go this route.
Cost to Put House in a Trust
How much cost you incur to put your house in a simple trust depends on how complicated the structure is. Simple cases can be as little as about $1,000.
- Attorney fees account for most of the expenses
- Most of the expenses occur during the setup
- You may have additional costs if you add or remove things later
These are complicated. So, we recommend that you hire a good attorney in your area who has experience setting these up.4