There are ways to leave your home to your children without putting it through probate.
You want your children to get your home.
But you want them to get it faster than probate allows.
Can this be accomplished?
You do not have to pass your home to your children through your will.
What are your options?
According to a recent article on elderlawanswers.com titled “Is It Better to Use Joint Ownership or a Trust to Pass Down a Home?,” you can pass your home through joint tenancy or a revocable trust.
Joint tenancy allows you to add your child to the deed of your home as a joint tenant.
What does this do?
It gives your child an equal ownership of interest in the property.
When you die, your share will pass directly to your child.
The end result?
You child owns 100 percent of the property.
Are there disadvantages?
In a word, creditors.
Creditors can demand the property to satisfy a debt ... of your child.
Creditors can sue in a partition proceeding.
What does this mean?
The property interests could be divided so the property could be sold to pay the creditors of the debtor-child.
Even if you do not want to and have no credit problems?
Yes. You can suffer for the problems of another.
Also, your child could decide to have the property divided and force you to move.
Are there other potential issues?
The capital gains treatment of the property could be affected.
The step up in basis.
What is a step up in basis?
The basis for the inherited property is the current value of the property, most likely the original purchase price.
Passing half your property to your child through joint tenancy will initiate a step up in basis on one-half of the property.
What about your gifted half?
It will be the same as the original purchase price.
What does this mean?
If you child sells the property, he or she will have to pay capital gains taxes on the difference between the selling price and the tax basis.
Is there a workaround?
If the child lives in the home for at least two years before selling, he or she can exclude up to $250,000 if single—and $500,000 if a couple—from the capital gains from taxes.
What is a revocable trust?
By putting property in a revocable trust and naming your child as a beneficiary, the property will pass outside of probate.
A trust can protect your claim to living in the home.
A revocable trust will also avoid capital gains issues.
The tax basis on your home will be fully stepped up when you die.
The child can sell the property immediately and would pay little to nothing in capital gains.
There is more flexibility and more protection available in a trust.
He or she can set up a trust to efficiently and safely pass your property to your children.
Another option for residents of Kansas or Missouri is a "beneficiary deed" that both avoids probate and results in a full step up in basis.
In addition, a beneficiary deed can be revoked by you (or your spouse, if the last surviving owner) and the home can be sold by you.
Work with an experienced estate planning attorney to determine whether any of the above options is appropriate for your unique circumstances.
So, how do you find an "experienced" estate planning attorney?
First, ask around. Friends, family and other professional advisors are trustworthy sources.
Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").
Third, either way, verify! Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.
In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: elderlawanswers.com (February 27, 2017) “Is It Better to Use Joint Ownership or a Trust to Pass Down a Home?