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Estate Planning: Leaving A Home To Heirs While You're Still Alive

Troy Werner and his family

Written by Troy Werner

Troy Werner has been an indispensable asset to The Werner Law Firm since joining in 2009, providing exceptional legal service to its clients.

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POSTED ON: December 13, 2019

When it comes to real estate and estate planning, there are many different options available to you. In real estate, you could find land for a mobile home or rent a space. You could buy a home, or take out a loan for one. As well as using your home to finance other endeavors. You […]

When it comes to real estate and estate planning, there are many different options available to you.

In real estate, you could find land for a mobile home or rent a space. You could buy a home, or take out a loan for one. As well as using your home to finance other endeavors. You could co-own it with your spouse and gain tax benefits. But when the time comes for you to pass on ownership to someone else, exactly how much of your home belongs to you will have a large say in how you can give it to your heirs.

Inheritance becomes more important the older you get, but it’s never too early to start thinking about how you want to handle your assets and properties after your death. Some people prefer to gift their homes to their heirs – others sell them the homes, but at a cost of a dollar or so.

Yet gifting a home you paid for will cost your heirs considerable amounts of money in tax. Whereas selling it to them for a tiny fraction of its true market value will force your heirs to pay tax on the capital gain of whatever the remainder of the home’s value is after you subtract the value of a dollar.


Your Estate Planning

Thankfully, estate planning exists. It gives individuals the legal and financial tools necessary to wisely plan the inheritance of their heirs. It both satisfies the taxman and provides your loved ones with maximum value.

Estate planning is not a straightforward process. The approaches you can take depend on your properties and assets (the estate), and other factors including the age of your heirs, the laws of your state, and the amount of ownership you have over your real estate.


First, the Basics

Your estate is anything you leave behind after your death. For celebrities with massive royalties, several properties and countless assets, an estate can be quite large. Managing it can be a full time job, one that organizations are built around. But for most people, your estate will be anywhere from the size of a single home and a car to several vehicles and tracts of land.

Transferring a home over to your loved ones while you’re still alive can be done in several ways. You could continue to own the home and pay tax on it while having your heirs live in it, whilst preparing the transfer of ownership of the home to them through a living trust or a will and testament. You could also make the home transferrable-on-death, a recent option in the state of California which allows some homes (within a certain value) to be transferred to a beneficiary.

Alternatively, if you really need to transfer your home to your heirs now, you could sell your home to your heirs at full price. This allows them to make a small down payment on the home. Then take back a note for the rest of the home’s value. In addition, require monthly payments at the absolute minimum interest rate, ideally the AFR (applicable federal rate). Further decrease the amount they owe you by giving them a monthly gift totaling below the annual gift-tax exclusion rule. Finally, let them inherit what they paid upon your death.

The estate does not include life insurance policies, assets you control under the name of a private company, or anything owned on a joint basis. However, certain tools – such as a living trust – allow you to plan for how your form of ownership over these assets transfers to your beneficiaries upon your death or incapacitation. For most, the common estate planning tool is the will.


The Pros and Cons of a Will

A will has its benefits – it can transfer assets and belongings to your heirs, allowing you to detail not only who gets what, but also who should take care of your minor children. A trust, for example, cannot declare a guardian. However, while it does do the job of helping you transfer your properties, it has its cons.

On the con side, one major point against the usage of a will as your primary tool for inheritance is probate. Probate is the process wherein a court decides the legitimacy of a will, and for those who have a will, probate is unavoidable. Some states have what is called a Uniform Probate Code – California is not one of these states, and as with every state, the Probate Code is a little different.

The exact details of how your probate will most likely go will depend on your estate and other circumstances. Thus, making it vital to coordinate with an experienced legal professional before choosing an executor and writing up your will. Typically, the duties of an executor within probate go as such:

  • A request is filed for probate.
  • A notice is published (this is typically mandatory).
  • All beneficiaries and heirs must be notified of the probate.
  • In some cases, they must protect the estate from potential losses by posting a bond.
  • Provide the statements of witnesses to the will.
  • Deal with other required tasks (including more filing).

Probate costs both money and time, and in some cases, it can cost an outrageous amount of both. It is not always necessary to undergo probate – at least not for the entirety of your estate.


The Benefits of a Trust

A living trust has the upside of staying private, not requiring probate, and plan for disability. While a will only goes into effect when you die, a trust can go into effect after you have entered a vegetative state.

In addition, if you’re suffering from a condition like dementia with no chance of reversal. If mental disability renders you unable to making decisions, then a trust can activate and your assets can be distributed. With a will, having you be mentally incapacitated can become a source of both grief and strife in the family.

Trusts are simple to set up with the right legal help. You will need all the proper documentation of ownership over your assets. However, if you keep track of what you own, a trust can be the best way to ensure that everything finds its way into the right hands.


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Founded in 1975 by L. Rob Werner and serving California for over 48 years, our dedicated attorneys are available for clients, friends, and family members to receive the legal help they need and deserve. You can trust in our experience and reputation to help navigate you through your unique legal matters.

Whether you need help creating a living trust or navigating probate, our living trust law firm's compassionate team of estate planning lawyers and probate lawyers are here to help you and ready to answer your questions.

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