It’s hard knowing you will not be around forever. Contemplating mortality is a concept as old as mankind itself, and it will continue to be one of our most contentious topics of thought. However, at some point, we all must acknowledge that life ends – and when it does, things must keep on moving. It is up to us to take the matter of contingency into our hands and ensure that our future generations get to take care of things after we have gone – but to do so, we must first ensure that they manage to take proper ownership of our belongings and assets when we are no more. This is where estate planning comes in.
Estate Planning Essentials
For new homeowners, thinking about your estate and the status of your home after your death may not be a natural top priority, but it should be high on your list. Death and incapacity are not just guaranteed at some point down the road, but – as morbid as the thought is – both could strike at any time. There is no such thing as planning for your estate too soon.
There is, however, bad estate planning. Which is why estate planning needs to be approached intelligently, with the help of a legal professional. Sadly, inheritance is not quite as simple as writing a few words on a piece of paper and declaring it to be your will in front of all of two people – there is a lot more involved in creating an effectively iron-clad and efficient estate plan that turns your home and everything else you own over to your children or loved ones, in the manner you see fit.
Now that you are armed with the understanding that it is never too soon to start thinking about setting up an estate plan, let us get into what estate planning options homeowners should consider:
Last Will and Testament
The most famous and well-known of estate planning tactics, the last will and testament is a legal document prepared for the express purpose of detailing a person’s wishes regarding assets, certain belongings and dependents. A will can be used to:
- Transfer assets you wholly own to your children/parents/spouse/friends.
- Determine your minor children’s guardians.
- Donate your belongings to specific charities.
- Keep your belongings from the hands of heirs whom you determine should not receive it.
For a will to be entirely valid, it needs to pass through a probate court. Probate courts exist to determine the legitimacy of a will, and provide an open forum for a family to challenge the contents of a will and/or defend it. Probate can take several weeks and up to several months, and it is not advised to go into a lengthy probate without the help of an attorney well-versed in estate planning and state laws on inheritance.
Revocable Living Trusts
A revocable living trust is an estate planning tool used to easily bypass probate, although it has its slew of other benefits. A trust works through the preparation of a trust document, signed and (typically) notarized as a living trust, and then used as an entity to fund assets into.
Typically, through the help of an attorney, you can retittle assets and amend the ownership of properties and belongings to the name of the trust rather than your own name, to the point where you can fund not just properties, but also accounts, bank instruments, and your portion of a joint ownership.
Once you have set up a trust document, you can assign a trustee to help execute the document upon your permanent incapacity or death, and assign beneficiaries to whom your assets should go. A trust allows you to bypass probate, keep your financial information private, and even provision your inheritance, allowing minor children to receive their inheritance over time rather than all at once.
Power of Attorney (POA) for Finances
There are many other estate planning tools aside from the will and the trust, yet the most relevant remaining estate planning tool for the homeowner is the durable power of attorney (POA) for finances. This is a document that assigns total financial representation to someone whom you see fit to carry out any financial decision-making in the case of your incapacitation.
This document does not go into effect when you die – instead, if there are decisions to be made at a time when you are entirely unable to make them, you can assign someone you trust to handle such decisions: taking care of investments, carrying out debt payments, dealing with the collection of money and the payment of certain bills, and so on.
While a general understanding of the different options for homeowners is vital, it is even more important for you to know exactly how you own your home, and how much of it is truly yours. Do you own the house and the lot, or simply the house? Is the property leased, or is the deed and title in your name? Are there multiple owners? Is it a joint ownership/community property between you and a spouse?
Having a general understanding of your home’s ownership status is just as important as having an overview of your finances. Your total wealth and the value of your home can help determine how much of what you own can pass onto your children, and how much is spent in taxes, probate and legal fees. To avoid a greater headache, many homeowners with complicated financial situations and valuable homes choose to bypass the hassles of probate through a living trust.
Significance of Living Trusts
And the end of the day, any amount of rudimentary estate planning is better than letting all your property go intestate and be distributed according to California law. However, it is well worth the time and effort to speak with a legal professional on the matter of estate planning – to explore your financial situation, examine your options, and come to a cost-efficient, lucrative conclusion.
Being a homeowner means lots of new responsibilities. A home can be a liability in the wrong hands – but with the right planning, you can turn a property into a major source of fortune and cherished memories for future generations to come. The time to start planning is now – and regardless of how you choose to plan your family’s inheritance today, you can always go back and review the paperwork in the future.