When I meet with estate planning clients, I try to spend a significant amount of time discussing the types of assets they own and wish to pass down within their estate plans. The reason for this is simple. The type of asset you want to pass down will directly impact the method used to pass down the asset within your estate plan. By way of illustration, let me explain some of the ways you can pass down real estate in your estate plan.
Estate Planning Goals and Objectives
When you think about creating an estate plan you probably focus primarily on protecting and providing for your family and loved ones if something happens to you. Ancillary goals, however, will also be important in your estate plan such as probate avoidance, tax avoidance, and asset protection. If you are passing down real estate in your estate plan, these secondary goals should be considered when deciding how and when that property is transferred.
4 Ways to Pass Down Real Estate
One of the many benefits to creating a comprehensive estate plan is the ability to use various estate planning tools and strategies to maximize the value of the assets passed down to loved ones. By way of illustration, consider the following options for passing down real property in your estate plan:
- Gifting in Your Last Will and Testament. Gifting real estate in your Will is an easy and straightforward way to pass down the property; however, it may not be the best way. A primary disadvantage to gifting real property in your Will is that the property becomes part of your probate estate. Consequently, the intended beneficiary may not receive title to the property until the end of the probate process which can take months, even years. Furthermore, the property is subject to creditors claims and its value may be used when calculating federal and/or state gift and estate taxes.
- Gifting through a trust agreement. One of the biggest advantages to passing real estate down through a trust is that the asset avoids probate. Consequently, your intended beneficiary may be able to receive title to the property shortly after your death. Using the right type of trust can also provide asset protection if you are concerned about creditors or Medicaid estate recovery.
- Creating a life estate or a “Lady Bird” deed. If you want to allow a spouse (or someone else) to remain living in the property after your death, but ultimately want a third party to inherit the property, a life estate or “Lady Bird” deed may be your best option. A life estate gives one beneficiary the right to use and live on the property for the life of the beneficiary. Upon the death of the life tenant, ownership in the property automatically transfer to the remainder beneficiary. A “Lady Bird” deed works like a life estate with one important difference. With a Lady Bird deed (also referred to as an “enhanced” life estate), the grantor is not required to seek approval from the remainder tenant if the grantor wants to sell the property.
- Joint Tenancy with Rights of Survivorship. Another simple way to pass down your interest in real estate is to create a joint tenancy with rights of survivorship while you are alive. Obviously, this only works if you are willing to co-own the property while you are alive. If you do create a joint tenancy with rights of survivorship, your interest in the property automatically passes to the co-owner(s) upon your death without the need for the property to go through probate.
Contact an Experience Chapel Hill Estate Planning Attorney
If you have additional concerns or questions about how to pass down real estate in your estate plan, please contact a Chapel Hill Estate Planning Attorney at Clarity Legal Group by calling us at 919-484-0012 or contact us online.