If you own a home, you have a good reason to form a plan for what happens to it after you die. Estate planning is not the most exciting of topics, but it can be incredibly important for your loved ones. With this information, you will understand the importance of setting up an estate plan for your home and your other assets.
Types of Homeownership
Leaving property to your loved ones can be a significant addition to their potential inheritance, but the amount depends on the type of ownership. Common ownership arrangements include:
Sole Ownership: One person owns the property, which may transfer to their estate or their beneficiaries when they die.
Joint Ownership With Right of Survivorship: Multiple people own the property. When one of them dies, the others automatically gain ownership of that person’s share of the property, without passing it to the estate.
Joint Ownership Without Right of Survivorship: In this case, multiple people own the property, but they do not gain any of another’s equity when that person dies. Instead, the equity of the person who died passes to the estate.
Ownership by Contract: A person owns a home and has control over it until they die. Once they die, the property passes to beneficiaries specified in the contract, bypassing the estate or probate.
When you start working on estate planning, be sure that you understand how you own your home. The type of ownership, as well as the extent of your estate planning, may affect how quickly your heirs can gain control of the property or the equity in it.
Challenges to the Estate Settlement Process
When you think about estate settlement, it might seem like an easy process, especially if you only have a handful of major assets to settle. Settling even a small estate, however, can create a variety of potential challenges, especially if you intend for your loved ones to inherit a property they can live in:
Lack of a Will: If you fail to leave a will or a trust, your heirs will have to go through the probate process. This process can be faster if everyone agrees on the best way to settle the estate but can take months if there is any disagreement.
Contested Will: Even if you leave a will with clear expectations, it’s possible that your heirs will disagree over the settlement. A contested will or probate can be expensive and time-consuming to resolve.
Mortgage: The presence of a mortgage on the property may affect whether your heirs can maintain the property or if they must sell to settle the mortgage.
Late Payments/Taxes: If payments for the mortgage or property taxes are late or several months behind, heirs may have to catch up on the payments before they can decide what to do with the property.
An experienced financial advisor working together with your attorney to create a clear estate plan can potentially minimize or eliminate most of these possible challenges.
Leaving Property to Your Loved Ones
If you want to avoid many of the possible challenges that heirs face during the estate settlement process, creating a will or a trust is the best way to ensure it. Much of the probate process involves researching the person’s assets and debts, so that the debts can be settled and the remainder of the assets handed down to appropriate beneficiaries. If the information about your wishes is not clear, the probate court may take months to sort it out.
By comparison, if you set up a trust for your assets, you may be able to bypass the probate process entirely. As an added benefit, the financial institution setting up your plans for the estate may also act as an executor, ensuring that the estate is settled according to your wishes as much as possible.
The best gift you can give to your loved ones on your death is a concrete plan that they do not have to find on their own. Grieving the loss of a spouse, parent or sibling can be less stressful when the settlement of the estate is handled by a competent party with all the information.
Author bio: Jonathan Kuiter is the Director of Business Development at Brown and Company, a wealth management firm dedicated to simplifying its clients' financial landscapes by removing uncertainty and providing clear, tailored strategies.
SOURCES
https://trustandwill.com/learn/property-ownership-estate-planning
https://www.fidelity.com/learning-center/personal-finance/estate-planning
https://www.thebalancemoney.com/overview-of-types-of-property-ownership-3505420
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