Creating an estate plan is one of those adulting activities that is so important, yet dreaded for many. The idea of planning for after your death feels morbid and unwelcoming.
Yet, there are so many important reasons to consider estate planning.
If you own property or valuables, you want to make sure they get left to the right people. You also want that process to be as simple as possible when the time comes.
Read on to learn more about estate planning and options for transferring property.
What Is Estate Planning?
Estate planning means creating a plan for your assets following your incapacity or death. Assets can include:
- Property
- Houses
- Cars
- Stocks
- Artwork
- Life insurance
- Pensions
It might surprise you to learn your estate plan should also address how to handle any debt being left behind.
There are a number of important reasons to consider taking care of estate planning before your death. Some of these reasons include:
- Nominating guardians for your minor children
- Preserving family wealth
- Providing for a spouse and children
- Funding education
- Making charitable donations
By creating an estate plan ahead of time, you designate how your assets are distributed and to whom.
Benefits of Planning Ahead
For many people, the motivation to take care of estate planning comes from the benefits it provides.
By creating an estate plan and designating where you want your assets to go, your loved ones may avoid the hassle and expense of going through probate.
If you have assets, money, or property, you can do a lot to protect those assets and save money for your beneficiaries by planning ahead in a trust. Your assets can be kept private and protected from unnecessary tax implications.
It also saves your loved ones the turmoil of working this all out once you are gone. For some families that means helping to avoid conflicts that might arise. For other families, it means creating protection for a spouse and children.
Options for Transferring Property
If you own a home and have spent your life caring for it and paying for it, you certainly want to protect the property after you are gone. There are a number of options to consider for your property transfer as part of your estate plan.
Whether the option is best for you, will depend on your individual circumstances. This is one time when it makes sense to consult with an estate planning attorney for guidance.
Let's take a closer look at some of the options.
Co-Ownership
Let's say you own your home and want it passed on to your children. One option is to make them co-owners on the deed before your passing. While this might seem like a simple option because their name would be on the deed once you pass, making the house automatically theirs. There are some potential complications to consider.
First, you need to own the house without a mortgage to add a name to the deed. If you add their name to the deed, there can be some tax implications because you have basically gifted part of the home to them.
Will
Many people create a will as part of their estate planning. In your will, you can designate who will inherit your assets, like property, upon your death. This means that your will can say that the property should be transferred to the beneficiary upon your death.
There are a few things to consider with this option. First, a will still needs to go through the probate process. This makes it public document which can lead to privacy issues if you prefer to keep private how your property has been passed on.
Revocable Trust
A revocable trust is a way to legally organize your assets while you are still alive. Once you set up a revocable trust you can become the trustee of the trust and still make decisions about the assets in the trust. A revocable trust is relatively flexible because it can be changed without the consent of the beneficiaries.
The person who creates the trust is called the Trustor. The Trustor is usually the Trustee, or “manager” of the trust. If the Trustor becomes incompetent, the person they chose to be the successor Trustee steps in to manage everything.
Once the Trustor passes away, the successor Trustee can distribute the assets to beneficiaries according to the terms of the trust, without needing to go through the probate process.
The major benefit of the revocable trust, besides control of what happens to the assets after the death of the grantors, is that it keeps your assets out of the hands of the Court after your death, and totally within the control of your family.
While it can be costly to set up a trust, it is often worth the cost that is saved later through probate and tax implications. Furthermore, a trust can have rules that protect your assets for your beneficiaries against future lawsuits and divorce. Rules vary greatly by state, so when setting up a revocable trust, you should consult with an estate planning attorney.
Qualified Personal Residence Trust
Another option is called a Qualified Personal Residence Trust or a QPRT. A QRPT is an irrevocable trust, which means it cannot be changed without the consent of the beneficiaries. A QPRT allows the owner of the property to transfer their property to a trust. They can continue to live at the location and are responsible for costs while they are there. The QPRT is set up with a specific time limit.
This means that the owner can live there until this time limit expires, then the property becomes controlled by the trustee. For this to save on tax implications, the original owner of the property has to outlive the QPRT. If they die before the designated time is up, the beneficiary is responsible for paying taxes on the property.
This can be a creative cost-saving option if the original owner of the property outlives the time period of the QPRT, if not it can be costly for the beneficiaries.
Transferring Property as Part of Your Estate Planning
The importance of estate planning can't be overlooked, no matter how overwhelming the process feels. It can remove many difficult decisions for your heirs and save money too.
For many of your options, you should consult with an estate planning attorney so you fully understand all the considerations of the decisions you are making.
We are here to help you with those decisions. Contact our office today to set up an appointment to talk about your estate planning options.