Planning for the time when you’ll no longer be around is a difficult topic for many of us to discuss. After all, who wants to be reminded of their own mortality? But, regardless of the discomfort, it’s a topic that needs to be addressed. Avoiding it can only bring confusion and hostility among your heirs, and the possibility that your hard-earned assets won’t be passed on as you would have intended.
When the administration of an estate plan involves the inheritance of a house, as many do, the potential for problems grows even greater. While most situations go smoothly, just as many don’t, and the decisive factor between the two outcomes almost always boils down to how much forethought goes into the succession plan — who gets what when you’re no longer here?
Because of the emotions almost always attached to a home, whether it’s a primary residence or a vacation cabin — as well as the potential financial implications — deciding who will inherit your home and how it will be inherited is tricky territory to navigate. No two families share the same relationships among their members. When an asset as substantial as a property is involved, emotions can overtake logic, leading to tensions that can last for a long time. All the right “what ifs?” must be asked — regardless of how uncomfortable these questions might make everyone feel.
In our newest episode of Absolute Trust Talk, Kirsten Howe and associate attorney Madison Gunn will closely examine the many factors that should be considered when you’re passing real estate on to your heirs. In their collective years of practice, they’ve encountered a wide variety of scenarios, and they’ll be leveraging this experience to provide a unique perspective on this very important topic. In the process, they’ll unearth a number of questions, many of which you may not have considered.
In this episode, we’re going to discuss:
- Why careful planning is the key to the smooth administration of an estate plan
- How changes in the California tax code have had a profound impact on inheriting the family home
- The potential challenges a family home might carry when it comes time to pass it on to an heir (or heirs)
- Several potential scenarios where inheriting the family home can range from relatively simple, to downright complex
- How open, honest communication can prevent resentment and hostilities among heirs
If you’re like most homeowners, the family home is by far your most valuable asset, so it’s vital to ensure your property gets passed on as you see fit. This episode will give you a roadmap of the process, the factors that should be considered, the questions that must be asked, and how to facilitate good, honest communication among your heirs. Let’s get started.
Big Three from Episode #096:
- We tend to think of the inheritance process as fairly simple — almost linear. In reality, no two families share the same dynamics among their members. The pressures and resentments that can boil over when an asset as valuable as a home is involved may have implications that can last for decades, if not permanently. This is why careful planning and honest communication are critical.
- Minimizing the property tax burden for your heir or heirs is almost always an absolute priority, but because of variations in state tax codes, this is a process that must be navigated carefully. In California, for example, property taxes are substantial enough, to begin with, and recent legislation has drastically changed the tax implications of passing on a family home.
- There can be a wide variety of scenarios to consider when passing on a home — or any real estate, for that matter. Deciding how that asset will be distributed to your heirs is only the beginning, as each of these scenarios carries its own set of circumstances that must be taken into account. It is highly recommended that you get ALL of your wishes in writing, in terms of who is responsible for what i.e., if multiple children inherit a home and they’re all going to own it, who’s paying property taxes, which sibling is maintaining the home, etc.
Time-stamped Show Notes:
2:13 Property taxes are a major issue when a home is inherited. Here’s how legislative changes can alter the taxation landscape.
4:03 There are plenty of considerations to be made for an estate plan when a family home — or any real estate — is involved. Start listening now for what you need to know.
4:45 Press play now to learn about two scenarios that are the easiest to carry out when an estate plan calls for the dispensation of real estate.
5:27 When more than one child is involved, things can get a bit more complicated. Here’s why.
6:42 Real-life situations don’t always go as planned, leading to the depletion of financial resources. Kirsten and Madison share a prime example.
7:18 When a parent wants one particular child to inherit the home and divide the estate equally, there may not be enough assets to carry out this plan. Here’s one strategy to help resolve that type of scenario.
8:57 Heirs embark on decidedly different life paths and can have varying levels of financial success. Start listening now to learn how it can affect their ability to inherit a home.
9:17 This one question is a pivotal part of building the contingencies that make for a successful estate plan.
10:49 Even if the family home is to be sold, the process isn’t always that simple. Here’s what you need to know.
11:28 This action can alleviate many confusion and resentment among beneficiaries.
13:11 If one child wants the family home, but the others don’t, we’ve got insights to help handle the situation appropriately.
15:10 What if multiple children inherit the home, but only one wants to live there? We have a few ideas for you to consider.
16:15 Press play now to hear about a common scenario that should be avoided whenever possible.
17:20 When multiple children inherit a home and plan to rent it out, properly organizing their business relationship is vital. Here’s the best way to accomplish that.
19:23 What happens if you want the house to remain in trust? Are there pitfalls to this situation?
21:35 Placing a home in a trust brings its own set of challenges. Here are some of the questions that need to be asked.
24:52 The family home, or even a vacation cabin, may not hold equal appeal to all your heirs. This is why having a candid conversation will lead to a clearer understanding of the future.
28:45 Q&A: Can the trustee sell the house even if other siblings don’t want to?
29:45 Q&A: Is the trustee required to rent the house after the parents die?
30:42 Q&A When the trust leaves the mortgage to one child, does the mortgage also go to that child?
Resources/Links Mentioned in this Episode:
- Are you a CFP or CPA? Know someone that is? Join us on October 28, 2022 for Absolute Trust Academy Trust Administration 101. All CFPs and CPAs will earn 4 continuing education credits. For more information and to reserve your spot, visit https://AbsoluteTrustAcademy.AbsoluteTrustCounsel.com.
- Absolute Trust Talk Ep. 067 Estate Planning Challenges with Real Estate
- Absolute Trust Counsel would love to offer access to our Incapacity Planning resource page: https://AbsoluteTrustCounsel.com/Incapacity-Planning/. We’ve collected our top planning information all in one place so listeners can find videos, guidebooks, blog posts, and a host of information with tips and strategies on implementing, planning, and protecting themselves and their loved ones.
- We’re pleased to provide you with a library of e-books to address common estate planning questions and concerns in practical, easy-to-understand language. https://AbsoluteTrustCounsel.com/Resources/.
- ASK KIRSTEN: If you’d like Kirsten to answer your question on the air, please email her at Info@AbsoluteTrustCounsel.com.
[Ad] Are you a resident of Walnut Creek or the greater East Bay needing help with your estate plan? At Absolute Trust Counsel, your family’s safety is our number one priority. We understand how complicated it can be to know if you’re making the right legacy planning decisions, which is why we’re here to make things easier. Schedule a free discovery call, and let’s talk about how we can help build the right plan for you and your family.