Your home isn’t just the place you live – it’s also a considerable portion of the wealth that you have to pass on to those you love.
Deciding how to pass this asset to your chosen beneficiaries can be complicated because there are several different methods you can choose – and each has its own benefits, drawbacks and tax implications. Here are some options:
Direct bequest
You can leave your house to your beneficiaries in your will. This is a simple, straightforward method that lets you retain full control of the property during your lifetime. The drawbacks, of course, are that your property will have to go through probate, and estate taxes can be costly. Wills can also be contested, and that can further complicate your legacy.
Revocable living trust
When you transfer your property into a revocable living trust, you still maintain control over the property until your death. Once you die, the property then transfers to the residual beneficiary or beneficiaries, bypassing probate. This is more expensive than simply having a will and it requires a lot more administrative work, and it doesn’t help with gift taxes.
Qualified personal residence trust
A qualified personal residence trust (QPRT) is a type of irrevocable trust that allows you to remove your home from your estate while still allowing you to remain in the property for a pre-set period. Once that period is over, the remainder interest transfers to your beneficiaries automatically (and you either have to leave or become a renter). This is primarily done to reduce the value of an estate and lower the gift taxes that your beneficiaries may otherwise incur. The drawbacks are that you lose control of the home, and the tax benefits are lost if you die before the specified term ends.
Joint ownership with the right of survivorship
You can add your chosen heir to your property as a joint owner with the right of survivorship, and they will become the sole owner automatically upon your death. This avoids probate and makes challenges to your decision much harder – but it also grants that person immediate ownership rights. You can not simply change your mind if a disagreement arises, and your home could be subject to creditor claims if your co-owner runs into financial problems.
Decisions like these can be tough, but the right legal guidance can help you find the best solution for your needs.