Ask anyone who has lost a loved one; they will say the greatest gift is time. No amount of money can buy back time with someone who has profoundly impacted your life. In the absence of time, transferring wealth, specifically a home, is one of the most significant assets a person passes on to their loved ones. The home is where memories are made. This is where parents watch their children grow up and where families spend time around the holidays with their loved ones.
As we age and estate planning becomes more real, it is important to know how to title a home for your heirs appropriately. If done incorrectly, what can be seen as an act of love can have devastating consequences. When titling a home, using a life estate deed has many benefits for both the owner and the beneficiary. However, knowing the pros and cons of this option will help you make the best decision.
A life estate deed is a written document that transfers the home, upon your passing, to the listed beneficiary(s). This is very similar to listing a beneficiary on a retirement account. While you are alive, you keep complete control of the home. Upon your passing, ownership passes to your heirs. One noted benefit to a life estate deed is that the home bypasses probate. Probate is when the court system administers your estate upon your passing instead of your chosen individual. Your home will also get a “step-up in basis” for your heirs. This means your beneficiaries will inherit the home at its current market value and own it tax-free. Another benefit is that a life estate deed “without powers” can give your home “exempt” status when applying for Medicaid. The downside to creating a life estate deed “without powers” is that you lose some control of your home while still alive to the “remainderman.” The remainderman is the individual who inherits the property. To best determine if a life estate deed is an option for you and to word it properly, you must speak with an estate attorney first.
It can become problematic when parents add their child/heir as a joint owner on the property. Joint ownership of a home is generally used between spouses. As a joint owner, both parties have an undivided interest in the home. However, this arrangement can also lead to potential risks. The concern is that if the parent and child were to have a falling out, the child could stop the parent from doing what they feel is best with the home. This also opens people up to credit risk. If your child were to be sued, a lien could be placed on your home to satisfy the debt. The last but not final issue is if the child were to divorce. This may require you to buy their ex-spouse out of their portion of the property.
There is no one-size-fits-all answer to titling a home. This is why we take the time to understand our clients’ goals and help educate them on the pros and cons of their options. Once clients understand how their home fits into their estate planning, we strongly encourage them to speak with an estate attorney. This professional guidance will ensure that their final wishes are not just understood but also realized.