One of the most expensive assets you own is likely your home, and you'll want to pass this on to a loved one after you pass away. Here are some tips that will help you do it.
Do Not Donate Your Home To Them Before You Pass Away
Some people think that it will be easier to simply donate the home to the person they want to give it to while both people are still alive, all while you continue to live in it. While this may seem like a good idea, it actually isn't.
When you donate a home, the person receiving the home doesn't receive the step-up in basis that the home is worth. What this basically means is that they would have to pay capital gains taxes when the home is sold based on the difference between the price of the home when you bought it and when they eventually sell the home. If you bought your home many years ago, this could be a big jump in value that would result in a lot of taxes.
In addition, you are losing control of the home while you are living in it. If the person you donated the home to passes away, you could find yourself in a situation that you are not prepared for. The home may need to be sold to pay for their debts, or the home may be passed along to somebody that doesn't have the same agreement about who lives in it. Your relationship with the person you donated the home to can also change over the years, and they will want total control of the home.
Use A Trust To Pass On The Property
If the purpose of leaving a home to somebody is so that they have a roof over their head, then consider leaving the home in a trust. This will allow the person to live in the home, but the title remains as part of the trust. This makes sure that the new owner of the home cannot quickly sell the home for a profit, since it all needs to be approved by the trustee.
You can also use a trust to make sure that the home is passed on without any remaining mortgage payments on the property. You can state conditions in the trust that mandate that cash assets are used to pay off the mortgage before any formal inheritance happens, making sure that a loved one does not receive a home and additional debt.
Contact an estate planning attorney near you for more information.
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