How to Benefit from an Estate Plan When You Own Real Estate

Many parents believe that by adding a child’s name to a property deed, they can pass along the property outside of probate. Unfortunately, those who act on that belief often find they have invited more problems than they have avoided.

This is because in many states, when more than one person owns property together and they are not married. The property that is owned is referred to as tenants in common.  This means that if one of the owners dies, his or her ownership share does not transfer to the other owner.  It goes to the deceased owner’s heirs through probate.

This problem can be avoided if the deed lists the property as designate property ownership with joint tenants that both have the right of survivorship or similar language signifying survivorship rights. Enlisting the help of an attorney with estate planning knowledge would be advisable to pass your property on outside probate.

However, there are some reasons why it may not be advisable for you to deed real estate to children, with adverse tax consequences topping the list.  This is because deeding property to children is actually considered a gift, and the cost basis for that gift is what you paid for your home.

Example:  say you paid $50,000 for your home and it is now worth $350,000.  You add your children to the deed, which the IRS deems a gift.  After you die, the children sell the home for the market value of $350,000.  They will be taxed on the difference between the cost basis of $50,000 and the sale price of $350,000 – or $300,000, minus the cost of the sale.  That’s a big tax burden for your children.

Another solution would be, if your children inherited the property via your will, then sell it using the same scenario above, they would owe no tax on the sale because their cost basis is what the property was worth when they inherited it (current market value of $350,000).

If the idea is to leave property to children while avoiding probate, you can do so by creating a simple trust and titling the property in the name of the trust, naming your children as trust beneficiaries.  You avoid the problems and costs that the property passes outside probate in a tax-advantaged way.

As a Personal Family Lawyer®, I can further advise you on all your options and make things as easy as possible for your family during a Family Wealth Planning Session.  If you would like to have a talk about estate planning for your family, call our office today to schedule a time for us to sit down and talk.

To your family’s health, wealth and happiness!

David Feakes

P.S.  Want to get started on the most important planning you’ll ever do for your family?  Give our office a call at (978) 263-6900 to get started.  You’ll be so glad you did.

David Feakes is the owner of The Parents Estate Planning Law Firm, PC – a law firm for families in the Acton, Massachusetts area.  David helps parents protect the people they love the most.  If you would like to receive David’s exclusive, free report, “Six Major Mistakes To Avoid When Choosing An Estate Planning Attorney,”  you can get it right here.

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At The Parents Estate Planning Law Firm, we answer your questions at your convenience; we stay in frequent communication; and we meet to discuss changes in life circumstances and in the law to ensure that your assets are protected.

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