Leaving a home as an inheritance has various complexities.
A family home holds both significant sentimental and financial value.
It is often one of the most valuable assets owned by an estate.
Proper strategic estate planning is necessary to avoid unanticipated costs and the need to sell the home to provide liquidity for taxes and other expenses.
Working with an experienced estate planning attorney can enable you to understand the nuances associated with transferring real estate as an inheritance.
Transferring a home to heirs should be done as part of comprehensive estate planning.
Because states have varying laws and families have different circumstances, there is no universal ideal option for transferring a home.
People must consider whether the potential heirs can afford ongoing maintenance, property taxes, or other costs.
The impact of probate should also be considered when deciding whether it is important to pass the house in a way that will bypass the proceedings.
As noted above, both Kansas and Missouri have a statutory fix when it comes to real estate.
Nevertheless, the possibility of financial penalties and estate tax implications should be accounted for when making any plans to transfer real estate.
If you require Medicaid, the house could be subject to "estate recovery" post-mortem.
By considering and accounting for these variables, you can make a wise and strategic decision regarding the transfer of your home.
A common option for transferring a home is through a last will and testament.
What are the pros and cons of using a last will for a house?
Benefits include the legal recognition afforded to a last will and testament and the simplicity of the document.
A possible challenge with a last will involves delays in the distribution due to lengthy probate proceedings.
As a result, heirs may face complications and additional legal fees.
For those who want to avoid probate, other options exist for passing a house to heirs.
A popular (and inexpensive) option is to consult your state statutes to see if a non-probate transfer deed is in play.
For example, we routinely create these deeds for our Kansas and Missouri clients.
In Kansas, the deeds are called Transfer on Death Deeds; in Missouri, they are known as Beneficiary Deeds.
Other than that, they are basically the same.
Whether a non-probate transfer deed is created for Kansas or Missouri real estate, the deeds are revocable by the owners until death, and the deeds must be duly recorded with the county while the owners are living or the deeds will not be effective upon death.
Homeowners who use revocable living trusts to distribute their home will benefit from a smooth transfer after they die and the ability to maintain control of the property while they are alive.
When a trust is structured appropriately, it can avoid probate and efficiently transfer the property.
A trust also gives homeowners flexibility in updating beneficiaries as necessary while shielding private estate matters from public probate records.
When the family home is left to multiple heirs, a trust can outline how the property will be handled to avoid conflict over the asset.
With a life estate deed, homeowner can retain the right to live in a home for the rest of their lives while also designating a beneficiary to inherit it after their death.
The benefits of a life estate deed are clarity regarding the inheritance and the avoidance of probate.
Possible pitfalls of a life estate deed are that it cannot be altered or revoked without the approval of the designated beneficiary.
For those who desire greater flexibility in their planning, a life estate deed would not be the best option.
Some homeowners think giving the house to their heirs while they are alive will make things easier.
Unfortunately, it can be a risky financial move.
When a house is transferred to an heir during the lifetime of the original owner, the property will not receive a step-up in cost basis.
What does this mean?
If the heirs choose to sell the property later, they could owe significant capital gains taxes.
Yikes!
Another issue with lifetime transfers is the triggering of Medicaid penalties if the homeowner requires Medicaid payments for long-term care within five years of making the property transfer.
Taxes and penalties are critical when deciding whether to gift a house during your lifetime.
Because families have different goals and challenges, there is no universal best option for real estate transfers.
Homeowners should consider the needs of their beneficiaries, their financial and long-term goals, and possible taxes and penalties.
Comprehensive estate planning with an experienced estate planning attorney can help provide clarity as you navigate real estate distribution.
If you own a home and want to create an estate plan to meet your needs, request a consultation with Harvest Law KC in Overland Park, KS.
Probate can be straightforward as well as expensive.
Creating and recording a non-probate transfer deed is an inexpensive and efficient alternative under the right circumstances.
Using a trust to pass a home to heirs can bypass the involvement of the court and seamlessly pass the property to heirs.
Although a life estate deed can be used to avoid probate, homeowners maintain less control and have limited flexibility in changing their beneficiaries.
Gifting a home while the owner is alive can trigger capital gains taxes or Medicaid penalties.
Ultimately, the best option for home transfer depends on individual circumstances.
This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.
Reference: Fidelity (Aug. 30, 2022) "Leaving your house to your loved ones"
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