If you are like most people, your home is your most valuable asset, and you likely have very clear ideas about what you want to become of it when you pass away. If you have children, chances are that you want it to go to them. How do you ensure your wishes become a reality?
According to Credit.com, leaving your home to your children can be as easy as willing it in your will or as complex as changing the deed. Explore the three main ways you can leave your home to your children, as well as the pros and cons of each.
A will is the most traditional estate planning document and probably the most straightforward. With a will, you can specify certain individuals who you want to inherit your assets when you pass away. You can name a single beneficiary for an asset, or you can name multiple.
Though simple, using a will does come with its drawbacks. The biggest drawback is the fact that your home will have to pass through probate, which can take months or even years. Probate is also costly, and it leaves your home vulnerable to creditors. If you have any unpaid debts upon your death, the executor of your will must repay those debts before it can distribute your assets. If your home is your most significant asset, it is possible that the executor will have to sell it to repay your debts.
Create a trust
When you use a living trust to transfer your home to your children, your home becomes property of the trust. However, you can still manage your home — and any other assets you transfer to the trust — for the duration of your lifetime, just like you do now. When you die, the assets within the trust will automatically transfer to your beneficiaries without having to go through probate, which means your loved ones can avoid the cost and delays that typically come with the process.
Use your home’s deed
The third option for transferring your home to your children involves using the right language in your deed. The terms “Joint Tenant with Right of Survivorship” and “Transfer on Death” both allow you to transfer your home to your loved ones without having to create a will or trust. Though this option may seem easiest, it comes with several drawbacks.
For instance, deeding your home means you no longer have full control over it. If you wish to refinance in the future, you can only do so with the consent of the “co-owner.” Another drawback is that your home becomes subject to the debts of the co-owner. Finally, keeping the home out of a trust may make you ineligible for Medicaid, should you ever need to apply.