What to Do with the Family Home Before or During Retirement?

In markets where a home’s value is near or above a million dollars, estate planning decisions about the family home become complicated. Do you downsize and sell now, put your home in a trust or age in place and let the kids deal with it after you’re gone?

A recent study from AARP’s Public Policy Institute and the National Conference of State Legislatures found that most adults would prefer to stay in their homes, skip the hassles of downsizing and simply leave their homes to heirs. The New York Times article, “Estate Planning: Leaving a Home to Heirs While You’re Still Alive,” discusses the many different ways that a home can be distributed to heirs, while the owners are still alive and after they have passed.

A home is typically left to an heir in a will. However, there are also several trusts that can be created to minimize costs and delays that add up in the transfer of your assets after you pass. Although it’s difficult for everyone involved, you should address this issue now.

A will can be used to transfer a home. However, if there are multiple heirs in different financial situations, fights can erupt over whether to keep or sell an inherited home. That’s where a trust might be a wise option. Creating a trust can reduce costs and be paid for by you up front. It doesn’t have to go through probate, which makes it easier and quicker. Further, the successor trustee you have named can stay in control of the home up to the time of sale. This will allow one seller to negotiate the sale and go to closing.

To set up a trust, hire an experienced trust attorney and choose a trustee with good organizational and financial skills. This should be a person who’s comfortable with this responsibility. A trust can be irrevocable or revocable. In an irrevocable trust, the grantor surrenders the right to cancel the arrangement, but a revocable trust lets you appoint yourself trustee, so you can enjoy and control assets while you’re alive.

Aside from a trust, there are some tax and health care savings if you transfer your property to your children while you’re still alive. It can help you qualify for Medicaid, which can provide long-term health and nursing care. However, the transfer must be at least five years before your Medicaid application. You can also use a Medicaid Asset Protection Trust. Another type of trust to look into, if your home has a high value, is a Qualified Personal Residence Trust. For estates that exceed the tax-exemption limit ($5.49 million in 2017), you can place a primary or secondary home in a Qualified Personal Residence Trust. This lets the homeowner give the property to beneficiaries at a fraction of its value, reducing the estate tax burden. You transfer your home to an irrevocable trust but retain an interest in the home for a period of years. The longer the trust term, the more beneficial the gift is to the beneficiaries.

Consider what you would want to occur after you have passed, and what you would be comfortable with in your later years. If your kids aren’t interested in the house, gifting it to them may not be the best option. An estate planning attorney will be able to review all of the available options and determine what will work best for you and your family.

Reference: The New York Times (August 25, 2017) “Estate Planning: Leaving a Home to Heirs While You’re Still Alive”