Estate planning sounds as invigorating as a mandatory colonoscopy. You technically don’t have to have these procedures done, but getting these procedures done is highly advised for the Baby Boomer generation. The Baby boomers are retiring and blowing up industries like estate planning. Homes are typically the most valuable asset for an average American. Actively looking for counsel on how to manage a home with an estate asset makes sense. There are a lot of options when considering what to with your home and how your potential heirs will maintain it when you are gone.
Will you deed the home or apartment to avoid family strife? Do you sell in hopes to make the disbursement simpler and leave a more liquid portfolio?
In New York City, many people claim to be millionaires on paper because the homes they purchased in 1980 for $18,000 is now worth $5 million. Many older adults have reported they wish to stay put, or they want to “age in place” according to this report by AARP and the National Conference of State Legislatures. It appears they wish to leave their home as a gift instead of selling their home for a liquid cash out.
The way most people go about leaving their home is to put it in a will. This method will work. However, wills have more costs and delays than many anticipate. Trusts are created to avoid unnecessary costs or delays. There are a variety of trusts that can be created, so discussing financial trust options with family can help select to right type for your situation. Conversations about trust options can be uncomfortable for everyone involved, but tackling this task sooner than later is advised by most financial advisors.
A standard financial will works well in certain situations. A good situation to be in is to have potential heirs get along, and the chosen executor lives in the same state of the home. There should be no problem with creating a will in this situation and forgetting about it. However if your possible heirs have varied financial brackets, arguments and petty fighting may occur when the question of selling your home or not comes up after you pass. If fighting is a foreseen outcome among your potential heirs, setup a trust instead.
Setting up a trust mitigates the costs of probate, most of the family arguments, and time-consuming process of probate itself. If your executor is out-of-town, then probate will require travel time. It will require taking days off work. When the process of probate is all said and done, about 5 to 15 percent of the of the estate will be gone due to probate costs. Having a trust in place lowers these costs and can be paid upfront. The beneficiaries of a trust do not have to go through the probate process.
Setting up a trust requires a lawyer and a selected trustee with sound organizational skills. Your trustee should ideally be happy with taking on this responsibility.
The main benefit of creating a trust is lessening the burden of stress placed on your beneficiaries. Ask your potential heirs what they would do with your home after you pass? If your heirs have no interest in living in your house or managing the home as a rental property, then why gift it to them? It is an uncomfortable discussion, but it is a discussion worth having for everyone involved in the long run. Commitment to having this part of life handled keeps families away from needless squabbles or dates. Have you spoken with any of your potential executors and beneficiaries? Did you find discussions about wills and trusts difficult? If the conversation became challenging, what are some topics or environments you would avoid if you could go back and start the conversation over?