Your family home may well be the largest piece of property you own, and one that will form a large part of your estate. When it comes time to leave your home to your children there are several options available to you. Some options are more commonly employed than others, and like all other estate planning choices it’s best to discuss each of them with your attorney before you decide on the method that is right for you.
If you create a last will and testament you can use it to transfer your home to your children. Like all other transfers made through a will, the probate court will likely have to supervise the transfer before it can be completed. In California, a transfer by will of a home worth over $50,000 will involve at least some court proceeding. A transfer by will of a home over $150,000 will require a full probate proceeding. Probate is often time-consuming and sometimes costly, so will transfers are one of the least desirable methods of transferring homes.
It’s also common for a parent to include the name of one or more of their children as co-owners in the property as a way to transfer ownership after the parent dies. For example, a parent names a child as a joint tenant in the property and then, once a parent dies, the remaining child automatically becomes the sole owner. Numerous problems are associated with this technique. First, joint tenancy ownership will expose the home to the financial problems of the children, including possible judgment liens and tax liens. Second, it may be difficult to remove a child’s name from title if you change your mind. Third, a valuable tax planning strategy to avoid capital gains taxes is lost by holding title as joint tenants.
It’s also possible to transfer the title of the property to a revocable living trust and then direct the trust to transfer it to someone else after the parent dies. Trust transfers do not require probate court supervision, and are a popular choice in transferring real estate. It also protects the home from the children’s financial troubles during the lifetime of the parent and allows for the reduction of capital gains tax exposure.
The best way to maximize the benefits and minimize the problems associated with the transfer of your home is to work with an experienced and qualified estate planning attorney.