While no one wants to consider the end of their life, proactive steps in the form of estate planning can provide a level of comfort for your children and other loved ones. Ignoring the need for a will or trust or putting off the drafting of such essential documents can result in even more chaos within families already grieving a monumental loss.
One of the more valuable items in an estate plan is the family home. Regardless of its size and monetary value, taking the proper steps necessary can provide them with a treasured asset without additional financial consequences in the future.
Multiple strategies exist, as do legal and tax issues when passing on such an important piece of real estate property to your children. The objective is to maximize the value while avoiding infighting over who gets the property.
Gifting the home to children while you are still alive is an option, as a family home usually carries with it fond memories. However, the property is also considered a capital asset that comes with it significant capital gains tax matters. Revocable trusts are a valid option to avoid probate and costly capital gains taxes.
Bequeathing the house in a will has numerous benefits. Parents maintain the benefits of ownership, and the children will eventually be left a home that has increased in value. Many homeowners put the property in a revocable trust to sidestep probate and realize estate tax savings. The trust can also prevent disputes among the children regarding selling the property.
Some parents take the path of an outright sale to the children. While the temptation is to offer them a price below market value, that can impact retirement. Parents also face taxable gains for selling the home for more than they paid. Finalizing the sale could also increase property taxes for the children/new homeowners.
Each strategy has its pros and cons. The help of an estate planning attorney can set both you and your children up for success.