We always want the best for our children, and it's natural for us to want to look after them, during and even after your life. You add them as beneficiaries to your life insurance policy so that your children, especially the young ones, do not face any financial issues in your absence. It’s easy to view estate planning as just another essential thing, when in reality it can be a powerful way to look out for your family.
When it comes to estate planning, one of the most important decisions you make is who will inherit your house. Having a plan in place can help you pass down your house and other assets to your children, giving them a financial leg up. At least, they won’t have to hurry to purchase a home. They can focus on other financial matters like building an emergency fund, saving early for retirement, and so on. And since adult children do not automatically inherit the house of their parents, it's crucial that you take the steps necessary and establish a plan for who you'll pass on your assets to and how you'd like them distributed.
Passing your house on to your children is a goal of many parents, and there are a few specific things you need to consider in order to do so. Keep reading to learn how you can pass down your house to your kids, including:
Estate Planning is Crucial
In order to ensure that your kids inherit your house, you'll need to make sure that you have a solid Will or Trust-based Estate Plan in place. You can create your plan online or through an attorney so you have the proper documents in order to transfer the ownership of the house to your children in the event of your passing.
Sometimes estate planning can be easy to put off, but don't wait– here are a few reasons there's nothing more essential than establishing a solid Estate Plan:
Appoint Guardians to take care of young children.
Designate heirs to inherit assets in your absence
Take advantage of tax benefits to reduce or avoid estate taxes
Avoid family disagreements by allocating assets in your plan
Establish a plan for what happens if you become incapacitated
Gain peace of mind knowing you have a plan in place
With these things in mind, it's clear that having an Estate Plan in place is one of the most important things you can do for yourself and your family. And in the case of passing down your home, it is a crucial step along the way. But what other considerations might there be when it comes to this process?
Passing Home to Your Kids: Considerations
While passing down your house to your kids, you need to consider certain things and do it correctly.
Consider the capital gains tax
Put the house in a Trust
Putting it in a Revocable Trust that names your children as beneficiaries doesn’t become a part of the estate after the owner’s death. So, your estate will not pay any taxes. It is mentioned in the Trust that a child can have the house in such a situation by buying the other children’s shares. However, by putting a property in the Trust, you can’t take it out again. Therefore, think before doing it.
Add your children to the deeds of the property
One of your children may want to live in the house, but others don’t. However, they won’t be able to do it if you add your children to the house's deed. The Revocable Trust provides more control in such a situation. However, while adding names to the deed of the home, keep in mind that they will have all the rights and liabilities of an owner.
Gift the house to your children
The best part of gifting is that you will retain the ownership and the benefit of the property. The children get the house after the demise of the parents. However, the attorneys also suggest passing the house to the future generation through a Revocable Trust. It allows the parents to dictate exactly what can be done with the property. You can transfer the property to your children as a gift through a gift deed.
Sell the house to your children
Yes, this is also an option - you can sell the property to your children. If you sell the house lower than the fair market value, the remaining amount will be considered a gift. However, consult an attorney to discuss the tax implications.
Potential Risks of Handing over House to Your Children
Not only can giving your house to your children be a complicated process, but there are also certain risks that are important to consider.
Your child may have to bear a tax
Whether you gift your house to your children or mention their name in your Will, they may have to bear the tax to some extent.
You may need money
If you need money post-retirement, you may take out a reverse mortgage against the property. You can continue living in the house and get money to meet your daily necessities by doing so. You never know when you may require money; therefore, it can be a good idea to keep your house if you don’t have enough retirement funds to lead your present lifestyle. It may also help avoid payday loan debt or credit card debt to meet sudden financial emergencies. It is always better to avoid such loans after your retirement than opting for payday loan help or credit card debt help in your golden years.
Having a mortgage might make it difficult
You may have a mortgage loan in your home, and you want to pass the house to your child. If your mortgage is transferable, your child will be responsible for repaying the home loan, and it might be a financial burden for your child. And, if the mortgage is not transferable, your child will have to refinance it into his or her name. It may be an additional financial burden in such a scenario, especially if your child doesn’t have a good credit score to obtain a loan with favorable terms and conditions.
Ultimately, it's important to carefully consider all these aspects when deciding whether or not to pass your house to your children. If you choose to do so, make sure you take steps necessary to put a proper plan in place with the help of an attorney or a trusted online service, like Trust & Will. This will ensure you or your children don’t have to bear any future legal implications. It's always a good idea to be prepared, and your children will thank you for it in the long run.
Want to get started on your Estate Plan? Consider taking our free quiz to see what kind of plan is right for you.