Your home is a special place. In addition to the comfort it provides you and the memories it holds, it is often the most significant part of your personal wealth. It is important to make sure it is protected for you and your loved ones.
Joint Ownership Considerations
Most married couples own their home as joint owners. If you own it as joint tenants with right of survivorship (hint this language must be on your deed) then it will pass to the surviving spouse without probate. If your deed does not have the survivorship language, then one-half of the property will pass through probate. If you purchased your house prior to the mid-1980s you probably have joint ownership without survivorship. Even if you purchased your property after the 1980s it would be wise to check your deed for the survivorship language.
While joint ownership between spouses is generally wise, joint ownership with other family members or other persons may cause issues:
- Adding an owner is a gift which would require a gift tax
- The new owner takes your basis in your home and does not get a step up in basis they would get if inheriting the property.
- Your home could potentially be subjected to the liabilities of your joint tenant (example: divorces, lawsuits or bankruptcies) and
- The gift could be penalizing you for Medicaid eligibility
If you are considering a gift of your house, please contact our office so we can walk you through the pros and cons.
Gift versus Inheritance
When you gift your home, whether by adding someone as joint tenants or by transferring full ownership to them by deed, additional capital gains taxes could be owed when the house is sold. If the property is gifted, your loved ones receive your tax basis in the home. If they inherited the home from you, the basis they inherit is the fair market value of the home as of your date of death. Depending on how long you owned the house, this could be a big tax difference.
Wills, Deeds and Trusts
There are a variety of ways to transfer your home at death. One method is to do nothing and let the probate court distribute your house according to state law. This method may pass property to persons you did not intend and can be more expensive and time consuming. A will can enable you to control who inherits your home and enable your executor to use the most streamlined
probate process to sell the property. Often probate may be a good way to pass real estate, since one person, your executor, can control the sale of the house and distribute the proceeds according to your will.
One way to bypass probate in the state of Ohio is to sign and file a Transfer on Death Designation Affidavit. This document is similar to naming beneficiary designations and can be combined with a joint deed, to allow the beneficiaries to receive the property after the death of both joint owners. These affidavits are revocable and amendable during your life. Upon death, the named parties become owners without any probate. The downside is that the named beneficiaries will need to agree on the disposition of the property and if they are married, their spouses will need to sign off on the sale or transfer of the property. So, a transfer on death deed may be good when your intended beneficiaries are one or two beneficiaries, but may not be a good alternative if you are passing property to three or more beneficiaries.
Revocable Trusts are another method to avoid probate on your home and your other assets. A trust created by you can name you as beneficiary and as initial trustee. If you become incapacitated, a successor trustee who you named takes over the administration of the trust and you remain the beneficiary. At your death, the trustee then administers and distributes the trust assets according to your instructions. When you have multiple beneficiaries, a trust can be a good nonprobate way to name one person to sell the property and distribute the proceeds to beneficiaries.
If you have any questions regarding the ownership of your house or the best way to transfer it to your heirs, please contact me.
