Buying a home is a significant milestone. This is likely one of the biggest purchases you will ever make in your lifetime. Not only is it a financially valuable asset, but it is also emotionally important. The fact that you now own a significant asset means you need to create an estate plan. Without a plan in place, your home may not pass down to who you want when you die.
As a new homeowner, you must factor in any family disputes and tax consequences when deciding what to do with your real estate. It is vital to be thoughtful about who will inherit your home and how. Here are some options for how to transfer ownership of your home via an estate plan.
A will is the bedrock of any estate plan. You can simply include who you want to get your home in your will. If you do this, your home will go through the probate process when you die. This is a simple way to accomplish your goal. However, probate can be costly, time-consuming and public. If you have concerns about finances, time and privacy, you may want to consider another method.
A revocable trust
One way to avoid probate and expedite the process is by passing on your own via a revocable trust. This legal structure allows you to specify in detail how and when your beneficiary will receive your home. A trust is especially helpful if you own properties in multiple states.
Co-ownership through the deed
You can simply add your heir as a co-owner on your deed to establish co-ownership. Once you pass away, the co-owner automatically assumes ownership. While this is a convenient method, you may get hit with a significant gift tax penalty for doing this. This is generally not the best solution, but it is one option to consider.