How to Transfer Real Estate in Your Estate Plan

How to Transfer Real Estate in Your Estate Plan

Passing down a family home is emotionally and financially significant for many people. If you are like many others, your home is likely one of the first things you consider during the estate planning process. Considering how common this is, passing on real estate after death remains surprisingly complicated in Florida. 

The problem is that real estate transfers are subject to more stringent laws than other asset classes. As you consider passing on a family home in your will, you should prepare for the potential complications. Learn how these transfers work, the benefits and drawbacks of performing them through your estate plan, and alternatives that may also be effective. 

How to Transfer Assets in Your Estate Plan

Two main solutions are used to transfer assets after a person’s passing: wills and trusts. If you use a will, you name the beneficiaries you want to receive the home after your death. Until then, you remain the complete owner of the property. In contrast, if you use a trust, the house becomes the trust’s property, and the trustees are responsible for managing it. 

When you leave someone property in your will, that property goes through the probate process. During probate, the court will determine if your will is valid, appraise the value of your assets, and identify your heirs and beneficiaries. During the probate process, other parties can dispute your will. If this occurs, your beneficiaries may need to spend significant money to defend your will and last wishes. In addition, the assets you pass on in your will may be subject to inheritance and gift taxes, further reducing the amount you pass on. 

For these reasons, trusts are typically the preferred solution for passing on homes. A trust is a legal entity that survives your death, so there is no need for the property it holds to go through probate. Furthermore, many trusts are exempt from estate taxes. 

There are a variety of trusts you may use to pass on the title to real estate, but the most common are revokable trusts, marital trusts, and bypass trusts. Each of these entities has unique benefits and drawbacks that make them best suited to different circumstances. It is in your best interest to consult with a skilled real estate and estate planning attorney to decide what type of trust will serve you best. 

Benefits and Drawbacks of Transferring Real Property Through an Estate Plan

When deciding how to handle passing on a home, it is worthwhile to consider the benefits and drawbacks of using your estate plan to manage the process. 

  • Benefit: Maintaining Use and Control. When you structure your estate plan to pass on a property after your death, you will usually maintain complete control and use of it during your life. You do not risk losing anything due to someone else’s actions. 
  • Benefit: Reducing Taxes. A well-structured plan can help you reduce or avoid estate taxes on your property after your passing. This allows your beneficiaries to receive the maximum possible benefit.
  • Drawback: Risk of Financial Complications. Suppose any issues with your property title arise due to the formation of a trust. In that case, your beneficiaries may face significant legal and financial complications to resolve before they can take ownership of the home. 
  • Drawback: Risking Probate. If you decide to pass on your home in your will rather than a trust, it could spend months in probate, especially if there are concerns about the title.

Despite the possible drawbacks, wills and trusts are still the most common method for passing on real estate. Working with a skilled attorney can help reduce potential risks while maintaining the biggest benefits of the process.

Alternatives for Transferring Real Estate

While wills and trusts are valuable tools for handing down assets, they are far from the only solutions. You can also pass on ownership of the property while you are alive. While these methods are less common, they offer benefits that are not available otherwise. You may choose to:

  • Give the home as a gift. The most straightforward method, giving property as a gift allows you to see the benefits of passing the property on. However, gifts over $16,000 count toward your lifetime gift and estate tax limit. In addition, you will no longer have the use of the home unless your beneficiary agrees to it. This is best if you wish to move to a new home and are not at risk of triggering the gift tax.  
  • Sell the home to your beneficiary. By selling your home, you avoid making the transfer a gift or inheritance. You may even sell it for under market value, though the difference may be viewed as a “gift of equity” and once again count towards your lifetime gift limit. This could still be beneficial if you expect the property to appreciate significantly over time. 
  • Assign the beneficiary co-ownership of the property. This approach allows you to retain the use of the property while avoiding probate. With the correct title, you can share ownership of your home while ensuring full ownership will pass to your beneficiary on your death. However, this often counts as giving your beneficiary half the house’s value, which will again count against your lifetime gift limit. It also puts your home at risk if your beneficiary struggles with debt, as the property could be subject to a lien.

There are many effective ways to pass on property. A well-designed estate plan will consider all the possibilities and determine the most effective way to accomplish your goals under Florida probate, inheritance, and real estate laws. You can learn more about planning to pass on the title of your home by scheduling your consultation with the expert estate planning and real estate attorneys at Isriel Ponzoli.