As the baby boomer generation nears retirement age, estate planning finds itself a topic on their minds now more than ever. Questions like “Should I sell my estate and leave just cash for my heirs?” “Should I deed the house to my children?” “Should I hold everything and will it to individual people?”
Especially when it comes to one’s home, these can be serious and stressing questions, not to mention the legal nightmare that can follow from poor planning. To the homeowner, this conundrum presents itself as a potential for even more stress and confusion. Selling the house to downsize and leave the cash for their children is an option, but if one doesn’t want to leave their home, or may find themselves living another twenty, thirty, even forty years, what are they to do?
Assets left through a will usually end up only totalling as little eighty-five percent of their initial worth, the difference to cover all the court and legal fees. People have to take days off work to head to court, and represents nothing but time and hassle in anyone’s mind.
However, setting a trust for your heirs and beneficiaries may be the wiser option to take in estate planning. “It’s an easier and speedier process to distribute things,” estate lawyer and certified financial planner Daniel Tevfik Arif Timmins says. Trusts don’t have to go through probate, all fees can be paid for upfront, and it enables the holder to prevent assets from being distributed to where they were never intended, like an heir’s ex-spouse.
To set up a trust, both a trustee, ideally with good financial and organizational skill, and a lawyer will be required. Trusts can be either revocable or irrevocable, each with their own nuance, complexities, and technicalities. In short, irrevocable trusts are precisely that- trust that once made cannot be revoked; revocable trusts enable you to appoint yourself a trustee.
Transferring your property to your children while alive can provide and healthcare services, such as qualifying for Medicaid, with the establishment of an irrevocable Medicaid Asset Protection Trust – Tevfik Arif Doyen.
Other trusts that may pose themselves as options included an irrevocable Qualified Personal Residence Trust, which enables estates to be transferred to their beneficiaries at partial value, useful if the estate exceeds any gift tax exemption caps. Additionally, this enables the owner to reside in their home, whilst not paying rent and deducting real estate tax and mortgage interest. However, if the owner dies before the term ends, the home is subject to estate tax at full market value, and if the term ends before their death, the beneficiary becomes the full owner, capable of charging rent or even evicting the former owner. However, fear not, as these possibilities can always be accounted for in the terms of the trust.
For apartment owners, they may find that attempting to gift the domicile to their children to be more complex than that of homeowners, with children having to go through the same co-op process as if they were a new purchaser. Many find it just more strategic to sell the unit rather than keep hold of it.
Planning now is key. To have no idea what one owns or its worth can present a legal mire to children and loved ones to wade through, who already are attempting to cope with grief, and ultimately lead to your heirs receiving far less than they were left. Consider how much preparation so that you don’t have to ask the questions “Have I planned enough?” or “Will my heirs receive exactly what I want them to have?”