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The memories you have made at the family hunting lodge, waterfront home, or ranch are priceless. You are proud of the fact that you have been able to provide this getaway for your children and grandchildren, but you don’t want it to end with you. You want to include the vacation property in your Estate Plan to ensure that future generations can continue to gather, make memories, and remember you.
How to Transfer Real Estate in an Estate Plan
The best way to transfer your vacation home will depend on many factors that are specific to you and your family, so the wise thing to do is meet with an Estate Planning lawyer to discuss your situation. However, your options will generally come down to the following.
Name Heirs in Your Will
You can just name your children as heirs of the property in your Will. On the plus side, this option allows you to specify how the property will be distributed after your passing and can include specific conditions or requirements for the use of the property. Leaving property in a Will can be relatively straightforward and cost-effective. However, for most people, the cons outweigh the pros. Your estate will require Probate, which can be time-consuming and may lead to additional expenses. A Will may be subject to challenges from other heirs or beneficiaries, and it doesn’t address potential incapacity during your lifetime.
Include it in Your Living Trust
By placing the property into your Living Trust, you can transfer the property directly to your adult children without going through Probate. Trusts provide greater privacy and avoid the public record associated with Probate. This option also allows you to appoint a trustee to manage the property during your lifetime and after your passing. Creating a trust can be complex and expensive and will require proper funding and ongoing management, but your Estate Planning lawyer can help with all of that.
Establish Joint Tenancy With Right of Survivorship
By adding your heirs’ names as co-owners of the property while you are still alive, you can simplify the transfer process, as the property automatically passes to the surviving joint tenant(s) without Probate.
This avoids the need for a Will or Trust to transfer the property. The downside for some families is that it requires all joint tenants to agree on decisions regarding the property, and if one joint tenant incurs debts or liabilities, it could affect the property's ownership.
Set Up Tenancy in Common
In this type of ownership, two or more people hold an interest in a property but without a right of survivorship. That means that when one owner dies, their share of the property passes to their heirs, not to the other owners. This arrangement allows you to designate specific shares of the property to each adult child, and each tenant in common can sell or transfer their share independently. The disadvantages of tenancy in common are that shares may be subject to Probate when they pass to heirs, and there is the potential for disagreements among co-owners regarding property management or decisions.
Change the Deed to a Transfer on Death Deed (TODD)
This allows you to designate one or more beneficiaries to receive the property upon your death without Probate. It provides flexibility, as you can revoke or change the TODD during your lifetime, but it does not address potential incapacity or the need for management during your lifetime. Also, if beneficiaries die before you, it could complicate the transfer of the property.
Create a Lifetime Gift
This option enables you to transfer the property during your lifetime, potentially reducing the value of your estate for tax purposes, and allows you to see your children enjoy the property while you are alive.
However, it could trigger gift tax implications if the property's value exceeds the gift tax exemption limit, and you would lose control over the property after the transfer.
Execute a Family Limited Partnership (FLP) or Limited Liability Company (LLC)
This is a good option for high-value properties because it provides asset protection and liability limitation for the property and allows you to maintain control over the property as the general partner or manager. While it does involve more complex legal and tax considerations than other options, it is a smart way to protect your heirs and the property. Keep in mind that it does require proper formation and ongoing compliance for the partnership or LLC.
At Ross & Shoalmire, our Estate Planning attorneys would be happy to discuss these options and others with you.
