How to Protect Your Family Home Through Estate Planning

When creating your estate plan, if you're a homeowner, it's often the asset that's in the forefront of your mind. For many clients, their home is their primary asset, both financially and emotionally. If you've got kids that have grown up in the house, it's likely got years of memories for the entire family, and maybe one of your kids would even like to move in and raise their family there.

Whatever your plan is for your house, the most important first step is to actually have a plan in place. Without an estate plan, the house will likely need to be sold as part of the probate process for your estate, and while that may provide money to your family, your children may wish that you had a legacy that allowed them to keep the house or even stay and live there.

You don't have to leave it to chance or your local probate court; your estate plan can use a variety of strategies to protect your home as part of your legacy.

Strategies for Protecting Your Family Home with Your Estate Plan

There are a variety of strategies you can use when it comes to protecting your home through your estate plan. Not all of these strategies make sense for everyone, so make sure to speak to professionals like your financial advisor and your attorney to craft a plan that utilizes the right ones for you and your family.

Create a Will

Your will is the primary document that will distribute your assets after you've passed away. Without it, your property will need to be presented to your local probate court, and the judge will need to decide how it should be distributed. This can lead to unintended consequences and potential disputes among family members.

When creating your will,

Clearly state who should inherit your home; and
Name an executor to oversee the distribution of your estate.

Create a Trust

A trust may or may not be right for you and your family. It is a more advanced planning technique than just using a will, and by using one, you transfer the ownership of your home to the trust, with a trustee who manages the property for the benefit of your beneficiaries. While they aren't right for everyone, trust do offer several advantages for you to consider:

Avoiding probate: Property held in a trust does not go through your local probate court, which can be a lengthy and costly process.
Maintaining privacy: Unlike a will, which becomes a public document, a trust keeps your estate matters private.

The two most common types of trusts are:

Revocable Living Trust: Allows you to retain control over the property during your lifetime and make changes as needed.
Irrevocable Trust: Removes the home from your estate, potentially reducing estate taxes and providing greater protection from creditors.

Using a Transfer-on-Death (TOD) Deed

A Transfer-on-Death deed allows you to name a beneficiary who will automatically inherit your home upon your passing. This method bypasses probate and ensures a smooth transition of ownership. Note: TOD deeds are not available in every state, so check with a local estate planning attorney to see if this option is right for you.

Joint Ownership with Rights of Survivorship

If you own your home with a spouse or another individual, setting up a Joint Tenancy with Rights of Survivorship (JTWROS) or Tenancy by the Entirety (for married couples) ensures that the surviving owner automatically inherits the property upon your passing. This arrangement avoids probate and simplifies the transfer process.

Estate Taxes and Financial Considerations

Depending on the value of your estate, estate taxes could be a concern. Some key considerations include:

Federal Estate Tax: As of the 2024 tax year, estates exceeding $13.61 million are subject to federal estate tax. If your estate is large enough, an irrevocable trust may help reduce tax liabilities.
State Estate Taxes: Some states impose their own estate or inheritance taxes, which may apply at lower thresholds.
Gifting Strategies: You can transfer portions of your home’s value to your heirs during your lifetime through annual gift exclusions, reducing the taxable value of your estate.

Plan for Long-Term Care Costs

If you require long-term care in a nursing home or assisted living facility, your home could be at risk of being used to cover these costs. Medicaid planning strategies, such as transferring your home into an irrevocable trust well in advance (at least five years before applying for Medicaid), can help protect it from being counted as an asset. These are very advanced strategies and are not something that you want to try to do yourself. Work with an attorney who has experience in this area to ensure you're getting the right set up in place.

Proper Insurance Coverage

Having the right insurance coverage can safeguard your home against financial risks. Consider:

Homeowners Insurance: Keep your policy up to date to protect against damage or liability.
Umbrella Insurance: Provides additional liability protection beyond your standard homeowners policy.
Title Insurance: Ensures that your home’s title is clear of disputes or claims, preventing future legal issues for your heirs.

Regularly Update Your Estate Plan

Estate planning is not a one-time task. Life events such as marriage, divorce, birth of children, or changes in financial status should prompt a review of your estate plan. Regularly updating your documents ensures that your home remains protected and aligned with your wishes.

Protecting your family home through estate planning requires careful consideration and proactive measures. By creating a will, establishing trusts, utilizing transfer-on-death deeds, and addressing tax implications, you can ensure that your home remains a cherished asset for future generations. Consulting with an experienced estate planning attorney can help you navigate the complexities and make informed decisions tailored to your specific situation. Taking these steps today will provide peace of mind, knowing that your loved ones are well-prepared for the future.

Need Help With Your Estate Plan?

If you would like to use a Transfer on Death Deed for your estate plan, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you to work with an estate planning attorney.