If you’re a homeowner preparing to put your estate plan in place, your home is likely one of your most valuable single assets – if not the most valuable. Unfortunately, a home can become a burden for surviving loved ones without thoughtful planning on your part.
One common reason why people take the time and effort to create a solid estate plan is so that their assets don’t have to go through probate and can pass directly to heirs and other beneficiaries. This is understandable, as probate can be a lengthy process for grieving families, although it is not as burdensome in Pennsylvania as people think.
Thankfully, there are various ways under Pennsylvania law to pass on your home directly to your chosen beneficiary.
Revocable living trust
Assets placed in a revocable living trust rather than being listed in a will avoid probate. If you place your home in a living trust, technically the trust owns it, but you’re the trustee, so you still have full control over it while you’re alive if that is the way the trust is structured. All that changes is the name on the deed. The tax implications are significant, though, and must be considered carefully.
When you pass away, your designated successor trustee takes over the trust and everything in it (including your home) is distributed directly to your named beneficiaries. No probate court involvement should be needed if everything is set up correctly.
Joint tenancy with right of survivorship
Another option is to add your intended beneficiary to the deed, making you each joint tenants with right of survivorship (JTWROS). This automatically gives them ownership when you pass away (and vice versa if they were to die first).
This is an option that requires careful thought because making someone else a joint owner of your home could potentially have complications – even if it’s a trusted adult child – in addition to the tax consequences. However, one owner can’t sell the property or make other major transactions without the other’s consent.
Life estate deed
A life estate deed would let you keep sole ownership of your property while naming your intended beneficiary. This lets the property transfer directly to them without going through probate when you pass away. This is similar to a transfer-on-death (TOD) deed. It’s important to note that Pennsylvania doesn’t recognize TOD deeds.
The more smoothly your home can transfer to your intended beneficiary, the easier it will be for them. A private transition can also help prevent your property from becoming the subject of disputes, fraud, and even vandalism and theft.
Passing through probate
The most common way for real estate to transfer to beneficiaries is for it to pass through the probate process in accordance with the terms of a Will, or under intestacy law. This allows you to name your beneficiaries or simply to allow your property to pass to your natural heirs as spelled out in the Pennsylvania Code. Although probate is required and Pennsylvania inheritance taxes must be paid, if any, the beneficiaries inherit the property with a stepped-up tax basis for purposes of figuring capital gains tax, which can more than outweigh the inheritance taxes and cost of probate.
With sound estate planning guidance, you can make a more informed choice about this and other matters. Contact the experienced attorneys at Wolf, Baldwin & Associates, P.C. to schedule a free consultation by clicking here.