Title, Financing, Taxation and Risk Assessment for Inherited Real Estate
Major issues that can “make or break” your estate plan
Over the last couple issues of “Estate Planning & Probate News” we’ve discussed some of the key intricacies of estate planning for residential real estate and commercial real estate. In this article, we’ll address some “make or break” issues that can dramatically affect your estate as it related to real property.
Proper Titling
As an estate is settled, it is common for beneficiaries to assume that a property is held by the trust, when in fact it may be held by other parties. This may have been the intent of the trustor or it might have been an oversight. As such, a key task of your estate planning attorney is to establish the correct title for all properties held by your trust.
Creating a will can designate intended plans for real estate but it is very important to take the next step and ensure that all assets are properly titled. The titling (or ownership structure) will impact how your assets are distributed, whether or not they need to go through probate, and estate taxes required. For example, if you own a home jointly with someone, the titling determines the disposition, e.g., your share could be distributed to your surviving spouse, to your estate, or to a third party.
Financing and Liens
If your home has a mortgage on it, you’ll need to consider some options in estate planning. Most mortgages have a “due on sale” clause that may be triggered at death. If so, the inheritor would need to qualify for a mortgage on their own, or the home would need to be sold, or other liquid assets in the estate would need to be used to pay off the debt. If there is a mortgage balance that goes unpaid upon your death, the lender then has the right to foreclose, taking ownership of the property to recoup their losses on the debt.
This can be an unforeseen and sad situation when a beneficiary can’t qualify for a mortgage and has to sell the family home (for example, a grandchild who inherited the home but is still in college). {click here to read the rest of this section}
Taxation
Real estate owners often spend a lifetime accumulating prime real estate assets. If such assets need to be sold to pay estate taxes, those efforts are lost. With proper estate planning, however, those assets can be maintained for future generations. {click here to read the rest of this section}
Risk Assessment
Any real estate investor knows that real estate investments come with inherent risks. However, are your heirs aware of these risks and equipped to deal with them? Consider providing formal and informal education to heirs in order to equip them to continue your dynasty (whether professional real estate management is used or not). These risks include: variances in market value over time and differing economic conditions; access to financing; depreciation of assets and related tax planning; negative cash flow/financial losses; liability/legal ramifications; vacancy and evictions; maintenance costs; and liquidity concerns as related to conversion to cash, estate taxes, property taxes and other operating costs.
Experts in Estate Planning for Real Estate
We’ve attempted to make this series of articles on estate planning for real estate as easy to understand as possible. However, the reality is that the nature of this asset category makes it complex, particularly considering all the variables and risk factors. The good news is that Mortensen & Reinheimer, PC is ready to help simplify the process for you and we’ll handle the complexity of it all – while maximizing these opportunities and achieving your goals. Please contact us at (714) 384-6053 to make an appointment, or use our online contact form. Our website is http://www.ocestateplanning.net.
About the author:
Tamsen R. Reinheimer, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization). She has significant experience in all aspects of estate planning, trust administration, and probate. Contact Tamsen at tamsen@ocestateplanning.net.