Why You Need to Have a Will or Estate Plan When You Own Real Estate According to Joseph Pingaro
No one wants to face the harsh reality that they will die someday. But if you ignore the inevitability of your own demise, you may end up leaving your loved ones with more of a burden than the grief of your loss. Surprisingly, fewer than half the people in the United States have a will. According to Joseph Pingaro, this puts the burden on the families of the deceased to sort out all of the financial and property matters. You definitely do not want your loved ones to have to sort everything out while they are grieving your loss, which is why you need to have a will or estate plan when you own real estate.
A Will Covers the Basics
Having a will prevents the headache of figuring out who gets the house and what to do with it after you die. A will is the simplest document to handle your property post-death and is the minimum level of instruction you should leave for your loved ones.
It can also direct the care of living wards. Wills are relatively straightforward and easy to draft on your own. You can either type one up or fill out a special document online. The key is to make sure you follow state guidelines to ensure your will holds up in any court of law.
In some (but not all) states, you can bypass probate court with a Transfer On Death or Payable On Death order. Depending on the state you live in, this can get the property in the hands of your benefactor right away, instead of having to go through a lengthy and sometimes expensive probate process. This strategy also applies to any of your financial accounts. These directives often take precedence over a will, so it is important to make sure your documents match up to ensure there is no confusion.
An Estate Plan Covers the Rest
An estate plan is more complicated and usually requires the assistance of an attorney to execute and ensure your wishes are upheld after your death. Not everyone needs an estate plan, but depending on how complicated your assets are and the size of your estate, you may want to consider this route instead of a simple will.
Avoid Probate With Trusts
In most states, probate is an arduous process with court dates and attorneys fees upfront. The probate process can take six months to a year and cost up to 3% of your assets. If you have real estate or other assets in multiple states, each has its own court dates and fees.
This is not something you want to put your loved ones through when they are already grieving your loss.
If you are a real estate investor and own multiple holdings, you need to have an attorney guide you through the process of setting up trusts for your assets, which will drastically reduce the holdup and expense of probate. Another added value is that trusts are confidential.
With a will, everyone knows who got what, with the entire document available for anyone to read. A trust remains in the possession of the executor who distributes assets according to your instruction.
Simplify Taxes With a Trust
Taxes are never simple, but you can make things easier on your loved ones in a few ways by putting your real estate into a trust. Too often, family members end up needing to sell the real estate they inherited because they cannot afford to pay the estate tax on the property.
You can prevent the estate tax by putting your investments into a revocable trust. A revocable trust ensures your family members have access to the assets as they are distributed. Beneficiaries may still be subject to a capital gains tax on the money they are regularly paid from the trust.
You can prevent this by ensuring the trust is responsible for the capital gains before it pays out. You can remove your property from your estate entirely by putting your property into an irrevocable trust. This way, they are not subject to capital gains or estate tax.
Make Sure Your Investment is Spent Wisely
Investing in real estate can come with a great deal of responsibility in life and in death. With the right people on your team to advise you, you can take steps to protect your investments for yourself and your loved ones.
One of the best things you can do for your family is to simplify the process. This way, they can focus on celebrating your legacy instead of suffering through the probate process and possibly being stuck with a tax bill they cannot afford.
This is especially important if you have minor children or wards in your care. You can use a will to state who will take care of your children after your death. But you need a trust fund to ensure proper distribution and care of your assets, in relation to your children. You may want to name a conservator or “guardian of the estate”. This will ensure sure there is enough money to properly fund their upbringing, and possibly even turn a profit for their future.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.