Be Careful With The Family Home
Thoughts of “the family home” usually bring fond memories – a familiar place that serves as an anchor for relatives and friends. I have many clients who have lived in their homes for three or four decades and now, in spite of the economic downturn, enjoy a substantial increase of their home’s value over the original purchase price. In many families, the home is the major asset and often, after many years of ownership, it is free and clear of a mortgage.
Sometimes people think that the easiest way to avoid probate of this valuable asset is to add someone else’s name as a joint owner of the home. I refer to this as “bootleg estate planning,” and it can be a serious mistake for several reasons.
First, once you have added someone’s name to your property, you cannot remove them from title without their cooperation or a lawsuit. A lady I know has been asking her son to quitclaim her home back to her for five years, but somehow he never seems to be able to make the time to do it! Because it is her son, she does not want to sue him to get her property back. Second, as soon as someone else is listed as a joint owner of your property, you have just inherited all of his or her past, present, and future financial problems. Your property is vulnerable to your joint owner’s creditor’s claims. What if your joint owner is a high risk professional, or is in business with an unscrupulous individual? What if he or she causes an automobile accident and is underinsured, or is faced with bankruptcy or IRS problems? What if he or she is involved in a divorce, and the spouse is demanding one-half of the interest in your house?
A separate issue is that you cannot sell or mortgage your home without your joint owner’s permission. You might consider a reverse mortgage as part of your retirement planning but find yourself disqualified, because of your joint owner’s age or financial circumstances.
Many people want to keep the family home in the family. They naively transfer their property to one of their children with instructions to divide the property between the other siblings after the death of the parents. Be aware that if you own the property in joint tenancy with one of your children, after you pass away that one child becomes the sole owner of the property. When that child passes away, his or her heirs (spouse and/or children) legally own the house. None of your other children or grandchildren has a claim to the property.
Transfers of the family home should only be done as part of estate planning with an attorney knowledgeable in the field. In most cases, the best way to handle the family home is to put it in a revocable living trust. That way you can keep ownership and control of the property and specify what happens to the property upon your death. Smart planning also involves consideration of future issues that might arise among your heirs, such as whether they will sell or keep the house, whether one of them would have the right to live there, etc. Some may want to hold on to the property for sentimental reasons; others might want to get their cash out. These competing concerns often lead to family feuds and, in extreme cases, lawsuits. Your best course is to have a family meeting to discuss these issues, and then follow up with careful estate planning. ©2013 by Marlene S. Cooper. All rights reserved.