For most of us, our home is the most valuable thing we own — in more ways than one. Not only is the average Grand Rapids house worth hundreds of thousands of dollars, but if you raised your family there, the house is full of memories.
You and your spouse might be thinking about leaving the house to one or more of your adult kids as part of your estate plan. If so, you have three main options. Each choice has advantages and disadvantages you should know about.
Leaving them the house in your will or trust
You can bequeath the house in your will, but this means the house would have to pass through probate, and the home’s value might trigger the estate tax. Putting the home into a revocable trust means it avoids the probate process and gives you control over who gets ownership and how. For example, you can state that if one of your children wants to own the house on their own and live there, they would have to buy out their siblings’ shares.
Gifting them the house
You might be planning to move to a smaller home and want to keep the house in the family instead of selling. In that case, you can give the house to your children as a gift. However, this would likely mean a large capital gains tax bill for them. Giving them the use of the house through a trust can avoid taxes. Keep in mind that giving away the house instead of selling it may affect your retirement savings and ability to buy a new home. And co-owning the property can lead to fights between the kids later on.
Selling them the house
Finally, you can sell the house to one or more of your adult children. This can give your son or daughter a big leg up in building their own wealth. Plus, you can see them enjoying the home during your lifetime. But selling them the house below market value can hurt the amount you have saved for retirement. One possible alternative is to give them the house as a gift, have them refinance the mortgage, and give you the proceeds.
You can discuss these and other options with your estate planning attorney to find the method that you are most comfortable with.