It’s not something that we like to talk about, but it’s something we should all consider. When we pass away, how will our property, including our personal residence, vacation home, and investment real estate be handled?
There are lots of questions to consider, including:
- Will your properties be sold?
- Will they pass directly to an heir?
- If sold, who will receive the proceeds?
- What percentage will go to each person?
- Who will oversee the inheritances?
- Are there any conditions for inheriting a property?
These are just a few of the questions you need to ask if you are passing a property to a loved one. As you can see, the issue is complex, but with a basic knowledge of the subject, you’ll understand how to structure your real estate property in a will.
The Undeniable Need for a Will
There is no doubt that you need a will to properly distribute your assets and make sure inheritors receive exactly what you wish, how you wish. If you don’t have a will, all of the complex questions need to be answered by the government, and each jurisdiction has a specific guideline for distribution of your assets. Basically, if you die without a will, the government decides how to best handle and distribute your property, including any and all real estate.
In most cases, the property will be split evenly among your heirs, which could include a surviving spouse, parents, siblings, and children. The state would decide who gets what through an established process, which could mean certain people are left out. For example, you may have a loving goddaughter who should have a share of your inheritance. If you have no will, upon your death the properties may be sold and the proceeds would go to your siblings and children but not to your goddaughter.
Also, if you do not have a will and no relatives can be found, the entirety of your estate, including all properties, could go to the government. This is rarely how people would want to leave their legacy.
How to Handle Your House and Real Estate Property in a Will
Establish an Executor
One of the most important steps in a will is the establishment of an executor. This is the person who will divide the gifts and ensure that your final wishes are honored. This should be a trustworthy person, someone who you are close to and knows most or all of your inheritors.
While the selection of an executor is personal and specific to each situation, you should look for someone who is well organized and respected by your family. Generally, the person should also be on strong financial ground, as this significantly reduces the chances that they would make an irresponsible, self-serving decision.
Should the Property Be Sold?
Establishing an executor applies to all aspects of your will, but some aspects only apply to your real estate. One essential question you need to consider is whether the property will be sold and proceeds distributed to heirs, or whether someone will directly inherit the property, possibly making it their own residence or turning it into an income-generating property.
In most cases, the property will be sold. This is usually the most effective way to distribute your properties, especially if you want to ensure an even distribution of the assets. For example, if you have a property worth $250,000, selling and splitting the proceeds is relatively simple. However, if someone wants to keep it but you still want even distribution, they would either need to buy out the other inheritors or receive a smaller portion of other assets. Simply put, there’s just a lot involved when you have multiple heirs and pass a whole property directly to one heir.
Sometimes the property will be kept by an heir. In many cases, this would be income-generating property, such as farm land. A family house or vacation property may also pass to heirs, but you need to be extremely meticulous with the details in your will, as you don’t want to create infighting among family members.
Tip: Discuss the Will with Your Adult Children
It’s generally a wise practice to discuss your will with family members, especially the ones who will be receiving an inheritance. By discussing the issue, you make it clear how you want your assets distributed and why. (Although the why isn’t necessary but does help.) By discussing your will, you reduce the chances that family members will squabble over your estate.
Discussing the will also gives you the chance to learn about potential wishes by your family. For example, you may discover that your son would love to take your house, while your daughter has no desire to live in the property and would not be offended if the son took the house. You can then set up your will and leave an inheritance that makes both children happy.
If Someone Inherits the Home, They (Usually) Inherit the Mortgage as Well
If you have a mortgage on your property and you leave that property to a family member or heir, you will, in most cases, also leave them with the mortgage payments. This creates a few potential situations; for one, when the new owner takes over, they can simply take over the mortgage without any changes to the terms. Generally, the bank cannot force a complete repayment of the loan upon your death.
Remember to discuss this issue with your heirs and make sure they understand that if they take over the property they will likely take over the mortgage. If they can’t (or for some reason don’t) repay the mortgage, the bank will likely foreclose on the property. This is another reason why many people choose to simply sell the real estate and distribute the proceeds of the sale.
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