Leaving a Home for children/grandchildren

[Sedutra]

We are trying to set up our will and leave our home for our children. If we put them on the deed (title) can they assume our VA loan with the money we left them and what taxes (other than what is included in the escrow might they incur?  We want to put the least liability we can on them upon our passing. 

[TeriH]

You want to ensure you do not put them n the deed until your death.  Reason being, if you do it before, it will be considered a gift and they will inherit your basis in the property.  Where as if you wait, it will be considered inheritance and they will get a step up in basis to the fair market value at the date of death.

Assuming, it's a death, it will be a straight transition from you to them.  A deceased person's mortgage becomes the responsibility of the person inheriting the home. The heir has several options such as moving into the home and assuming the mortgage, buying out other heirs if they also inherited a portion of the property, or selling the house and using the proceeds to pay off the mortgage.

[tagteam]

Consult local legal counsel for this issue.

You most likely have more than one option, including retaining a life estate, a transfer on death deed (TOD, if permitted in your state). et al.

A local attorney can explain the options to you.

[Sedutra]

I don't understand this. How could we possibly put them on the deed after our death and what does "a step up in market value" mean?  We have an extremely low mortgage rate. We have to have means to allow them to live in the house or sell it. I do have an attorney but it seems there are tax issues I need to resolve before he can complete the will/trust.  We just want them to be able to keep the home.

[TeriH]

Your will should state , at death, they inherit the house.  you would have that set up before hand, with any other instructions.  

If you "gift" them the house, prior to death, their basis in the house is your basis.  So, if you purchased it for $100k, that's their basis.  But, if they "inherit" the home, their basis is the fair market value at the date of death.   So, let's pretend the fair market value is $500k.  If they sell if on that day for $500k, there would be no tax owed.  If they sell it if it was a gift, then tax would be owed on $400 ($500 - $100).

[tagteam]

Hopefully, your attorney uses a trust or, as I mentioned earlier, a life estate or TOD deed (if available).

If you leave the house to your children/grandchildren in your will, they will have to deal with probate.

I am unsure what "tax issues" you believe are involved at this point in time.

@Sedutra 

[Sedutra]

Since I have an attorney putting together a trust/will, we have a VA loan at a very reasonable rate. I received the VA handbook and the representative stated the page and paragraph stating our children/grandchildren can assume the loan at the current rate. So that should be all my attorney needs  to do a TOD (or another option you recommend) to transfer the home to our heirs. Yes? But I see you said DO NOT put them on the deed now just put them in the trust as inheritance?

[tagteam]

@Sedutra 

Let your attorney decide the best route for you based upon your facts and circumstances (and state law).

Again, if you leave the property to your children/grandchildren in your will, they will have to deal with probate. 

Ask your attorney for the best course of action.

[Sedutra]

I thought the whole reason for a trust was to avoid probate.  I've been given conflicting information on this (such as just put them on the deed so they assume the house) and now you say do not do that.

[TeriH]

The main benefit of putting your home in a trust is that it bypasses probate court after the original homeowner (grantor) dies. That means ownership of the home can be transferred more quickly, and more privately. “If a homeowner puts their home in a trust, then upon their death, the successor trustee will have the legal authority to sell the home without having to file in probate court,” Cutler says. “Probate court can cost thousands of dollars and may take more than a year to complete, so putting your home in a trust is a great way to avoid all of that.”

Be it a trust or a will, the point i was trying to make was the transfer of ownership is at death.  Not before and not a gift. 

[tagteam]

---

@Sedutra wrote:

I thought the whole reason for a trust was to avoid probate.

---

It is one of the primary reasons for many people (there a host of others).

---

@Sedutra wrote:

.....I've been given conflicting information on this (such as just put them on the deed so they assume the house) and now you say do not do that.

---

There are other options; speak with your attorney. If you add them to the deed as co-tenants (owners), you run the risk of losing the benefit of the stepped-up basis.

[Sedutra]

Thank you because a previous comment just said I WOULD have my heirs going through probate under a trust. This is my confusion because I get conflicting answers. I only want the children to retain the house without probate and be able to easily assume the VA mortgage we currently have. Now if you say DO NOT put them on the deed now then I just need to put them in the trust as heirs to the property, yes? I don't mean to keep asking the same question but I keep getting different answers. I need the EXPERT to respond. Thank you.

[TeriH]

yes
you've got it.  Don't put them on deed now.  Just put the home in the trust, and it will pass at death.

[Sedutra]

Got it. Upon our death they just put themselves on the deed and try to assume the loan?  Or it just passes to them on our death under the trust. I just don't know next steps.  If they have a trust showing they are heirs to the estate they can take that and apply to put themselves on the deed and continue to pay the loan and possibly have to apply as successors in interest?  I can take care of the trust part.  Again I have an attorney but he needs me to get my information in tact before we put the trust together.

[TeriH]

Assuming you have the trust set that they are the beneficiaries,  it will pass to them on your death under the trust.

as i stated earlier,  A deceased person's mortgage becomes the responsibility of the person inheriting the home.   

the attorney will work out the mechanics of the transfer of ownership.