For many Marylanders, their home is the single largest and most important asset in their family. The family home is not just a major economic resource that can be used to build wealth, it is often the emotional cornerstone of the family. If a homeowner raises a family in the home, there is a lifetime of cherished memories, and it becomes extremely important that the home – and the memories – stay in the family for future generations. The best way to ensure this is through proper estate planning.
CAUTION: This article cannot go into all of the potential issues related to the transfer of home ownership. Consult with an attorney before taking any action related to changing the deed, so that your attorney can review your specific circumstances and planning needs.
- What is the best estate planning option if you own a home?
- What happens if no estate planning is done before the homeowner dies?
- What role does a deed play in estate planning?
- Should I add my child’s (or other person’s) name to the deed of my home so they can inherit the property when I die?
- How is a transfer-on-death or life estate deed different from a Will?
- How is a Trust different from a Will or Deed?
What is the best estate planning option if you own a home?
There is no one right answer to this question. The best approach for a homeowner is to take the proper estate planning steps to ensure that the property is left to an heir. This can be done through changing the deed to the property, leaving the property to your loved ones in your Will, establishing a Revocable Trust, or establishing an Irrevocable Trust. (See Property Ownership and Titling for Estate Planning.) One should not assume that adding a family member to the deed to the home is the best thing to do. As discussed more below, there are several options to consider, and the best choice depends on each person’s unique situation. Therefore, it is best to seek legal advice before making any change to the ownership of your home.
What happens if no estate planning is done before the homeowner dies?
If a homeowner dies without taking any of the estate planning steps that are discussed here, title to the home will either pass automatically to a joint owner or remain in the deceased person’s name and will be subject to the rules of probate. (See the article on Wills and Other Property Transfer Documents.) If the home does not pass through probate, then title and ownership of the home may not be transferred to heirs. This may be true even where an heir remains in the house and continues paying a mortgage and other expenses. This means that without proper estate planning, the family member who may be incurring the expense of keeping the home may never receive ownership of it following the death of the owner. Also, as a result of the heir not being the legal owner, there are several extremely beneficial programs out there – homeowners tax credits, utility assistance programs, and repair assistance grants – that are inaccessible to them. This could cause severe financial hardship, which may make it even harder to keep the property in the family and avoid foreclosure.
What role does a deed play in estate planning?
A “deed” is a document that transfers ownership of real property – land and buildings. Deeds are commonly used in estate planning because they make inheriting property easier by avoiding probate. Since the deed is what actually conveys the property, it is important to carefully review a deed and seek guidance from a lawyer if possible. This is especially true if the deed lists two or more people (or entities) as recipients, since the language of the deed can affect how the property is split between them. See Joint Ownership of Real Property.
Should I add my child’s (or other person’s) name to the deed of my home so they can inherit the property when I die?
It depends. Many people choose to add a loved one to their deed for the purpose of passing the property to them after their death. In this scenario, it is best to consider a life estate deed or transfer-on-death deed. With either of these deed types, control and ownership of the property is transferred after the owner’s death rather than while they are alive. This provides the primary homeowner with important protections while also providing for the smooth passage of property to your family. Both individuals and married couples can use life estate deeds. For more information, see Transfer-on-Death and Life Estate Deeds.
However, a deed change is not right for everyone. For example, passing your home through your will may be simpler if you expect your home to be sold and you want the proceeds to be split among multiple people. Often, properties are more difficult to manage or maintain when there are multiple property owners.
Caution: If you do change your deed, be mindful that adding a person as a current co-owner (not a transfer-on-death or life estate deed) of your property may have unintended consequences.
- Adding another person as a joint owner of your home can be risky because you may not be able to change your mind about your home’s ownership without the consent of the joint owner once you have given that person an ownership interest in the house.
- You may lose certain property tax credits or exemptions that are available only to you and be disqualified from certain public benefits you would otherwise be entitled to if you had not added another person to the deed.
- There may be certain transfer or recordation taxes which need to be paid for this transfer depending on your relationship to the person you are adding to the deed.
- If the person you add to the deed owes money to a creditor, and the creditor has obtained a judgment against that person, the creditor may force the sale of your home to satisfy that person’s debt.
- Adding someone to your deed may cause that person to pay additional taxes that may have otherwise been avoided if the home had been inherited by them upon your death.
How is a transfer-on-death deed or life estate deed different from a Will?
A Will is your present statement of how all of your property should be distributed after you die, but it does not operate automatically. It tells the person responsible for your estate – the property you owned at death – who gets what. (That person is called the personal representative.) However, creditor and tax agency claims get paid first. All of this goes through the process known as probate, where a court supervises the personal representative’s conduct in administration of the estate.
During the probate process, the personal representative is responsible for making sure your property is maintained, and if anyone uses their personal funds to maintain or sell the property, they are entitled to be reimbursed for those expenses from your estate before inheritances are distributed (See Wills and Other Property Transfer Documents).
In contrast, a transfer-on-death deed or life estate deed allow for your home to pass to the intended heir automatically when you pass away. The property passes outside of probate and the house is not exposed to your creditors, except for the mortgage holder and other potential, limited exceptions. See Transfer-on-Death and Life Estate Deeds for more information.
How is a Trust different from a Will or Deed?
A trust is a legal arrangement where one person gives legal ownership of property to a second person who is responsible for managing the property for the benefit of a third person. A trust allows for property to pass outside of probate, and they can be particularly useful for individuals who: own property in more than one state, want their estate plan to be private, or are leaving property to someone who cannot or should not manage their inheritance on their own. Compared to a will or deed change, trusts are more expensive to establish and more complex to manage. See Trusts for more information.
Most individuals with modest assets do not need a trust. If your main goal is to pass your property outside of the probate process, which is required when you use a will, you may be able to achieve this goal by naming beneficiaries on your financial accounts and using a transfer-on-death or life estate deed to transfer your real estate automatically when you pass away. For individuals with modest assets, these methods are often the best fit. See Property Ownership and Titling for Estate Planning.
If you are considering creating a trust, please consult a lawyer.
This article was adapted from the Life and Health Planning Handbook created by the Life and Health Planning Committee of the Maryland Attorney General's Covid-19 Access to Justice Taskforce.