When it comes to setting up an estate plan, one of the most valuable assets that people own is their home. However, many people never take the time to truly look at how their home is owned. Home ownership or how the deed is set up will determine how that real estate passes at death. For example, I recently encountered a situation where a woman was married to her second husband for over twenty years and never realized that her name had never been put on the deed to the house. Her husband died young (in his early 60’s) and after his death, she wanted to refinance the loan on the house to reduce her interest rate. When she went to the bank, she realized that her name was not on the deed and therefore she was not authorized to refinance. The only way she can refinance or take control of the home was to go through probate. What people don’t realize is that if you are not an owner or co-owner, even if you are married to the owner, you must go through the cost and expense of probate to gain ownership. Even a simple probate estate, with filing fees, attorney fees, inventory fees and publication fees can cost nearly $3,000.00.
If her husband had simply set up an estate plan or had a deed prepared to add his wife’s name during his lifetime, ownership would have automatically passed to her without the probate process and expense. This is just one of many examples. There are clients who inherit property from a parent with other siblings and no one really looks at the deed to truly understand whether it is owned as tenants-in-common or as joint owners. Tenants-in-common means if you pass first, your partial ownership in the property passes to your heirs or according to your estate plan. Joint ownership means that if you die first, your portion passes back to your siblings who are joint on the deed. With joint ownership, your family could lose out on your share of the real estate. Another common mistake that parents make is putting one of their children’s names on the deed while they are alive. The parents have been told that if they put their child’s name on the deed they won’t have to go through probate. The problems associated with this are many. First of all, if you have more than one child and you only put one name on the deed, you have potentially just disinherited the other children. Upon your death, the child whose name is on the deed becomes the sole owner and is not obligated to share ownership or the proceeds from the sale of the house with the other siblings. You also need to consider the fact that the child you put on the deed may have credit and/or bankruptcy issues or even divorce issues . Suddenly you find that even though your home is paid in full, your home is now subject to potential creditor claims of that child who is a joint owner. Taking the time to pull out all of your deeds (not just tax bills) and reviewing the language on those deeds now is extremely important!