What is the Best Way to Leave Property Upon Death?

Talking about what happens to your wealth after you’re gone is always a challenging discussion to have. However, it is imperative that you explore the best way to leave property upon death to help make sure that your hard-earned assets are distributed according to your wishes and in the most efficient manner possible.

While the best way to pass down property will differ from person to person, there are a few popular options that should be considered by everyone, such as creating a will, establishing a trust, or co-ownership.

In this article the estate planning advisors at Avidian Wealth Solutions will provide guidance on the best ways to leave property upon death, focusing on estate tax reduction strategies as well as strategies that work to minimize potential conflict and ultimately preserve your legacy for your loved ones. 

What is the best way to leave an inheritance?

Whether you’re looking to leave behind assets or property, your ultimate goal is to ensure that your loved ones are left with a comfortable and secure financial future. To achieve this, you need to have effective estate planning solutions in place.

One of the most common ways to leave an inheritance, including property, is through a will. The advantage of having a will is that it allows you to retain control over how your estate should be divided and who receives what even after you’re gone. 

For high-net-worth individuals, however, there may be better alternatives for the transfer of property after death without a will, strategies that may be more beneficial from a tax perspective and may offer more protection for your assets and your wishes.

These options include:

1. Establishing a trust 

A trust is a legal arrangement that allows a third party, known as a trustee, to hold assets on behalf of the beneficiaries. Trusts are flexible, varied, and often complex. The benefits of establishing a trust include:

• Avoiding Probate: Trusts typically bypass the probate process, which can save time and court fees. This allows assets to pass on to beneficiaries more quickly and privately.
• Tax Advantages: Depending on the type of trust, there may be potential to reduce estate or inheritance tax in Texas, thereby preserving more wealth for your beneficiaries.
• Control: Trusts can be set up in many ways and can specify exactly how and when the assets pass to the beneficiaries. 

How to put a house in a trust

The process of establishing a trust involves several steps that should be done with the help of an experienced financial advisor and an attorney, as setting up a trust involves both complex legal and financial decisions.

1. Select the type of trust you want to use. There are a number of different types of trusts available, such as a revocable living trust, an irrevocable trust, or a qualified personal residence trust (QPRT). Each type has its own unique set of benefits and considerations to be made, so make sure this decision is made with the guidance of a trusted financial advisor. 
2. Identify the assets you wish to place in the trust. These could include real estate, bank accounts, stock investments, and personal property. 
3. Choose a trustee. Your trustee could be a family member, a professional (such as a lawyer), or a corporation (such as a bank or a trust company).
4. Identify and clarify the beneficiaries, as well as the terms under which they receive distributions. This could be a particular event, like graduation or marriage, or at a specific age or date. 

These details are then incorporated into a trust document that is signed and notarized. The assets are then transferred into the trust, completing the process of trust creation.

Continue reading: How to transfer a property title to a family member in Texas

2. Co-ownership

Co-ownership can be another effective strategy for passing down property after death. When you co-own property with another individual, usually a spouse, child, or other close relative, the property is automatically passed on to the surviving co-owner upon your death, bypassing the probate process. This can be particularly beneficial for high-value properties or assets, or if you’re handling the estate planning for elderly parents, as it has the potential to save time and money in legal fees. 

There are two main types of co-ownership, Joint Tenancy and Tenancy in Common, both having unique features.

• Joint Tenancy is a form of co-ownership where all co-owners have an equal interest in the property. One of the primary advantages of a joint tenancy is the “right of survivorship.” If one co-owner dies, their share of the property automatically transfers to the surviving co-owners, without the need for probate.
• Tenancy in Common, on the other hand, allows co-owners to own unequal shares of the property. Upon the death of a co-owner, their share can be passed on to their chosen beneficiaries via a will or trust, rather than automatically going to the surviving co-owners. 

However, it’s important to note that co-ownership may not be the best option for everyone. It requires a great deal of trust between co-owners and can potentially lead to complications or disputes over property. Therefore, it’s crucial to consult with legal and financial professionals before choosing this route for estate planning.

3. Use a qualified personal residence trust (QPRT)

Another way to transfer property after death without a will is a qualified personal residence trust (QPRT). A QPRT is a specialized type of irrevocable trust that allows homeowners to transfer ownership of their primary residence or vacation home to the trust, while still living in it for a specified period. At the end of this period, the property is passed on to the designated beneficiaries, usually children or other family members.

The benefit of using a QPRT is that the value of the home is “frozen” at the time it’s placed in the trust, potentially reducing estate and gift taxation. However, for this strategy to work, the homeowner must outlive the trust term; otherwise, the property will be included in their estate for tax purposes.

If the homeowner does outlive the specified period, they can continue living in the home by paying rent to the trust. The homeowner will also be responsible for all expenses related to the property, such as repairs and taxes.

QPRTs do have some potential drawbacks, such as limited control over the property during the trust term and the possibility of losing it if you pass away before the end of the trust term. Also, mortgages can complicate the process of establishing a QPRT, as lenders may require the homeowner to pay off any outstanding balances before transferring ownership to the trust.

Other factors to consider when passing down property

Aside from the various legal strategies available for passing down property, there are a few other factors to consider when choosing the best way to leave property upon death:

Taxes

As mentioned earlier, some types of trusts can help reduce taxes on inherited assets. On the flip side, if you plan on gifting your property during your lifetime, there may be gift tax implications to consider. Your loved ones may also end up owing money if they sell the property after your death, as it may be subject to capital gains taxes*, legal fees, or transaction costs.

*Learn more about Texas capital gains tax on real estate

Mortgage obligations

If a property that has an outstanding mortgage is passed down through inheritance, the mortgage doesn’t simply disappear. In many cases, the mortgage may become due upon the property owner’s death. This means that the person inheriting the property will need to settle the remaining debt. They may need to refinance the mortgage, pay it off with other assets, or sell the property to cover the debt. This can potentially introduce financial stress for the beneficiaries, so it’s crucial to discuss these possibilities with a financial advisor or an estate planning attorney.

Family wishes

When planning for the transfer of property, it can make everyone’s lives easier to discuss your intentions with family members and involve them in the decision-making process. This can help avoid potential disputes or misunderstandings after you pass away. Particularly if there is not an interest in keeping the property after your passing.

Property upkeep

If you plan on leaving a property to loved ones, it’s important to consider its maintenance and upkeep. This is especially crucial for vacation homes or properties that may require extensive care. You can designate funds in your estate plan to cover these costs or discuss with beneficiaries their responsibility for maintaining the property.

Potential debts

It’s important to note that should a property have any outstanding debts attached to it at the time of transfer, those liabilities could become the responsibility of the beneficiary. These could include a remaining mortgage balance, unpaid property taxes, or lien settlements. Thus, it’s crucial to consider the net value of the property (assets minus liabilities) when planning your estate and to communicate any potential financial obligations to your beneficiaries.

Time and effort

Depending on the specific estate planning strategy chosen, passing down property can involve a significant amount of time and effort. This could include setting up trusts and other legal documents, transferring ownership titles, and ensuring that all necessary requirements are met. It’s essential to carefully consider the time and resources involved in each method before making a decision.

How long do you have to transfer property after death?

What if the worst happens before you’ve finalized your estate plans? There is no set time limit for transferring property after someone’s death. However, the longer it takes to transfer ownership, the more complicated the process may become. It’s best to start planning and executing the transfer as soon as possible to avoid potential issues or delays. If there are any disputes or complications with the transfer, it may be necessary to involve legal professionals to help resolve the matter.

However, transferring property after your death without a clear estate plan can lead to lengthy legal battles and potential loss of assets. That’s why it’s crucial to seek professional guidance and create a comprehensive estate plan sooner rather than later.

Ready to start planning for the transfer of your property? Let’s talk!

If you have a residential property or vacation home you’d like to keep in the family, you may want to consider some of the best ways to leave property upon death mentioned above, including joint tenancy, setting up a trust, or using a QPRT. Your property may very well be one of the most valuable assets you own, so it’s absolutely essential that you work with a reputable wealth management firm to determine the best course of action for you.

That wealth management firm is Avidian Wealth Solutions. We are a high-net-worth fiduciary firm that offers a boutique family office experience and a multidisciplinary team including estate planning advisors in Houston, Austin, Sugar Land, and The Woodlands. 

Our team has extensive experience in working with our clients to help them achieve their financial goals and work to secure their legacies for future generations through personalized financial planning, estate planning, investment management, tax strategies, and more. 

Schedule a conversation with us today to learn more about our comprehensive approach to wealth management and estate planning.

More Helpful Articles by Avidian Wealth Solutions: 

• What is the Repatriation Tax in the US?
• Will AI Replace Financial Advisors?
• What is an Exit Plan (and Why Does it Matter?)
• What to Know About the Great Wealth Transfer
• How Is Passive Income Taxed?

---

Please read important disclosures here