3 tips to successfully passing on real estate to heirs
It might be a primary residence that’s been in the family for generations or a beloved vacation home that holds many happy memories. In any case, passing on real estate to heirs can be an important part of a legacy. How you set up your gift — and communicate your wishes — can be an act of kindness for the people you love most.
But while many investors plan to pass on real estate, they aren’t as forthcoming with those who stand to receive the property, a recent Ameriprise report shows.
According to the Money & Family study, more than two-thirds (68%) of investors plan to pass on real estate, but more than half (56%) of this group have not told their heirs about their intentions to do so. It’s a finding that hints at the financial and emotional complexities of transferring real estate, particularly when multiple heirs are involved.
The good news is that having candid conversations about your plan can help mitigate any confusion. Here are three tips to help you answer your heirs’ questions, provide clarity on your plan and minimize worries for everyone involved.
Tip #1: Audit important property information
Giving heirs a comprehensive and clear understanding of all expenditures associated with the property can help ease any anxiety they have about maintenance. One way to do that is to conduct a property audit to document the following information:
- Routine operating costs
- Mortgage (if applicable)
- Utility bills
- Regular service providers (exterminators, lawn care, etc.)
- The estimated cost of tasks that you handle now, but your heirs might need to hire out in the future (house cleaning, for example)
- Upcoming maintenance expenditures, such as replacing HVAC units
- External circumstances that might affect your heirs’ ownership of the property, particularly its future value
Tip #2: Understand tax ramifications and other financial implications
There are numerous ways to pass along property, and they all have accompanying tax and financial implications. When you thoroughly explore the available options, you can make an informed decision about whether to:
- Leave the property in your will
- Gift the property in your lifetime
- Place the property in a trust
- Add the heirs as co-owners on the current deed
- Sell the property outright to your heirs
- Pursue an alternative option based on what best serves your situation
Each of these options will have advantages and disadvantages based on your individual circumstances, and they should be considered within the context of your overall estate planning strategy.
Tip #3: Have a proactive and candid conversation
Communicate your wishes to your heirs in advance to ease potential tension, especially if the property will be given to more than one person. Prepare yourself for responses that may surprise and even disappoint you.
Your heirs may have reservations about inheriting the property for personal and/or financial reasons. Or they might be excited but have different ideas about how the real estate should be transferred.
When you meet, listen to your heirs’ ideas and concerns, and encourage them to take time to review the plan and discuss it with their own advisors. An Ameriprise financial advisor is also available to meet with your heirs to help them evaluate the inheritance as part of their larger financial picture.
Achieve the legacy you want
Taking positive, proactive steps today can help ensure your legacy is carried out as you wish and that there are no surprises to your heirs when your estate is settled. This will ultimately help make your loved ones' lives less overwhelming during a challenging time.
If you need help creating or communicating a plan to your heirs, we’re here. Know that an Ameriprise financial advisor can help facilitate financial conversations with family or provide recommendations for a tax professional or estate planning lawyer.
The Money & Family study was created by Ameriprise Financial Inc. and conducted online by Artemis Strategy Group in January and February 2022 among 3,325 Americans ages 30–70 with $100,000 or more in investable assets. The full sample of 3,325 is weighted on age, gender and race/ethnicity. To ensure sufficient response sizes for additional analysis, Ameriprise also oversampled investors who identify as Asian (340), Black (351) and Hispanic (403) (oversample not reflected in this document).
Ameriprise Financial cannot guarantee future financial results.
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
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