Home ownership is still the American dream for many of us. It can take months to find the right home, weeks to agree on a price, and one to two months to get financing. But it only takes seconds to cause a major estate planning mess.
The way you take title to your home is very important, and often overlooked. A married couple will usually want the home to transfer to the surviving spouse without probate. Some may want the property to go to their children after the surviving spouse dies.
There are a few simple but powerful words that can achieve these goals: "Joint Tenants with Rights of Survivorship" (JTWROS). Some states allow married couples to hold property as "Tenants by the Entirety," which has the same effect. If a non-married couple is deeded the home without the magic words, probate is inevitable.
Magic words (and missing ones) in the deed
- …TO Jane Smith and Bob Smith, husband and wife, Grantees = no probate when either Jane or Bob dies.
- …TO Jane Jackson, single, and Bob Smith, single, Grantees = probate when either Jane or Bob dies.
You can also add your children as joint tenants for a quick transfer at your death. It's not always the best way, but it's the most efficient and least expensive. Efficient and cheap isn't the best route if the property has gone up a lot in value since you bought it, because your children lose the step-up in cost basis. That could mean a significant capital gains tax when they sell. That's just one of the pitfalls of quick and cheap.
Have your estate reviewed (even if it's just your home and a few other assets) by an experienced estate planning attorney to see your options. Magic words are a start, but the right documents may be a better solution, and they take a fraction of the time you spent finding and buying your home.