For most of us, our house is our biggest asset. In California, when a decedent has an estate worth more than $150,000 and it can NOT pass to an heir or beneficiary, the estate must be probated. There are few houses that wouldn’t go straight to probate without proper planning, and most of us could easily see our house becoming part of a lengthy and expensive court process.
Most people know enough about probate to be familiar with its downfalls. In addition to the cost and time, it places your estate in the hands of the court, which oversees and ultimately decides where your money will go. This means someone you intended to leave something to may not receive anything, or an heir you wanted to omit may inherit after all. And once a minor beneficiary turns 18, they’ll have access to their entire inheritance with no oversight or direction.
What about gifting your house to a child before you become incapacitated or pass away? Or just transferring the deed into your child’s name for them to distribute as they see fit when you’re gone or can’t manage your own affairs? This plan presents many possible undesired outcomes.
First, there may be major tax consequences to transferring your house before you pass away, including the recipient paying massive gift taxes. Additionally, the recipient has no legal obligation to handle your assets per your “wishes” as they’re the legal owner upon the transfer of the deed. Lastly, if or when the house is ultimately sold, the recipient will be paying much more in capital gains than they would have had the asset been transferred differently, such as through a living trust.
To prevent probate and to ensure your assets are given to exactly who you want, when you want them to have them, the best solution is to place your house in a living trust. A revocable living trust not only prevents your estate from going to probate, it allows you to transfer your assets to your heirs exactly how and when you want to.
Holly Ratzlaff is an attorney and partner at Voorhees & Ratzlaff Law Group, LLP