Tag: Real estate

Estate Planning for Joint Tenants and Tenants in Common

Different methods of owning property, such as being joint tenants or tenants in common, could affect your estate planning. You may not realize how the ownership method changes your options for passing on real estate to your heirs.

What Is a Joint Tenancy?

A joint tenancy is one method of owning real estate in Illinois that gives multiple owners equal shares in the property. The key feature of a joint tenancy is that each owner (called a joint tenant) has a right of survivorship. This means that if there are two owners and one owner dies, the second owner automatically owns the entire property outright. If there are three owners and one dies, the other two owners now hold the property.

Importantly, property owned by joint tenancy does not go through probate. A deceased joint tenant’s estate executor does not distribute the property to heirs because the other joint tenants simply take over ownership via their right of survivorship. The surviving joint tenants simply need to update the property deed.

What Are Tenants in Common?

In contrast to joint tenants, tenants in common own fractional interests in real estate. For example, John might own 25% of a property, Bob owns 25%, and Joe owns 50%. Despite their different interests, each still has the same right to use the property as the others.

In addition, tenants in common have the ability to sell, transfer, or convey their interest (or a portion of their interest) to other people. The other tenants do not have to agree or give permission for a sale. This means that tenants in common can leave their interests in the property to their heirs in a will. They also can place their interest in a trust.

Estate Planning Options Depend on Your Ownership Method

Owning a property by joint tenancy as opposed to tenants in common changes how you can estate plan. Joint tenants cannot give property to their heirs in their will or place the property in trust. Instead, the other joint tenant will receive the entire property by right of survivorship. If, however, you survive the other joint tenants, you will own the property outright and can give it away in your will.

Tenants in common have more opportunities to pass on their ownership interests to others. They can place their percentage interest in a property in trust, give it to an heir in a will, or transfer it directly to another person.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

Estate Planning When You Own a Second Home

When you own a second home, your estate planning may differ from that of most single homeowners. For one, you should make sure to include the second home in your estate plan. Moreover, you need to choose how to pass it on to your heirs – through a lifetime gift, in your will, or by some other method.

Including Your Second Home in Your Estate Plan

As you work on your estate plan, decide how you want to distribute your second home. For example, you may want your children to have it for future vacations, or you may want it sold off for cash. If the real estate market is on the downswing, it might make more sense to transfer ownership of the house sooner than later. You choose whether you want to make a lifetime gift or have the house distributed along with the rest of your estate after death.

Estate Planning Methods for Transferring a Second Home

Depending on who you want to receive your second home, you can opt for different estate planning methods. For example, if you want one or two people to receive interests in the house after your death, including the house in your will may be a good option. Alternatively, you could contribute the house to your trust, allowing beneficiaries to receive rents from tenants after you are gone.

Some people who want to keep their second homes in the family decide to place them in QPRTs – Qualified Personal Residence Trusts. This special type of trust helps preserve a substantially valuable property in a tax efficient way. You can continue living in your home, and your chosen recipients (often children) will receive the property after a set term of years ends. You also receive a gift tax benefit due to the trust structure. You can talk to your estate planning lawyer about whether a QPRT will work for your second home.

Another option for passing on a second home is creating a family LLC (limited liability company). You give the gift of membership interests in the LLC to your family members, and you also contribute the second home to the LLC. Each membership interest is worth only part of the second home’s total value, and there are often restrictions on transferring the interests. As a result, the gifts usually have a lower value – potentially benefiting your estate in the future when estate taxes are assessed.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

Moving to a New Home? You Might Need Changes to Your Estate Plan

If you plan to move to a new home, you may need to make some changes to your estate plan. No matter if whether your new house is across town or across the country, a major life transition like a move is a good time to review your plan.

Why Would Your Estate Plan Need Changes When You Move?

There are many reasons that your estate plan might need some changes when you move. For example, laws are different in various counties and states. If your new home is in a new state, you should locate an estate planning lawyer in your new area to review your current plan. You might be surprised how much local laws can affect the language and provisions of your estate planning documents.

Further, you may want to change your chosen trustees and agents. It is often a good idea to select a local trustee to manage a trust or a local agent in your power of attorney. That way, he or she is nearby if an emergency arises and can readily handle your affairs without added costs for travel. If your trustee or agent is now far away, consider making edits to your plan.

Moreover, you may have sold your previous house, purchased a new house, or sold other valuable possessions in the course of the move. Perhaps your move happened at the same time as other life changes like marriage or divorce. As a result, you may need to revise important documents such as your will to include a description of the new house or take out the description of the old house. You will want the documents to reflect those life changes too. Signing a new will or other documents is a good reminder to purchase insurance and complete other legal requirements connected to the new property, too.

Documents that need changes are not limited to your will or trust. If you signed powers of attorney, have advance medical directives, or own LLCs or corporations, all may need some revision. This could be as simple as submitting changes of address or as complicated as preparing new documents to comply with your new state’s laws. Most likely, you will need an estate planning lawyer to help you identify the necessary changes.

How Do You Get Started Changing Your Estate Plan?

Again, reach out to some local estate planning attorneys in your new location. If you are still in the same state, the lawyer who prepared your estate plan originally may be able to help. If you are in a new state, ask for local recommendations from friends and neighbors. With a little legwork, you can make the necessary changes to make sure your plan reflects your wishes.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

What Is a Qualified Personal Residence Trust and Can You Create One?

A qualified personal residence trust could help you limit estate and gift tax exposure while allowing you to live in your home for years to come. This estate planning device also passes on your house to your relatives or other beneficiaries of your choice.

How Does a Qualified Personal Residence Trust Work?

To create a qualified personal residence trust (“QPRT”), a homeowner transfers his or her personal residence to a trust specifically prepared to meet IRS QPRT requirements. The trust language states that the trust’s creator (the homeowner) retains an interest in the house for a set number of years. During that time, the homeowner can live in the house rent free. After those years pass, the house passes to designated beneficiaries such as children.

What Are the Tax Benefits of a Qualified Personal Residence Trust?

The main benefit of setting up a QPRT is reduction of gift or estate taxes. If a homeowner were to give his or her children the house directly, the IRS would assess gift tax on the transfer. Depending on the value of the home, this tax could be quite expensive. The situation is similar if the homeowner leaves the house to the children in his or her will.

Starting a QPRT can greatly reduce the potential gift or estate taxes. Basically, because the homeowner retains an interest in the home for a set number of years listed in the trust, the gift’s value is reduced by the value of that interest. As long as the homeowner survives past the set number of years, the gift’s value goes down and thus reduces the amount of gift taxes due.

Further, because the house gets transferred to the chosen beneficiaries, it is no longer part of the homeowner’s estate, which could reduce estate tax liability in the future. A smaller estate means less likelihood that the estate will owe taxes.

How Can You Get Started Making a QPRT?

There are many pros and cons to QPRTs beyond the scope of this blog. For example, the IRS has extremely strict requirements for what constitutes a qualified personal residence trust. You can only place your primary residence, as well as a small amount of cash to cover home expenses, in the trust. Any modifications to the house after the trust is created can affect the QPRT’s effectiveness too. As a result, you should consult a lawyer if you are interested in forming this kind of trust. With the lawyer, you can explore whether a QPRT is right for you.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

Mortgage Debt and Estate Planning in Illinois

When you have a mortgage on your house that you won’t pay off any time soon, you need to factor that debt into your estate plan. A mortgage is a significant debt that can affect the value of your total estate, diminish inheritances that you leave, and burden co-owners with payments.

What Happens to a Mortgage When the Homeowner Dies?

Mortgages do not disappear when the homeowners die. Instead, the mortgage companies may seek repayment of the mortgage debt from the homeowners’ estates or even change the mortgages’ terms for the surviving co-owners.

When only one person took out the mortgage, the mortgage company can make a claim against the deceased person’s estate. Estate executors must notify all creditors and allow them time to file claims. Before the deceased person’s assets can be distributed to heirs, the creditors who made claims get paid from the assets. This diminishes the inheritances that heirs receive. If the deceased person’s assets are not enough to pay all creditors, each creditor gets some of the assets. Then the heirs inherit nothing.

A mortgage is often the largest debt that the estate must pay. If it is large enough, paying it back can wipe out all of the assets – including the house itself. The executor might have to sell the house or give it up to the mortgage company.

What If More Than One Person Owns the House?

When there are two or more homeowners, the mortgage is probably in both people’s names. As a result, the surviving homeowner usually becomes liable for paying the mortgage when one homeowner dies. In some cases, it might be an opportunity to refinance, or the mortgage company might try to make changes in the mortgage terms. In other cases, it is a financial disaster because the surviving homeowner can no longer afford mortgage payments.

Estate Planning Around a Mortgage

Some people choose to have their houses owned by trusts to avoid the issues described above. However, it might be difficult to get a mortgage or change the owner on a mortgage if you start a trust (talk to a lawyer and your mortgage company for details). There are some other options like having the home owned by a business, choosing ownership by only one spouse, or even provisions in a will requiring sale of the house upon the homeowner’s death. Again, talk to your estate planning lawyer about what is best for you, especially if you are retiring and still owe years of mortgage payments.

In debt and want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

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