Estate Planning In Massachusetts: Are There Any Risks With Leaving Real Property Directly To A Loved One?
Are you preparing to leave real property (real estate) to a loved one? You may be wondering if there are any risks to leaving them the title to a property directly. The short answer is that there are some risks to be aware of. It might still be the best and most straightforward option, but you need to consider things like tax consequences, title disputes, or unintended co-ownership conflicts. Here, our Norwood estate planning attorney highlights key things to know about the potential risks of leaving real estate to a loved one.
Risk #1: Taxes and Other Bills
To start, the recipient of real property (real estate) in Boston and elsewhere in the region may be on the hook for certain taxes. Indeed, leaving real property directly to a loved one means they immediately become responsible for associated financial costs. That is relevant and should be planned for as part of an estate plan In Massachusetts, this can include property taxes, insurance premiums, maintenance expenses, and outstanding utility bills. If the recipient is not financially prepared, these costs can be a big issue. In the most serious cases, they may be forced to sell the property to cover ongoing expenses. A proactive approach is key.
Risk #2: No Interest in Managing Property
A loved one may inherit your property but have no desire to maintain or live in it. That does matter. The reality is that managing a home or other real estate requires time, effort, and ongoing upkeep. Of course, these are responsibilities that simply may not fit their lifestyle, circumstances, or desires. It is an especially big issue for people who are no longer local. Without interest or ability, the property can quickly fall into disrepair, diminishing its value. They might also feel pressured to sell quickly, potentially accepting less than the property’s worth. It is something worth discussing.
Risk #3: Title Issues
Broadly explained, title is legal ownership over real property (real estate). Transferring real property directly can sometimes lead to title complications. In Massachusetts, any undisclosed liens, unresolved boundary disputes, or unclear legal descriptions could delay or even block the transfer. A loved one receiving the property may discover these issues only after taking ownership. As part of the estate planning process, it is imperative that you ensure that title is free and clear.
Risk #4: Ownership Conflicts
Finally, conflict can arise over ownership of real estate. That can especially be a problem when it is being passed down as part of an estate plan. If you leave a property to multiple beneficiaries, disputes over its use or sale can quickly arise. Co-ownership often requires unanimous decisions on maintenance, renting, or selling, which can be difficult if the parties have conflicting interests. Even between close family members, disagreements can escalate into costly legal battles.
Risk #5: Capital Gains
Depending upon when you change ownership of real estate, that is, at death or during your lifetime, there may be capital gains tax issues upon the sale of the real estate if the beneficiary(ies) decide to sell the property. If you convey the property to your children, for example, and take back a life estate interest in the property, your children take a carryover tax basis, that is your tax basis, and if they or you sell during your lifetime, and if the remainder person(s) have not lived in the property for two of the last five years, they will pay capital gains on the difference between your tax basis, that is the carryover tax basis, and the sale price, on the amount that they receive from the sale proceeds. If the beneficiary(ies) inherit at your death, they get a step-up in basis. While you may intend to live in your house until your death or intend to “be carried out in a box” from your home, health issues may dictate otherwise and the remaindermen on the deed are left with the financial burden of maintaining the property and the decision of whether to sell during your lifetime, thus prompted the capital gains tax issues.
We Provide Estate Planning Services in Boston and Throughout the Broader Region
At Fisher Law LLC, our Massachusetts estate planning lawyer has the skills and experience that you can rely on for cases involving real estate. If you have any questions about leaving property to a loved one, please do not hesitate to contact us today for a confidential consultation. Our firm provides estate planning services throughout the Greater Boston area.
