estate planning new home purchase

Whenever I meet with new clients, we have an Estate Strategy Session to really dig into their goals and wishes. After we get a good list of priorities, I’ll go through “The Big Four” questions that all of my estate planning clients need to answer to get their plan moving in the right direction. The third one is usually the one my clients have the least trouble with since it is what most people think about when they think of estate planning.

“Alright,” I told Ben and Gilda, “the third big question is simply ‘who gets what, when, and maybe even how?’ In other words, where do you want to leave your assets once you are gone?”

Ben and Glenda frowned at that. “This is what we’ve been wracking our brains with for the last few weeks,” Ben told me. “I know that our daughter Jill wants the house, and our next biggest asset is our investment account which is worth about $100,000 more than the house right now. Our sons Bill and Terry don’t want anything specific, but if we leave the investment account to Bill or Terry, then I don’t know what we’ll leave to the other to make things fair. Plus, on top of all that, I have no idea what these accounts or the house will be worth by the time we pass on. I really don’t know what to do.”

I nodded my head and smiled. “Let me make sure I have this right,” I said. “I think you might be thinking this is a lot more complicated than it actually is. Do you want to treat your three children equally?”

They nodded yes.

“But at the same time you want Jill to get the house because that’s what she wants,” I said. Again, they nodded affirmatively.

“Then this is actually pretty easy to put into your revocable living trust,” I said. “We’ll leave everything to your children divided equally at the time of the second death, but with the caveat that Jill’s share must include the house.”

They both looked dumbfounded. “That’s it?” Gilda said. “That’s all we have to do?”

“Yes,” I said. “If you get any more specific about what assets go to which children, you do run the risk that you have to completely change your estate plan because you ‘spent too much’ of one child’s inheritance out of an account and now have to rebalance everything. This way, we’re letting your trust do the balancing while still making sure Jill has the house.”

Talk about a look of relief.

When you buy a new home, you’re making a big investment in your future. You’re buying a place to raise your family. Hopefully a home and not just a house, a place filled with love and comfort for the people you care for most. But what happens to that home if you or your spouse should die unexpectedly? Creating a thorough estate planning strategy will ensure that your home goes where you want, and that family and loved ones don’t fight over it after you’re gone.

Make Sure You Have Adequate Insurance Coverage
Buying a home is a big investment. With a 30-year mortgage, families commit to being in that home – and making payments on it – for a long time. But what happens if you die unexpectedly? Will your family be able to continue making payments, or will they lose their home?

When you buy a new home, make sure you take out an insurance policy that is adequate to pay off the mortgage if you or your spouse should die unexpectedly. Most two-income families can’t afford a home with one income earner gone, and being able to continue to live in the home without a mortgage payment can mean the difference between having to sell and living comfortably in the home after your death. Make sure your insurance coverage is enough to pay the mortgage off, and don’t forget to account for taxes or any other expenses that may cause issues for your family.

Beyond coverage for the mortgage itself, you should also make sure your life insurance policy provides enough capital for your family to settle other debts. It would be a shame if your insurance policy could pay off the house, but then the family would have to turn around and sell it to pay for the car, school, medical bills, funeral costs or other expenses. Carry adequate insurance coverage to pay off your home – and settle other debts so your family doesn’t have to sell it.

A Good Estate Plan Prevents Strife Among Kids
Beyond the financial considerations of owning a home, buying a new home can become a source of conflict for your family. Who should get your home if you and your spouse die unexpectedly? If you leave your home to one child, the other children may resent it – and in the right circumstances, could potentially drag the argument into a lengthy court case. Alternately, if you leave your home to one child, he or she may feel compelled – or bullied – into selling it and distributing the proceeds among the family.

You need a good estate plan to deal with the disposition of your home to prevent strife among your family. Don’t think it could happen to your family? You might be surprised by the kind of arguments that can and do arise over a large asset like a house – or the money that its sale could provide.

Distributing Your House and Assets Among Your Children
The most equitable way to deal with your house after your death is to make sure all of your children get something of equal value. For example, if one of your children particularly wants the house, you could leave it to him, and leave offsetting assets of equal value to your other children.

If you leave the entirety of the house to one child, you could leave the proceeds of your brokerage account to another child, and other large assets such as CDs and bonds to another child. When you distribute assets equally to offset the value of the house you’re giving to one child, your family is less likely to dispute your wishes or get involved in lengthy arguments. However, the most logical way to accomplish this while keeping your plan flexible is to leave everything to your children equally through your revocable living trust, but to then designate in the trust that one child’s share must include the home.

Alternately, if you don’t have enough large assets to offset the value of the home, an insurance policy payable to your revocable living trust could help buy out the other children’s shares in the home with cash. That way you could safely leave your home to one child, and let the other two children enjoy cash instead—an arrangement in which all three children get an equal share in your estate, even if you leave your home to just one.

Don’t leave the disposition of your new home to chance. Work with an experienced estate planner to create a strategy for sharing your new home among your children, and making sure that your family has the financial resources to keep your home if you should become disabled or die.


Interested in learning more about the other BIG THREE questions or just have questions about  estate planning? Please give our office a call at (919) 844-7993. We have kind and caring staff here to help.