If you've recently had a health scare or other life event that has prompted you to finally put a will into writing, you may be wondering how your estate will be divided among your heirs -- especially if you're like many Americans and have a sizable portion of your net worth tied up in your primary residence. Splitting up a single home among multiple heirs can be a challenge, and as the old adage says, there is more than one way to skin a cat. Read on to learn more about how an estate that consists only of a piece of real estate may be divided, as well as the provisions you'll want to include in your last will and testament to ensure your final wishes are carried out just as you've intended.
How can a single home be divided among multiple heirs?
The simplest way to divide a home (or any other illiquid asset) is to direct that it be liquidated and the proceeds divided among the beneficiaries. However, selling a home may not always be the best option, especially if the housing market is in a decline. If the home is secured by a mortgage, this mortgage will need to be repaid before any sale proceeds can be divided -- which means that if the mortgage balance and any real estate fees are poised to consume most of the proceeds (or even exceed the sale price), your heirs will be better off by keeping the home, renting it out, and splitting the profits until the housing market stabilizes.
Another way a home can be divided among multiple heirs is through a buyout. Even if the heir who wishes to keep the home doesn't have enough cash to buy out the other heirs, he or she should only have to take out a mortgage equal to the other shares of the estate. For example, if a home worth $300,000 is divided among 3 siblings, the sibling who wishes to buy out the others will need to take out a $200,000 mortgage and distribute $100,000 to each sibling.
What should your will include to ensure your home is distributed as cleanly as possible?
Although most wills leave the distribution mechanism up to the trustee (as specifically directing liquidation or other disposal of a real estate asset may not be in your heirs' best interest), it's important to be very specific when setting forth the ownership of your home -- whether as joint tenants or tenants in common. Joint tenancy is generally the simplest and most streamlined option, as it gives all heirs equal ownership of the home and each heir has the right to petition that it be liquidated.
Tenants in common can be equal owners, but the creation of equal shares isn't necessary -- if you plan to leave two heirs each 40 percent of your home and a third heir 20 percent, this will need to be structured as a tenants in common relationship.
For more information, contact Wright Law Offices, PLLC or a similar firm.Share