Estate Planning for Real Estate Assets


If you own a home, it is important to develop a detailed plan for that asset. Factors that may influence your decision include the amount of equity, mortgage debt, taxes, and family emotions. Keep the following in mind when estate planning for real estate assets.

Diminished Value of Assets

The value of your asset will be diminished by the amount of mortgage debt and the cost to liquidate it. For instance, if you have a home worth $500,000 and have a $300,000 balance on your your mortgages, there is $200,000 worth of equity. In order to gain access to that equity, your heirs will either need to refinance the home (if they intend to keep it) or sell it. There is a cost for both. Selling is probably the more expensive alternative of the two given closing costs such as real estate commissions, transfer taxes, legal fees, etc. If you are dividing assets among multiple children, it is important to keep in mind the diminished value of assets when deciding how to distribute them.

Applicable Estate and Other Taxes

Transferring ownership of a property through an estate also has certain tax implications. Will an estate tax apply? Will the sale of a home be subject to capital gains taxes? What basis is used to calculate those gains? How do calculations or applicable taxes differ when a home is immediately sold versus if it is sold by future generations? Estate planning for real estate assets should always take taxes into account. Your Massachusetts estate planning attorney can offer guidance on how to structure the transfer of real estate to minimize tax implications for your heirs.

Emotional Considerations

One of the most difficult aspects of estate planning for real estate assets is the emotional impact on both you and your heirs. You may have certain preferences on whether a family home should be retained or sold. In the case of multiple heirs, their preferences may conflict with one another, which can lead to an emotional and legal battle. It can be helpful to discuss these matters with your heirs ahead of time to understand what their feelings are. You may want to change your estate plan accordingly.
For example, let’s assume that you have 3 children and one has a desire to keep the home whereas the others would prefer to liquidate. You may want to give the home to that one child while the other two receive larger portions of other assets. The overall value to each child can still be fairly equal although the composition may differ. Or you could give a child the right to buy out the others at fair market value within a certain time frame.

More on Estate Planning for Real Estate Assets

There is no single approach to estate planning for real estate assets that works for everyone. It truly depends on your personal circumstances and family dynamics. Working with a Massachusetts estate planning attorney is important to understanding your many options and to identifying the best approach for both you and your family. If you are struggling with this or any other aspects of your Massachusetts estate plan, please contact us to schedule a consultation.