Estate Planning: Transferring Your Property

Estate Planning: Transferring Your Property. Make sure you have a will in place or have transferred title to your property into a living trust.

By Ilyce Glink and Samuel J. Tamkin

Q: I’m a 71 year old retired single woman. I have $100,000 in the bank and $700,000 in investments. Receive my Social Security benefits monthly. I owe about $90,000 on my condo and I have no other debts. I have one adult child who will inherit it all. 

Should I pay off the condo before I die? I heard that if the loan is not paid off then my son will go through some sort of probate to get it paid off and it could cause him lots of time and effort. Can you please clarify?

Impact of Mortgage for Heirs

A: Thank you for your excellent question. While it appears that you have a good handle on your finances, and are living within your means, we want to make sure that you understand the impact your mortgage has on your estate and your heirs.

First, you’re not the only senior carrying a mortgage. According to LendingTree, which analyzed U.S. Census Bureau data, more than 10 million homeowners aged 65 or older are still paying off their mortgage. Looking at the nation’s biggest 50 metro areas, the company found that about 19 percent of senior homeowners still carry a mortgage. San Diego, Miami and Las Vegas have the largest share of seniors with a mortgage, while Salt Lake City, Austin and Dallas have the smallest.

Transfer of Ownership after Death

Back to you: It appears that you’re really asking about transferring the ownership of your home, and not how your estate will pay off any remaining mortgage balance after you die. We say this because if you were to die, the controlling issue is who becomes the owner of your home. The person that owns your home then has the right to sell it or keep it. 

As it relates to the mortgage on the home, the lender would need documentation to evidence the transfer of title to the home from you to your son. Once the lender has that information on file, the lender would deal with your son as the owner of the property. Sometimes lenders can be difficult when dealing with people other than the named borrower on the loan. And, we think this is your chief concern.

But, we don’t think that you should worry about whether a lender will make it difficult for your son to deal with the lender after you have died. You’re only 71 and assuming you’re in good health, you could wind up paying off the loan during your lifetime. Then, your son will inherit a house that is entirely paid off.

Focus on the Bigger Picture and Estate Planning

A bigger danger for retirees is using up your cash to pay off your loan. You may need your cash to pay medical bills, make repairs to your home, renovate to accommodate a disability, or decide to take a trip with friends or family. In an era of higher inflation, having cash on hand is a very smart financial move.

And, if you obtained your mortgage in the last decade or so, and it’s carrying an interest rate of 3 percent or less, you’re paying very little interest to carry that debt. Another smart financial move.

If you were financing your home today, you might pay upwards of 7 percent interest on that new loan. Your new loan payments might be double what you currently pay. 

Instead of focusing on the mortgage, turn your attention to a bit of estate planning. Make sure you have a will in place or have transferred title to your property into a living trust. If you have a will, upon your death, the executor of your estate can go to the probate court to have ownership of the home transferred into your son’s name. 

Living Trust and Estate Planning

The better solution is to place your home (and other assets) into a living trust. When you die, the trust by its own terms would automatically give ownership and control of the home and your assets to your son.

While going through probate can be expensive, good planning can bring down the costs of probate considerably. Consider what you own and how each asset might be treated after your death:

  • Bank and other financial accounts. Many financial institutions allow you to name your son as the owner of your assets upon your death using a Transfer on Death (TOD) document. TODs will allow the easy transfer of these accounts and you can ask your bank if they can provide you with the paperwork to fill out.
  • Retirement accounts, 401(k) or pension accounts. These types of accounts allow you to name a beneficiary and would go to that beneficiary upon your death. 
  • Cars, motorcycles, boats, and other vehicles. These types of personal property items are harder to transfer after your death without going through probate. However, during your lifetime, you might put those assets in your name and in the name of your son as joint tenants. Thus, both of you own them and on the death of one, the other becomes the sole owner.
  • Real estate. As we’ve written many times before, we don’t believe you should retitle your real estate as joint tenants with your heirs. Instead, set up a living trust to hold title to the home. You would be the trustee and beneficiary of the home while you are living. When you die, your son would become the replacement trustee and beneficiary. 

Estate Planning

Inventory your assets and possessions, then consult with an estate attorney to draw up the paperwork. Then, be sure to start a conversation with your son (if you haven’t already) about what you have, what you owe, what he will eventually receive, and what steps you’ve taken to put a solid estate plan in place. 

Taking these steps will give you peace of mind and make things easier for your son. And if you do die before your loan is paid off, your son can handle the payoff of the loan after your death or continue to make mortgage payments on the loan if he decides to keep your home. 

©2022 by Ilyce Glink and Samuel J. Tamkin.