4 Reasons You Need an Estate Plan for Your Home

Great piece out of Realtor.com

By: Richard Koreto

An estate plan will help ensure your home becomes a legacy for your children—not a source of friction or a financial burden.

A detailed estate plan means your heirs won’t face any financial surprises. Image: Siri Stafford/Photodisc/Getty Images

The time to solve estate planning problems is before they happen. Otherwise, what you think is a loving act—leaving your home to your heirs—can turn into a financial and familial disaster.

Estate planning is complicated, and you’ll need help from qualified pros, but here are four reasons why you should start thinking about an estate plan now.

1. A good estate plan can keep your heirs from fighting

Say you intend to leave your house jointly to a son and daughter. But what if, as often happens, one child wants to live in the house and the other wants to sell it? A reasonable estate plan would not force one child to indefinitely forgo his or her share of the value of the house.

Possible solutions:

• If you have other assets, it may make more sense to divide your estate, leaving the house to the child who wants it, and property of equivalent value to the other.

• If the house makes up the bulk of the estate, an insurance professional can talk to you about a policy that would provide enough money for one sibling to buy out the other’s share.

• In either event, talk with your heirs up front so you can structure your estate plan to head off potential problems.

2. A good estate plan means no financial surprises

Consider these two scenarios:

• You’ve sold the family home and bought a retirement condo, with a mortgage. Your heirs will eventually inherit both the condo and the loan as part of the estate. But they can’t assume the mortgage unless they’re planning to live in the condo. They’ll have to pay it off. That can be a nasty shock, explains A. Raymond Benton, a certified financial planner in Denver.

• It’s very possible that in later years you’ll want a reverse mortgage to help pay for nursing care, for example, while you stay in your home. Upon inheriting the house, your heirs will have to come up with the money for the outstanding loan. Otherwise they’ll likely have to sell the house to pay back the lender. The bank will not allow your heirs to just assume a reverse mortgage.

Explain your situation to your heirs in advance as part of your estate plan, so they can be financially and emotionally prepared to accept an encumbered house as part of the estate.

3. A good estate plan means less of an estate tax hit

When it comes to estate planning, the biggest issue to consider is taxation. It’s a particularly thorny problem right now because the federal estate tax is in flux. If you die in 2010, there’s no estate tax, but it will almost certainly come back in 2011.

While that sounds like a good thing for 2010, there’s a catch: There’s only a limited “step up” for home value in 2010, according to Robert Demmett and Gerald Marsden, CPAs at Eisner & Lubin LLP in New York. When there is no step-up, your heirs could end up paying capital gains taxes on the difference between what you bought the house for 30 or more years ago and what they get for it when they sell. With a full step up, they would only have to pay tax on the difference between what the house was worth at your death and the sale price.

There are strategies for dealing with this, now and in the future. An estate planning attorney can set up a trust to help manage step-up issues.

4. A good estate plan can keep you from losing your house if you get sick

Of course, you may be thinking, “This is all academic. I’ll have to sell my home to pay for eldercare.” However, with a combination of long-term-care policies and trust-based solutions, you may be able to take care of yourself and leave your home to your heirs. Consult a lawyer experienced with estate planning or a qualified financial planner.

Richard J. Koreto is HouseLogic’s managing editor of finance, taxes, and insurance. He has been editor of several professional financial magazines and is the author of “Run It Like a Business,” a practice management book for financial planners. He and his wife own a pre-Civil War house in Rockland County, N.Y.



A great piece on remodeling and how to go green.

Deconstructing home renovation – Go Green
Homeowners save on cost, waste using recycled materials

By Tom Kelly, Inman News

A few years ago, some friends of ours purchased an older home from a widow who no longer could maintain the house and the more than two dozen fruit trees that rested on its sunny, western-facing lot.

While the couple’s residence was far nicer and newer than the widow’s 1960s rambler, they loved the garden and orchard. They also dreamed of building a home from scratch, exactly how they wanted it, with the latest in energy-efficient building materials and appliances.

In September 2008, when the economy took its infamous nosedive, the couple began to wonder if they ever would be able to afford a significant remodel, let alone design and build a new home on the site.

The assets they had set aside for the project had dwindled considerably, as had the value of the older home they had recently purchased. Given the costs to sell the property, they wondered if they could ever recover the original purchase price.

“By the time the deconstruction was over, I estimated we saved more than one-third the cost of a typical demolition.”

“What I underestimated was how willing the subcontractors had become to adjust their bids,” one of the owners said. “They wanted to keep their crews working and were willing to reduce their price to make that happen. We also saw some of the costs of our materials come down. When we added them together, the savings were close to the amount that we had lost in the stock market.”

Since the decision to proceed, two other pleasant surprises occurred. Some of their remaining assets rebounded in value, thereby restoring a portion of the next egg, and the couple found an alternative to conventional demolition that saved both money and materials.

They hired a regional demolition company that removed and reused their metal roof, heat pump, doors, sinks, windows and other salvageable material in return for a credit against labor costs. The company put the used items on shelves in its Seattle and Bellingham, Wash., retail stores and recycled much of the typical waste products, saving the couple additional disposal fees.

“By the time the deconstruction was over, I estimated we saved more than one-third the cost of a typical demolition,” the owner said. “What was also important to us is that all that wood and metal did not end up in a landfill.”

Like many regional companies specializing in recycling home products, the demolition company was founded by a nonprofit organization to address the growing problem of wasteful disposal of usable building materials, most of which were buried in the local landfill.

The company, and other organizations and companies like it, provide an alternative to dumping the materials that come from an estimated 200,000 building demolitions each year in the U.S.

Noel Stout, RE Store deconstruction manager, said the amount that homeowners can save is dictated by the quality of materials in the home.

“When it comes to costs, we are very competitive with the other demolition companies. A 2,000-square-foot house is probably going to cost the owner between $8,000 and $15,000. In addition, they will be keeping about 85 percent of the house from going in a landfill.”

The company also strives to create jobs and opportunities for reuse, education and innovation at every step of the process. It reviews its recently collected inventory and stocks quality building and home improvement materials at prices that are up to 50 percent less than the cost of new items.

Some of the stocking work is done by interns from the Working to Achieve Growth in Employment Skills (WAGES) program, administered by the Young Adult Services department of the YMCA.

“It’s a win-win situation for the interns and the RE Store,” said Pat Finn Coven, the company’s operations manager. “They get training and experience while helping us to increase the materials we can divert from landfills.”

The retail stores have been a boon for contractors and remodelers seeking older fixtures and for owners on a budget. For example, Gabriel Gonzalez, a former RE Store employee with a passion for green design and reuse, completely remodeled a heavily outdated and partially unfinished building that he owns.

He gutted the bathroom and kitchen, and transformed the structure into a warm, two-bedroom cottage. More than 80 percent of the materials used had been recycled.

“It was well worth all the effort,” Gonzales said. “Nobody I know has a kitchen cabinet set like mine or a tiled bathroom with even half the style.”

It also saved him money and kept material from taking up space in a landfill.