The holiday season is finally over. Now that the decorations have been neatly packed away (or more likely thrown into a box to be untangled later this year as you curse your 11-month-younger-self for not being more organized) and thoughts turn to the promise of a new year and a new season of Downton Abbey. The American economy is improving and home ownership is once again within the grasp of the average American worker. (No, really.)
2015 is being touted as a good year for first time homebuyers. Everyone’s favorite couple, Fannie and Freddie (Mae and Mac, respectively), recently announced they would offer mortgages for first time homebuyers with as little as three percent down. (http://www.bloombergview.com/articles/2014-12-31/do-firsttime-homebuyers-need-help) This news seems to have inspired a rush of enthusiasm for the 2015 housing market. Apparently, everyone in the media seems to agree. See: http://n.pr/1vJw07G ; http://nyti.ms/1G8iVwA ; http://buswk.co/1yryIpz.
So you’ve decided to take the leap in 2015. You want to buy Downton Abbey. No? Too big of a stretch? How about a modest starter home then? No matter what property you decide to buy, and no matter which state or country or county seat (as our friends across the Pond used to say) this magnificent castle calls home, you need to put this property in a revocable trust. Otherwise the tentacles of probate court will envelope your heirs should something happen to you while you are the property owner.
There are a number of misconceptions about California probate procedures as it relates to real property. We most often hear the erroneous claim that only the amount of equity you have in your home is counted for probate purposes. (Where’s my Jeopardy buzzer for incorrect answers when I need it?) Your estate (the value of all your stuff) for probate purposes is the fair market value of your assets. In other words, what would your very own Downton Abbey collect on the market today? Never mind that somebody may have to take on the cost of upkeep and that the roof needs repair and the building is unchanged since the 1940s and the bathrooms are practically medieval. You get my drift. Thus your ‘underwater’ property will still put you over the small estate limit (a mere $150,000 – very small amount as anyone remotely familiar with the California housing market will attest), and your heirs will now have to extricate themselves from the tentacles of probate.
While on the Jeopardy-like topic of ‘Things People Get Wrong About Probate’, it bears repeating that even with a valid will, your heirs will need to go through the probate process. A will helps the probate court to decide how you want to distribute your assets but doesn’t remove the supervision of the court in the process. But a will must be filed with the probate court and they become public documents. There is no privacy involved!
A revocable trust can help solve all these problems. A revocable trust is created and must be funded during your lifetime. You can still sell or encumber the assets in any way that you wish. However, by putting your valuable assets into your revocable trust, you remove those assets (including your home) from the necessity of having to go through the probate process in order to pass the assets to your heirs (whoever they are). The process of transferring your assets through your trust to your heirs is private and can be done in almost any manner you wish.
So go ahead and call Frannie and Freddie and get your own Downton Abbey. Just remember that your castle needs to be placed into a trust in order to save you and your heirs the headache of probate.