Couple buying a house.

How Does Buying a House Affect Estate Planning?

Buying a house is often the largest purchase a person will make in his or her lifetime. The median cost of a single-family home in Massachusetts was just over $400,000. Most Americans take out a 15 or 30-year mortgage when they purchase a home. Homeowners who still owe a significant amount on their mortgages may not consider how owning a home affects estate planning. After all, most people don’t own their homes outright until later in life, if ever. It is important for families of all income levels to plan for what may happen to their home if a family member passes away unexpectedly. If you are buying a house in Southeastern Massachusetts, here are some estate planning tips.

Estate Planning Tips to Consider When Buying a House

1. Consider Placing Your Home in a Trust

Depending on your circumstances, placing your home in a trust could be beneficial. You do not need to own your home outright in order to transfer it into a revocable living trust. You will still need to pay your mortgage after transferring your home into a trust. If you refinance your mortgage, the lender may require you to take the home out of the trust to do so. You can transfer the home back in after refinancing. 

The main benefit of transferring your home into a trust is to avoid going through the probate process. In other words, if you pass away and still owe money on your mortgage, the trust will continue to own the home for the benefit of your named beneficiaries. Depending on how you set up the trust, the home could transfer automatically to the beneficiaries without going through probate. Or, the trust can continue to own the home until your children reach a certain age. Trusts are highly individual and you have many options when it comes to creating the terms of the trust agreement. 

2. Purchase Adequate Life Insurance 

What happens when the spouse who is the main wage earner dies unexpectedly? When that happens, the remaining spouse often has a hard time making mortgage payments. Many two-income Massachusetts families cannot afford their mortgage payments when one spouse passes away. The best way to protect against the surviving spouse losing the family home is to take out an adequate life insurance policy. 

How much should the life insurance policy be worth? Many financial advisors recommend taking out a policy that will at the very least allow the surviving spouse to pay off the mortgage in full. The policy should also include enough coverage to pay off other debts. If possible, the insurance policy should allow the family to pay off the mortgage, any debts, and live comfortably. Setting up an irrevocable life insurance trust can extremely valuable. An irrevocable life insurance trust can reduce estate taxes and allow the surviving spouse to access the money quickly to pay expenses and taxes. 

3. Determine How to Distribute Your House Among Children or Loved Ones

When parents have multiple children, grandchildren, and step-children, distributing a house can be challenging. Sometimes, a house is the largest asset a family owns. Some estate planners decide to require the executor to sell the home and distribute the assets among beneficiaries. Or, the house can remain in trust until all of the children graduate from high school. 

When considering how to pass down a house, it’s important to also consider the costs of maintaining a house. The beneficiary will need to be able to pay property taxes, home insurance, and other regular expenses. The skilled estate planning lawyers at Surprenant & Beneski, PC can help you decide the best way to distribute your home to your loved ones.