A law was passed several years ago that basically allows you to put beneficiaries on your home. You should sign and record this deed now but it has no affect until you pass away – meaning you can sell or refinance without needing the beneficiaries to consent or sign anything. You can also revoke this deed before your death if you change your mind. Like with anything new, this estate planning tool has probably been overused. It’s a great idea is certain cases but like with anything else with estate planning, what might be good for your neighbor or friend might not be a good idea for you.
This deed works well with a simple family structure. In other words, if you are in a first marriage and have just one or two kids, this deed is the least expensive and simplest way to pass the house to the kids. When you pass away, the kids just record an affidavit confirming your death and they automatically own it without the need for probate or a trust.
If your life or family are a bit more complicated, however, this deed just makes matters worse. I just finished a real estate closing where the parents had died but recorded one of these deeds before their death. The problem was they had 11 children. To close, we needed all 11 children and all their spouses to sign the closing papers. Several of them had personal creditor problems that attach to the real estate and become a lien on the parent’s death. We were unable to close until we worked through these creditor problems. Luckily none of them were in a divorce at the time and they all agreed on a realtor and selling the property but you can imagine how hard it is to agree on things when there are now 22 owners. I say 22 because even though the in-laws were not on the title, in Minnesota you cannot sell real estate without your spouse signing the closing documents – this just doubles your chances of things going wrong.
In this case, the family would have been much better off with a trust or just a simple will and going through probate. In those cases, just one person is in charge and signs all closing documents. And, more importantly, the creditor or divorce issues of the children don’t cloud the title and prevent a closing. The attorney fees involved in getting this house sold were far more than the costs of probate. The parents thought they were making it simple and less expensive for their children. The main point here is that there is no universal answer to legal issues. Make sure to confirm that your plan fits your family.
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