Estate Planning for the Primary Residence

A person’s primary residence is often their most valuable asset. What happens after the owner dies depends on whether any estate planning was done in advance. Let us discuss the issues and the options.

Is any debt owed on the primary residence? Any unpaid mortgage will be due and payable when the owner dies unless the owner’s spouse or child is able to assume the mortgage. Typically the mortgage company will not act unless and until mortgage payments are missed.

Next, is anyone else presently living in the primary residence? Is the primary residence to be sold and proceeds distributed? Is anyone intended to be allowed to live in the primary residence?

If someone else already lives there, such as a dependent family member, then what is to happen with that arrangement when the owner becomes disabled or dies? If the asset is titled to the owner’s living trust, then the trust can say that the arrangement continues on the same or modified terms in order and so protect the dependent family member.

Also, the trust that at the owner’s death could either provide that the trustee allows the occupant six months rent free occupancy and some money to rent a new home (and so avoid an eviction outcome), or alternatively provide that the house is held in further trust for the lifetime use of one or more beneficiaries.

If the later arrangement is utilized (sometimes called a, “House Trust”) then additional issues will need to be addressed, including who pays the expenses of owning and operating the house (e.g., property taxes, insurance and household utilities).

The discussion so far presumes that the property is held in the owner’s trust. However, it may be owned as joint tenants (usually with a spouse) or individually by an unmarried person. Let’s discuss.

If the house is owned as joint tenants then the surviving joint tenant becomes sole owner by filing an affidavit of death of joint tenant. In a blended family (e.g., where step children are involved) that result may be to the detriment of the deceased spouse’s own children because the surviving joint tenant may either squander the asset, lose it to creditors, or leave it all to their own children and thus disinherit the deceased spouse’s own children. This outcome could be have been avoided had the deceased spouse’s one-half ownership interest instead of remaining in a joint tenancy been transferred into a trust consistent with the deceased spouse’s intentions for both the surviving spouse and the deceased spouse’s children.

If the house is owned individually, then under current California law the beneficiaries or heirs (as relevant) may proceed under a petition “to determine succession to a decedent’s primary residence”. This is not a probate administration, that can last months or even a year or more, but is typically a one day probate hearing to obtain an order retitling the residence to one or more persons as tenants in common. Such a petition is made pursuant to the decedent’s will or else the laws of intestate succession (no will).

Alternatively, if debts are large, the beneficiaries or heirs may nonetheless determine to proceed with a full probate administration to avoid foreclosure and to sell the house quickly, to avoid taking title subject to the decedent’s debts (up to the value of the property), or possibly (even without debts) to take subject to co-owning the property with other beneficiaries.

The use of a living trust is still superior to a will when it comes to real property, even the primary residence, because no court involvement is needed, a private trust administration can commence very quickly, and contingency planning inside of the living trust can hold assets in further trust if necessary.

The foregoing is not legal advice.  Consult a qualified estate planning attorney for guidance. Dennis A. Fordham, Attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.