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Category Archives: Planning for family farms and real estate
Beneficiary Deeds in Montana
What are Beneficiary Deeds and How Do You Effectively Use Them?
What is a Beneficiary Deed?
A Beneficiary Deed is a type of ownership interest where an individual holds title to real property but conveys his or her interest in the property to another individual to become effective upon the owner’s death. The individual to receive title to the original owner’s property upon death is known as a “grantee beneficiary.” A grantee beneficiary might be a child or other family member but it could also be a friend or charity. The grantee beneficiary’s interest in the real property is not effective until the death of the original owner. This means that an owner can revoke a Beneficiary Deed or change the beneficiaries at any time.
A Beneficiary Deed is a separate type of deed which requires all the formalities of a deed to be effective. This means that the deed must contain a full, accurate legal description of the property, contain the addresses for both the grantor and the grantee beneficiary, and it be signed, notarized, and recorded with the Clerk and Recorder in the county in which the real property is located. It also requires the filing of a Montana Realty Transfer Certificate with the Montana Department of Revenue.
Essentially a Beneficiary Deed is a way to transfer interest in real estate to heirs and beneficiaries upon death without the need for a probate. While a Beneficiary Deed is not suitable in all situations, it can be an effective tool in transferring interest in real property upon death if executed for the appropriate reasons.
Beneficiary Deeds are most effective for estates that are relatively simple where real estate may be the only asset without an existing beneficiary designation and where the family members or other beneficiaries generally get along with one another. If your estate consists of your home and financial accounts, a Beneficiary Deed can be a simple and effective way to transfer your estate upon your death.
When a Beneficiary Deed May Not Be As Effective
If you have a complex estate, especially one with any type of trust in place or with potential estate tax planning issues or property in multiple states, then a Beneficiary Deed may not be the best option.
- If your estate is complex. Complex estates, especially estates that are likely to exceed the federal estate tax exemption amount, require additional planning and consideration. For 2016 the federal estate tax exemption amount is $5,450,000.00 per individual. While a Beneficiary Deed may be a simple way to transfer real estate upon death, it could have other estate tax implications or unintended consequences. If your estate is above or near the current federal exemption limit it may be beneficial for you to consider other estate planning options for avoiding probate such as a revocable living trust. If your estate falls into the more complex category discuss your overall estate plan with your attorney to determine how a Beneficiary Deed would impact your plan.
- If you own property in multiple states. Every state has a different system for addressing real property and not all states recognize Beneficiary Deeds. Accordingly, if you own property in multiple states, the use of Beneficiary Deeds may not be as effective in accomplishing your estate planning goals. Instead, you may consider other options such as a revocable living trust to pass your real estate to your beneficiaries without the need for a separate, or “ancillary,” probate proceeding in each state where you own property. With a properly funded trust, the trust holds title to your property so no probate is required regardless of the location of your real property.
- If family members or other beneficiaries do not always get along. Similarly, if you want to leave your estate to multiple individuals that may not always get along, a Beneficiary Deed may create more problems. If your heirs are likely to disagree, it does not make sense for them to hold title to real property together. Instead you may decide to create a separate trust or direct your personal representative or trustee to liquate your real property and split the proceeds between your heirs to avoid potential conflict.
Naming Multiple Beneficiaries
An owner of real property can list more than one grantee beneficiary on a Beneficiary Deed. However, they are most effective when only one or a few beneficiaries are listed (and those beneficiaries get along). If you decide to list more than one beneficiary on a Beneficiary Deed, it is important to make sure you specify how the beneficiaries will hold title together upon your death. Specifically, state whether they will own the property as tenants in common or as joint tenants with rights of survivorship. If you plan to list more than one beneficiary, make sure you discuss your options with a real estate or estate planning attorney to ensure that you understand the implications of different title designations.
How is Title to Property Updated Upon Death?
If you list an individual as a beneficiary of a financial asset, that individual becomes the legal owner immediately upon your death without the need for probate. The same concept is involved with a Beneficiary Deed. The beneficiary you name on the deed becomes the owner upon death, instead of having to wait to transfer property through a probate proceeding. To update the title, the beneficiary owner must record an affidavit certifying that the original owner has died and naming the grantee beneficiary or beneficiaries entitled to receive the property. This affidavit must be signed by the grantee beneficiaries in the presence of a notary public and recorded with the office of the Clerk and Recorder in the county where the real property is located. If these steps are followed, the beneficiaries will take title without the need for a probate proceeding.
Seek Legal Advice
Beneficiary Deeds can be simple and effective estate planning tools. However, before you proceed to execute a Beneficiary Deed discuss it with your real estate or estate planning attorney. It is important that a Beneficiary Deed is properly executed and meets all the formal requirements for a deed. It is also important for you to consider your assets, family situation, and personal preferences carefully before recording a Beneficiary Deed and to ensure that it fits in with your overall estate plan.
If you have questions or need legal assistance regarding Beneficiary Deeds, estate planning or other real estate matters, contact Kelly O’Brien at Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com
How to Keep the Vacation Home In the Family
If you own a vacation home in Montana, you probably have a very special emotional connection to the area, and the memories it creates for you and your family. Since vacation homes have such a unique emotional and familial tie, you likely want to make sure that it stays in the family for generations to come.
However, you also may have worried about what will happen to the family vacation home after you are no longer able to visit. Often questions come up, such as: Who will inherit it? How will I decide who can use it and when? Will my family have to sell it after I am gone? How will my family pay for the taxes and maintenance?
Without proper planning your family’s vacation home can be a great source of disputes, and create financial burdens for your family in the future. Moreover, there are tax and financial implications for transferring your vacation home at different times and though different mechanisms, especially in situations where the home has increased in value.
What Is Your Long-term Vision for Your Vacation Home?
First, it is important to adequately consider your long-term goals for your vacation home. Do you intend to keep in the family for multiple generations? If so, how do you envision the home being shared by your children and grandchildren? How do you plan to pass along your interest in the home? Do you want to pass it during your lifetime, or upon your death?
As an initial matter it is critical that you speak with your CPA or tax planner about the tax implications of transferring real property during your lifetime or upon your death. Everyone has a unique financial and tax situation, and real property transfers are especially susceptible to pitfalls.
If you do not want the vacation home to be sold upon your passing, and want to make sure that the home is kept in the family, without a significant financial burden, consider the creating a separate entity such as a trust or limited liability company (LLC) to own and manage your vacation home. Both trusts and limited liability companies can help to reduce personal and financial risks for your family, plan for financial costs, and reduce conflict. Moreover, trusts and LLCs also have the advantage of preventing unwanted partitions or forced sales.
Create a Trust for Your Vacation Home
There are several different types of trusts you may consider in managing a vacation home, including revocable or irrevocable trusts. Speak with your attorney or tax advisor to determine which makes the most sense in your specific situation. Regardless of the type of trust, a trust can hold the home for the benefit of your family, as well as direct the distribution of the home to your children or grandchildren. In addition, a trust keeps your vacation home out of probate and less likely to be subject to claims of creditors. Moreover, a trust can provide additional funds to be set aside specifically for taxes or maintenance of the home.
A Trust as a Method to Provide Funds to Maintain the Home for Your Family
Adequate funding helps to alleviate some of the financial constraints for your family and help to ensure that the vacation home will stay in the family for generations to come. Your trust can simply set aside funds to pay taxes upon your death, or a lump sum of money to be paid to your children for the maintenance of the vacation home. Otherwise, you could decide to keep the trust ongoing to make annual payments of principal or income to provide for such costs as taxes and insurance for the home.
If you managed to save enough to buy a vacation home, but don’t anticipate that you will have a significant sum of money to provide for the maintenance of the home long after you are gone, you may consider making the trust a beneficiary of a life insurance policy. Upon your death, the death benefit of the life insurance policy will be paid to the trust. Then, these funds can be uses to pay for taxes, repairs and maintenance for the property.
Create a Limited Liability Company to Hold and Transfer Interests in Your Vacation Home
A Limited Liability Company (LLC) can be a great tool for transferring interests in your vacation home to family members, as well as establishing guidelines for the use of the home. In addition, by placing liability on a separate entity rather than an individual, LLCs help to protect your family from personal liabilities, including creditor claims or liability associated with accidents occurring on the home by other users.
Transferring Ownership Through Membership Interests in the LLC
If you establish an LLC for your vacation home, you can transfer partial interests in the home during your lifetime. You can accomplish this simply by gifting membership interests (like shares of stock) in the LLC to each child or grandchild up to the current federal gift-tax exclusion amount every year. This can provide significant tax advantages, and also allow you to maintain a certain amount of control over your vacation home until your death. Again, make sure that you work closely with your financial and tax advisors when gifting interests in your vacation home LLC.
Utilizing an LLC Operating Agreement for the Maintenance and Use of Your Vacation Home
To ensure the success of the LLC for your vacation home, an operating agreement is essential. A well-planned LLC operating agreement will encourage your family members to share in the management and take responsibility for the use and maintenance of the property.
The LLC operating agreement should address the allocation and payment of taxes, maintenance, and other expense associated with owning and improving the vacation home over time, as well as how to decide on maintenance and improvement costs. In addition, the operating agreement should adequately discuss how the property can be used, by when and by whom, and how and when members can transfer or sell their membership interests. Similarly, the operating agreement should set out what to do in the event one member does not pay his or her contribution towards expenses or fails to follow the guidelines for use of the home.
Communicate Your Vision with Your Family & Seek Professional Advice
These are only a couple of techniques to consider when planning for your vacation home. Discuss your goals and considerations with your family members to determine if they are interested in pursuing one of these techniques. Make sure your children want to share in your vacation home and create an overall plan to addresses any potential disputes and financial issues. Once you and your family are all on the same page, then work closely with your CPA, attorney, financial and tax advisors to make sure you have chosen the right technique for keeping the vacation home in the family.
If you have specific questions about any of the techniques discussed in this article, Contact Kelly O’Brien at Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com to schedule an appointment.
Article previously published in the October/November 2012 Business Issue of 406 Woman Magazine http://406woman.com/