The Costs of a Gift of Real Property
When giving the gift of real property, whether it be through a life interest or as an outright gift, it is important to give due consideration to how the expenses and liabilities that go along with the property will be dealt with after death to ensure your gift is carried in the way you intended.
The cost of a life interest
When a will-maker grants someone a life interest in a property, they are giving that person the right to use the property during his or her lifetime, while ensuring that the property will later be gifted to the ultimate and final beneficiaries. There are many scenarios in which one might consider doing this but perhaps most commonly this occurs where the will-maker wants to ensure that his/her spouse has the right to live in the property for the lifetime of the surviving spouse but that the children from a prior relationship will be given the house after the death of the second spouse.
In such a circumstance, it is important to understand clearly what expenses are to be borne by the person with the life interest and what expenses are to be borne by the ultimate beneficiaries. Unless the will-maker specifies otherwise in his/her will, the spouse with the life interest will be responsible for the recurring expenses of the estate, which notably includes the mortgage interest but not the principal. The ultimate beneficiaries would be responsible for the cost of repairs, mortgage principal and any other expenses of a non-recurring nature.
If this is not the will-maker’s intention, the will-maker should clearly set out in his/her will who should be responsible for which expenses. For example, the will-maker may want the person with the life interest to share or be responsible for upkeep and repairs to the property.
Adult children residing at home
Frequently a valuable asset of the estate, real property can quickly become a battle-ground for grieving children, particularly where the deceased has an adult child living in the home on the date of death. If there is delay in dealing with the asset, the fact that one child has the benefit of residing in home to the exclusion of others creates the potential for conflict. This potential conflict could be avoided by providing specific instructions in the will regarding the length of time an adult child may reside in the home after death and the expenses said child is required to bear while residing in the home. If an adult child fails to vacate the home and prevents other beneficiaries from receiving their gift, absent clear instructions in the will, the court may order the child residing in the home to pay occupation rent to the estate.
Careful planning helps those you love most
Careful planning may alleviate conflict amongst beneficiaries but will also ensure the will-makers intentions and wishes are clear and can be carried out. Leaving real property to a spouse or children in a will is a common occurrence but before you do, seek advice to ensure you have considered what will happen after you die.