The Big Move: I own a condo and want to leave it to my daughter when I die. How can I make sure she can afford to maintain it?
I’m not planning on crossing over anytime soon; however, I’m at the age where I need to get my finances in order.
I have only one child. The only real asset I have is my condo, which I still have a mortgage on. I’m curious as to what happens to my condo after my death as it relates to my daughter.
My daughter does not have any legal obligations relative to my condo. She’s not a co-owner, nor is she on a deed, the mortgage, etc. My concern is that my daughter would have no monetary way of maintaining my condo until it’s sold, if I became deceased.
What exactly must I do to ensure she can sell the condo and secure the proceeds? Can a will protect her? Must I put her name on the mortgage?
If I were to sell my condo today or tomorrow, considering the upgrades I’ve made as well as the location of the condo, I’m positive I could net anywhere from $70,000 to $80,000 in net proceeds. The property is in Illinois, and I was able to buy the property at a very low market price in 2009 with a 30-year mortgage.
Will my daughter be able to sell the condo? What must I do in the meantime to ensure she can sell? I do not wish for my daughter to be left out in the cold and to have my bank foreclose on or confiscate my property.
‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Jacob Passy at TheBigMove@marketwatch.com.
The concerns you have are valid ones. When we go about drafting wills and thinking of the money we leave behind to our loved ones when we die, I think most of us envision our heirs using those windfalls to their fullest. But the reality looks quite different. Research has suggested that as many as one in three Americans who receive an inheritance end up squandering it.
Sure, in many cases, those people probably lack the discipline to save the money and not go on a spending spree. Yet, there are certainly situations in which the person who received the inheritance wasn’t equipped to use it properly. I have gotten emails from readers who inherited homes, but didn’t know about a mortgage or tax debt that eventually led the property to being repossessed. No parent wants the nest egg they built for their kids to go to waste.
So it’s good that you’re asking these questions now. For starters, if you have not done so already, you should consult with an attorney who specializes in estate planning to come up with the best avenue for leaving the condo to your daughter when you’ve passed away. Many people like the idea of creating trusts, because this can bypass the probate process and get the home into their heirs’ hands faster. That could come in handy for your daughter because the sooner she has rights to the property, the quicker she can sell it. That will help reduce the amount she will need to spend in mortgage payments, maintenance, condo fees and taxes in the meanwhile.
At the very least, you should specify in your will that you want her to inherit the home, but keep in mind that depending on your state’s laws and the way the will is drafted the willed property may need to go through the probate process. That can take time — and cost money.
I would not recommend adding her to the mortgage or deed. As I’ve mentioned before, doing that before you die would mean that she wouldn’t receive the full tax benefits she would be entitled to if she simply inherited it. Also, if your daughter has any outstanding debts, those creditors could come after your property for repayment. Most importantly though, it won’t save her from the burden of needing to shoulder the costs associated with the condo before she could offload it.
There a few other steps you can take now to ensure that she’s well prepared for those costs and responsibilities in the future. Nadine Marie Burns, a certified financial planner and president of A New Path Financial, recommends detailing all the expenses associated with the condo for one year — everything from taxes and mortgage payments to association fees and utilities. After that, you need to talk to your daughter, she suggested, so she’s well informed.
“It can be a positive conversation, and one too few people have,” Burns said. So far you’re assuming your daughter won’t be able to handle these costs, but you may not have a complete sense of her finances. If she does express concerns about being able to afford those payments until she sells the condo, you might want to start saving up some cash for your daughter that she can use to cover those payments.
You could gift the money to your daughter over time and ensure she saves it. Another option, Burns said, would be to open up a life insurance policy and name your daughter as the beneficiary. The size of the policy could be designed to cover a year’s worth of condo costs, plus any ancillary expenses related to selling it.
Finally, you should acquaint yourself and your daughter with your condo’s policies regarding sales. Some associations withhold the right of first refusal and will purchase the property from the seller directly if they don’t approve of the buyer. Knowing those policies and your daughter’s rights could save her a lot of headaches down the road if the condo drags its feet approving a new resident.
I know these conversations may feel uncomfortable. For some it can feel awkward to dwell on your mortality and be so open about your finances. But when the time comes for your daughter to manage your estate, I’m sure she will be grateful for your transparency. Best of luck as you navigate these decisions.
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