How real estate and valuable possessions transfer
If you own a home, other real estate, or valuable possessions such as antiques, you should include these in your will.
Do real estate and other valuables go through probate?
YES, these assets often go through probate. Valuable possessions usually do, whereas there are more options for real estate to avoid probate. If the asset is jointly owned, it will go through probate only upon the death of the second owner.
NO, if you put these assets into a trust, they may not need to pass through probate. Some states also allow transfer on death deeds, which allow for the direct transfer of real estate.
These types of assets will most likely need to have their value assessed and then be included in your taxable estate. While there are options for keeping real estate outside of the probate process—such as trusts, joint ownership, or transfer on death (TOD) deeds—it is usually less avoidable for valuable possessions.
When considering how your beneficiaries will be affected by inheriting real estate or other illiquid items, first determine how many beneficiaries you plan to name. Then also consider that the asset—if you are naming multiple beneficiaries—may have to be titled to each of the beneficiaries separately, or sold and the proceeds divided.
You might also want to factor in the potential capital gains taxes your beneficiaries may have to pay as a result of a possible sale.
Steps to potentially minimize taxes and avoid probate
Just about anything can be placed in a trust; however, there are specialized trusts for real estate, such as a qualified personal residence trust (QPRT). A QPRT can remove the property from the estate and avoid federal estate tax, as well as allow you to continue to live in the residence for a predetermined period of time.
The value of the property is adjusted to reflect the time you live there, helping to mitigate gift taxes. You must, however, outlive the term of the trust to realize the tax savings.
You might also consider naming another joint owner on the property now, so that it will pass directly to the second owner. Another option, for states that allow it, is a transfer on death deed, which is a legal document showing ownership that allows for the naming of a beneficiary. The property would pass immediately to that beneficiary upon the death of the owner, generally outside of probate.