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After You Buy a House, You Need a Will

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A few weeks after closing on your brand-new house, you’re driving home, excited to unpack your last few boxes. Suddenly, a semi-truck cuts you off, and you swerve off the interstate. In the split second before you come to a stop, your entire life flashes before your eyes. Thankfully, you and your vehicle are safe. Shaken, you collect your thoughts and merge back onto the highway and drive home.

But this brush with death keeps you thinking: What would happen to your loved ones if you died? Will they be protected? Will they be able to continue living in the new house that you’ve purchased?

When you’re a homeowner, you have an asset that needs to be cared for if you die. To make sure the house goes into the right hands, you need an up-to-date will. A will is a simple document; it’s easy to create and it helps ensure your wishes will be granted after you die. Here’s what homeowners need to know about creating a will that will cover their home.

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What is a will?

A will is a document that explains your final wishes. It tells the people who survive you what to do with your financial assets and how you want to handle the care of your children or pets. Lori Ashmore Peters, an estate planning attorney with The Ashmore Law Firm, P.C., explained, “Without a will, the state decides your affairs. Honestly, as an attorney, I can say that’s the last thing you want.”

Having a will is important for every person over the age of 18, according to Ashmore Peters. Without a will, almost all your property, including assets such as your computer or car, will be distributed according to probate laws in your state. That means that the state decides what to do with your assets. If you have any assets (even a checking account), you should have a will.

As you start to accrue more valuable assets, including real estate, creating and updating your will becomes even more important. The good news is that creating a valid will doesn’t have to be complicated.

Some states, including Ashmore Peters’ home state of Texas, allow “holographic wills,” which are handwritten, signed and dated by the will-maker (or testator) alone. There are no requirements that witnesses also sign the document. “In Texas, a will could simply be written on a post-it note and it would be considered legal,” Ashmore Peters told LendingTree.

Other states require that you have a formal will. Formal wills have to be properly created (usually typed) and signed by witnesses.

If you plan to make a will by yourself, search for the legal requirements for a will in your state. You may need to seek the guidance of an attorney.

When crafting a will, you should include all of the following information:

  • Your name and personal information. You should include your name and personal address in your will. This will make it easier for the will to make it through probate.
  • Information about your assets. Of course, your estate may change over time, but it can be useful to explain what assets you have at the time you create the will. Include your house, your car, bank accounts and valuable personal property (such as jewelry or art).
  • Names and relationship of beneficiaries. To avoid any confusion in your will, you should name your beneficiaries and include how they are related to you. It also makes sense to include a Social Security Number if you have it.
  • An executor. An executor is the person responsible for taking care of your remaining financial obligations. Responsibilities include paying bills and ensuring your property is properly distributed. An executor could be your spouse, a family member or a paid professional.
  • Designate beneficiaries for your property. The purpose of a will is to tell the courts who gets what. Ashmore Peters said many people designate a single beneficiary (such as their spouse or an only child) for all their property. If you have multiple beneficiaries, be sure to designate how your assets are to be split.
  • Appoint guardian for your children. Generally, your spouse or your children’s biological parent will be the guardian for your children. However, you should also include a secondary guardian if both you and the other guardian pass prematurely.
  • Date. Ashmore Peters recommended dating your will. This will make it easier for the courts to determine whether the will presented is your most recent will.
  • Your signature. You should always sign your will, so the courts and your beneficiaries recognize its validity.
  • Signature of multiple witnesses. Your will should generally be signed by at least two witnesses (although, as noted regarding the holographic will, there are exceptions). This makes the will easier to admit into probate court. Ideally, you should have your will notarized, but this isn’t necessarily required for a valid will.

What happens to your home when you die?

If you have a will in place, you get to control what happens to your house if you die. A house is a “probate” asset, which means that the things that happen to it are determined by the terms of your will.

If you die without a will in place, a probate court in your state decides what happens to your house. State laws attempt to guess how a person would want their assets distributed, but the result doesn’t always make sense. For example, in some states, your house could go to your spouse and all your children equally. Your house may even go to estranged children from a previous relationship.

Ashmore Peters told LendingTree, “When a person’s spouse dies without a will, I often have to tell the client that the kids get half the assets. That’s one of the worst discussions I have to have.”

What about the mortgage?

Of course, many houses also come with a mortgage attached. If you have a co-borrower on the mortgage (such as your spouse), the co-borrower is legally responsible to continue paying the mortgage.

On the other hand, if there isn’t a co-borrower on the mortgage, the executor of the will is responsible for maintaining the assets of your estate. Usually that means the executor of the will use assets from the estate to continue making mortgage payments.

Without a co-borrower in place, what happens to the mortgage will depend on what your beneficiaries do with the house. If the beneficiaries sell the house, they will use the proceeds to pay off the mortgage.

An heir who wants to stay in the house may also be able to take over an existing mortgage through a loan modification. The Consumer Finance Protection Bureau (CFPB) has laws in place that make it possible for an heir to be added as a borrower without having to trigger “ability to repay” rules or other laws that might otherwise make it difficult for a surviving family member to take over a mortgage.

4 ways to handle your home in your will

Exactly what you do with a house will depend on your phase of life, and in many cases your family dynamics. These are a few of the more common ways to handle a home in your will.

Name a beneficiary for the house

Ashmore Peters told LendingTree that most of her clients simply pass their house to a surviving spouse or children. This gives the heirs the ability to either keep the house or sell it.

Instruct executor to sell the house

Homeowners who want to give money to charitable causes or to their heirs may instruct their executors to sell the house and distribute the cash proceeds according to the will’s instructions.

Put the house in trust

A house that is placed “in trust” for the benefit of a certain person allows a third party called a trustee to decide what to do with a house. However, the house has to be managed to benefit the beneficiary. It may make sense to put your house in trust if your heirs are minor children.

Allow heirs the opportunity to buy the house

Some homeowners may want to grant an heir the right of first refusal. This allows the heir to buy the property at a fair market value if they wish to do so. The proceeds of the sale will then be distributed according to the will.

What else should you consider?

Creating a will is one way to care for your loved ones when your life doesn’t go as planned. But there are many other things to consider while you’re thinking about worst-case scenarios.

  • Buy life insurance. A life insurance policy can help ensure the designated beneficiary has the financial means to keep going after you die. Homeowners should consider buying a policy that covers the balance of the mortgage if they want their heirs to continue living there.
  • Inform your executor. If you appoint a family member or friend to execute your will, you should let them know about their position. You would not want someone to decline being your executor in your family’s time of need.
  • Create a financial power of attorney. When creating a will, Ashmore Peters also recommended creating a document called a financial power of attorney. A financial power of attorney isn’t technically an end-of-life document. Instead, it allows a person to manage your finances if you become incapacitated (for example, if you’re in a coma).
  • Check your disability insurance coverage. As a homeowner, you also need to consider what will happen to your home if you’re unable to work for an extended period. Be sure to check whether you’re covered for long-term disability through work. If you don’t have coverage, you may want to buy a standalone policy.

The bottom line

If you’re a homeowner (or planning to become one), a will is an important document to have. A home is a major asset, and you will want it to be passed down to the right people after you die. A will is simple to create, and, along with helping to ensure your property is distributed according to your wishes, it’s a great way to show your loved ones how much you care.

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