Fidelity Investments: Estate Planning Should Include the Home

June 6, 2018 — 10:00 AM EDT

Most Americans assume they don’t have enough assets to bother with estate planning, not realizing that they are living in a big one: their homes. And that house, particularly if it is paid off, can sow discord among heirs if it's not considered in an estate plan.

"People don't plan for their home even though it's the largest and most complex asset for most people," said Kevin Ruth, head of wealth planning and personal trust at Fidelity Investments, in an interview with Investopedia. "It's not as easy as checking accounts, stocks or bonds. With clients that have a death in the family, the discord usually centers around the home." According to Ruth, a key question in estate planning is what should happen to the house when the owner dies. The same goes for any vacation homes. An important question to ask ahead of time is whether the children still want to hold onto it or if they would rather have the proceeds in cash.

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Outside of ascertaining the desires of the heirs, there's a lot of financial aspects of homeownership that need to be considered, said Ruth. For one thing, there's the mortgage or home equity line of credit that has to be covered or paid off. There's also taxes, home maintenance costs and expenses for major upgrades or repairs of the home that have to be considered. And there's the big one: the family dynamics. In some families, three siblings sharing one home works, while in others, it's an absolute disaster. Add different income brackets to the mix, and fights over who lives in the home, when and if it gets sold, and how everyone gets their fair share will undoubtedly break out.

To prevent any battles once the owner dies, Ruth says to figure it out beforehand. For example, consider the situation of an estate plan for two adult children with one that wants to keep the home and the other that doesn't. Knowing that upfront, you can state in your will that one child gets the house and the other gets the equivalent in cash from a retirement savings account or other investment vehicles. That prevents any arguments when you die. It's important to include the proper titling on the deed as well. That controls how the asset gets passed down.

Those looking for the cleanest and easiest process when they are deceased can specify that they want the home sold and the proceeds split evenly between the heirs, says Ruth. That takes the decision away from the children and prevents family discord as well.