Owning your own home has always been a core part of the American dream. That’s why the purchase of your first home is always a major milestone in your life. But beyond that, it’s also the beginning of some major new responsibilities you may not have considered.
The most obvious responsibilities are that you’ll need to pay a monthly mortgage bill and spend whatever’s necessary to maintain your new home. And that’s not all. You also need to start thinking about what would happen to your home if you became disabled or unexpectedly passed away.
And to plan for unexpected events like that – you need an estate planner. Hiring one is something many first-time homeowners neglect to do, and it’s a mistake that can have dire consequences. Here’s why, and how an estate planner can help you protect both your home and your family from the unexpected.
Why You Should Hire an Estate Planner When You Buy a Home
For most people, their primary home is their biggest and most valuable asset. For that reason, most first-time homeowners have the majority of their money tied up in the purchase of their homes. And as you make payments on your mortgage, you’re building equity in your home that contributes to your overall wealth.
But there’s a catch. First, it’s that you don’t own your home until its mortgage is fully paid. The bank does. And second, if the mortgage is in your name, your home – and the equity in it – won’t automatically transfer to your next of kin if something were to happen to you. And that’s why you need an estate planner. They can map out a strategy for you to protect your home equity and make sure that your family has the rights you want them to have.
Navigating the Probate Process
An estate planner will be familiar with the probate laws in your area and will help map out a plan to protect your assets in the event of your death. In the case of your home, that’s a big deal. In California, for example, any asset worth more than $166,250 won’t automatically pass to your next of kin, and will instead end up in probate court. It’s important to note that the law deals with the value of your assets – not the equity you have in them.
That means if you’ve purchased a million-dollar home, and have $800,000 outstanding on your mortgage, the probate court will still value the home at a million dollars. It doesn’t matter that you only have $200,000 in equity in the home. And that’s what makes California estate planning so critical. A proper estate plan will make sure that your family doesn’t end up in a protracted fight in probate court over your biggest asset.
How an Estate Planner Can Help
There are a few ways that an estate planner might help you. They may advise you to take out an insurance policy worth enough to pay off the mortgage on your home. That way, your family won’t get stuck with payments they may not be able to afford. Then, they’ll advise you to place your home into what’s known as a revocable trust. That will allow you to name a beneficiary who will assume your mortgage almost immediately upon your death. Having one in place will speed up the probate process since there won’t be any questions about the rights to the home.
They’ll also know how to deal with the bank that holds the mortgage on your home. Many lenders try to prevent homeowners from placing their homes into trusts. This is because many mortgages have what’s known as a “due on sale” clause. And although you might not know it, they define any event that terminates your ownership of the home as a sale.
In other words, the death of the mortgage holder would trigger the clause, allowing the bank to demand full repayment of the loan immediately. This would mean that your family has to either come up with the necessary money in a hurry, or they’d need to sell the home under duress. And even if you have an insurance policy to cover the costs of the mortgage, it may not pay out fast enough to satisfy the bank.
Plan Ahead to Avoid any Problems
The bottom line here is that buying your first home gives you plenty of reasons to contact an estate planner. It’s a necessary part of the process that you wouldn’t want to leave to chance. And having a proper plan in place will help give you peace of mind and the knowledge that the biggest investment of your life will end up safely in your family’s hands if something unexpected should happen. And in that way, you can protect your family’s slice of the American dream – no matter what the future brings.