Personal Finance Essentials
Home Ownership and Estate Planning
Protect Your Home and Loved Ones:
Estate Planning for Homeowners
Why Unmarried Partners Need a Will
Without a will, assets pass according to state law, which in virtually every state means they go to blood relatives — not to an unmarried partner. If one partner dies without a will, the surviving partner may receive nothing: no cash, no savings, no home. Even if they lived together for decades, the law does not recognize that relationship without a legal document. Both partners must have wills that name each other as beneficiaries. Oral agreements are not recognized. Write it down.
The Capital Gains Trap of Joint Ownership
A common mistake: a parent retitles their home into joint ownership with an adult child to avoid probate. It achieves that goal — but creates a far more expensive problem. When a child inherits a home as an heir, they receive a stepped-up basis: the home’s value at the date of death becomes their cost basis. If the parent bought the home for $30,000 and it is worth $180,000 when they die, the child can sell it immediately with no capital gains tax.
When a child is placed on the deed as a joint owner during the parent’s lifetime, they inherit the parent’s original cost basis. When they sell the $180,000 home, they owe capital gains tax on the $150,000 profit — potentially $22,500 or more in federal taxes. The parent avoided a minor administrative inconvenience and created a massive tax bill in its place.
The Right Approach: A Revocable Living Trust
A revocable living trust is the proper way to pass a home to an heir without probate and without creating capital gains problems. The parent establishes a trust, names themselves as trustee (maintaining full control), and names the child as beneficiary upon death. The trust owns the home. When the parent dies, the home passes directly to the child through the trust — no probate — and the child receives a stepped-up basis, eliminating capital gains tax. The trust is “revocable,” meaning the parent can change it or add and remove assets at any time.