Retirement Planning

Considering Real Estate as Part of Your Estate Plan

One of the most significant assets that people own at death is real estate – whether that be a primary home, vacation home, rental property, or any combination. For the most part, a basic estate plan and a family that gets along should be enough to deal with these assets upon death, but that is not always the case. Very frequently, people die without considering the financial, legal and family implications of owning real estate upon death.

Financially, real estate is essentially treated like any other asset you own upon your death and is taxed accordingly. For real estate located in Pennsylvania, it is subject to the PA Inheritance Tax and is frequently sold out of necessity to pay this tax. Consider the following example: an individual dies with an estate totaling $500,000 (comprised of a Pennsylvania home worth $475,000 and $25,000 in cash) and their Will leaves everything to a sibling. The Pennsylvania Inheritance Tax rate is 12% for any assets left to siblings, so there would be a tax due of $60,000. Many times, a beneficiary has no real use or want for a home and since the beneficiary is responsible for paying these taxes out of their own pocket, the Executor is forced to sell the property simply to cover that expense.

Legally, there are essentially three ways that assets pass upon death: operation of law, beneficiary designation, or by a legal document (Will or Trust). For the purposes of briefly discussing real estate, we need to look at the interplay between assets passing by operation of law vs. by a legal document. In simple terms, if an asset passes by operation of law, this means that there is some legal principle that governs how the asset transfers ownership from one party to another. For example, owning a house as “joint tenants with rights of survivorship” with another individual results in the surviving individual automatically obtaining 100% ownership of the house upon the death of the other owner; regardless of what their Will may say. This is a conflict of which many people are unaware. People need to be aware of how they own real estate with others because the legal ownership of real estate may “override” their Will or what they may intend on happening upon their death.

Finally, there are family issues that frequently arise when real estate is involved in an estate plan. This is particularly difficult when the real estate is not specifically addressed in your estate planning documents. Real estate, especially a family home or a vacation home to which family members have an emotional or nostalgic connection, causes many unforeseen issues.

Consider the following example: an individual owns a vacation home in New Jersey and has three adult children who are all equal beneficiaries of their estate. All the kids have been using the property during the summers and it has been a great way to get the family together. Once the parent dies and their Will is probated, the children find that they did not specifically address the vacation home, so they start discussions about what to do with it – one child wants to sell it since the real estate market is so high and two of them want to keep it so they can continue enjoying it. If this were to happen, there would need to be sufficient funds to balance out the distribution among all three siblings or essentially have two siblings buy out the other sibling’s share of the real estate. This requires appraisals and transfer work and does not alleviate any taxes. If we were to change the example to state that the house was left to one child and not the other two, a similar situation may result with lots of potential family drama involved. While every situation is different, if the Will simply stated that all real estate was to be sold, it would make the process much cleaner.

In short, owning real estate can add unforeseen wrinkles to an estate plan if it is not properly discussed and planned. In many cases, a professional trust company, like Univest, is the best choice to handle real estate when administering trusts and estates. Having a neutral third party involved frequently relieves an estate of any potential family drama. If you would like to learn more about our capabilities and services regarding estate and trust administration, contact us at 215-721-2414.


Trust services are offered through Univest Bank and Trust Co. Products and services offered are not FDIC insured, are not a deposit of or bank guaranteed, and are subject to risks, including possible loss of any principal amount invested.