For most people, real estate is their most valuable asset. It is advisable to have an in-depth discussion with your estate planning attorney about protecting your real estate assets. This includes not only your primary home but also your other real estate assets or your real estate investment portfolio. You can create a solid estate plan to ensure that your real estate assets avoid probate and that you also avoid undesirable tax consequences for your estate and for your heirs. It’s important to note that most estates are too small to be charged the state or federal estate tax, which applies only if the deceased person’s assets are worth over $13 million dollars.
Limited Recovery in North Carolina
North Carolina is a limited recovery state – meaning that your debts and any claims made against your estate can only be recovered by creditors within the probate estate. Probate is the legal process by which title to assets is cleared after the death of the owner. So, if your real property does not pass through probate, it is not subject to claims from your creditors. Avoiding probate altogether is the best way to protect your most valuable assets.
Misconception About Spousal Inheritance
It is a very common misconception that a surviving spouse inherits 100% of their deceased spouse’s estate. It is often very shocking and upsetting when people find out that is not the case in North Carolina. However, if you own your real property with your spouse, that real property passes automatically to your spouse upon your death and does not go through probate if you title the property as tenants by the entirety. N.C.G.S. §41-56. This special type of real estate interest cannot be severed by the creditors of one person – a claim or judgment has to be entered against both spouses to sever the tenancy by the entirety and attach as a lien to real property owned by both spouses. To be sure to take advantage of this special real property interest available only to married persons, your property must be titled in the name of both spouses and you must be listed as “married” on the deed. If you are married, but only one spouse is listed on the actual deed, the protections and benefits of the tenancy by the entirety interest may be lost.
If you are not married, or you are the second spouse to die, your real estate passes directly to your heirs upon your death. Title to real property either passes by will (testate) or without a will (intestate) by operation of state law.
Distribution of Property in Estate Planning
If no estate plan is in place, North Carolina law provides a mechanism to pass title to your property to your heirs and next of kin. Those heirs are then responsible for all of the expenses associated with the real property from the date of your death – that includes mortgage payments, taxes, insurance, and maintenance to the property. The laws of intestate succession in North Carolina control who will inherit your real and personal property if you do not have a valid will. N.C.G.S. §§29-14; -15.
You may also pass real property to your heirs via a specific devise in your last will and testament. But, what happens when the debts and/or claims against your estate exceed your available liquid assets? In those cases, your real estate may have to be brought into the probate estate to pay any estate debts and claims. This fact, in and of itself, should be enough to convince you how important it is to avoid probate – particularly for your real property assets.
The Lady Bird Deed
You can avoid probate for your home by using a Lady Bird Deed. A Lady Bird Deed, also called an Enhanced Life Estate Deed, creates a future interest in your real property in favor of your named beneficiaries, while giving you full control over the asset during your lifetime. When you pass away, your property passes immediately to your named beneficiaries, avoids probate, and your named beneficiaries get a stepped up basis in the property as of the date of your death. A Lady Bird Deed does not trigger the look back periods for long term care Medicaid qualification benefits, and can be a very valuable tool for estate planning.
The Power of Trusts
Another option to avoid probate is to create a trust for your real estate assets so they will be protected from creditors and claims against your estate. There are different types of trusts available in North Carolina. Your estate planning attorney will be able to advise you which trust is best to protect your assets and meet your needs. The most important thing to remember when using a trust to protect your real estate assets is to make sure that your estate planning attorney drafts a deed to convey your real property into the name of the trust. Identifying your real estate within your trust is not enough – you have to sign a deed conveying the property from your personal name into the name of the trust to get the benefit of the trust’s protection for your real property.
Conclusion
For most people, real estate assets are the most valuable assets we leave behind to our family members and heirs. Planning with your estate planning attorney to avoid probate and undesirable tax consequences upon the transfer of real property should be a hot topic of conversation at your initial consultation with your estate planning attorney – and it should be an ongoing conversation as you buy and sell real estate over time to make sure your estate plan is updated accordingly.
For personalized guidance on navigating these options, contact us for a free consultation at 1-888-999-6600 or visit mcelderlaw.com/scheduling. Protect your property and secure your future today.
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Attorney Jane Dearwester is based in our Hendersonville, NC office. She has over 20 years of experience practicing law in North Carolina. After graduating from Duquesne Law School in Pittsburgh, PA, Jane moved to North Carolina, and later joined our team in 2023.
