The house: likely one of your most valuable (monetary) assets, and certainly the one you’ve spent the most time (and elbow grease) enjoying and improving. Homes are often the asset that families care about the most, but they’re also the asset that most misunderstood when it comes to estate planning. Clients will often ask: “What happens to the house when I die”, and “how can estate planning make the process easier for my family?”
Unlike many other states, North Carolina allows real estate to pass outside of the estate of the deceased owner, according to the owner’s Will (or intestacy, if they have no Will) – i.e, the real estate is generally a non-probate asset. This general rule yields to one major exception: real estate can be clawed back into the deceased’s estate if the estate is otherwise insolvent, and the real estate is needed to pay the debts of the decedent.
Even though real estate is considered to be a non-probate asset, it’s still very important to have a will in place. Your will appoints an executor to settle your estate, and designates the beneficiaries who will receive title to the real estate. Without a will, intestacy controls and may result in an undesired ownership structure. Problems with inherited real estate often start with the lack of a will.
The beneficiaries of the will receive legal title to the real estate immediately at death, and their date of ownership is backdated to date of death when the will is submitted to the clerk of court in the county where the property is located.
Even though the beneficiaries have legal title immediately, they may not be able to sell the house right away. Generally speaking, there must be a showing that the above creditor claw-back provision will not be needed. This is done by running a Notice to Creditors in the local paper putting unknown creditors on notice of the owner’s death. The Notice is needed if the heirs intend to sell the property within two (2) years of the owner’s death.
Additionally, if the owner’s will has a “Power of Sale” clause allowing the Executor to sell the owner’s real estate, the Executor can pull the home back into the estate and sell it, adding the proceeds to the estate and distributing the proceeds according to the will’s provisions.
A common planning technique is to transfer the home into a revocable living trust to allow the property to avoid the above provisions (creditor attachment and the Notice to Creditors). This type of strategy is not right for everyone. Often for married couples this strategy will terminate their marital ownership in the property (Tenancy by the Entireties). Additionally, unless the beneficiaries need additional asset protection provisions, they will receive the property immediately at death, anyway. Whether or not this type of strategy is appropriate depends on the needs and wishes of the client, ultimately.
Paul Yokabitus is the CEO and Managing Partner of Cary Estate Planning, a Cary, NC, estate planning law firm. With years of experience in estate and elder law, he has zealously represented clients in various legal matters, including estate planning, guardianship, Medicaid planning, estate administration, and other cases.
Paul received his Juris Doctor from the Campbell University School of Law and is a North Carolina Bar Association member. He has received numerous accolades for his work, including being named among the “Best Attorney in Cary” in 2016 and 2017 by Cary News and Rising Star in 2020-2023 by Super Lawyers.