Sibling seeks advice regarding inheritance of sister’s home

Does it make sense for me financially if we co-owned the property? We have discussed this, and she is committed to doing what makes sense for me. Her goal is to ensure that I can actually afford to live in the house after she’s gone. Your thoughts?

A: Your sister wants to give you a significant gift: a fully-paid-for home. All you would have to do is maintain it, pay for the utilities and homeowners insurance, and pay the property taxes. If the home is modest, the taxes are probably modest as well.

Homes do require repair and maintenance from time to time. Someone will need to manage the garden, clean the gutters, shovel snow, and fix, repair or replace things that break, like lightbulbs and kitchen appliances.

In fact, your sister knows how much all these items cost because she’s paying all of those bills. If she’s willing to give you the house, she’s probably willing to discuss how much it will cost to keep the property going.

Here’s what we’re wondering: Where are you living now? If you’re living with your sister, and she is going to leave you the property when she dies, then it shouldn’t be too difficult to have a conversation about costs.

On the other hand, if you’re living elsewhere, and might continue to live elsewhere, your sister’s house could become an income-producing asset for you to leverage in retirement. Renting out the property could bring in income you could use to support yourself after she is gone.

Although she wants you to live in the house after she’s gone, it may not make sense for you socially, emotionally or even physically. Another idea is to sell the property. If you sell it within a year of receiving it, the proceeds should be tax free. That can also help fund a more comfortable retirement.

You asked a question about co-ownership. There’s no reason for you to co-own the property today. As we’ve written many times, it generally makes more sense to inherit real estate rather than have someone gift it to you.

If you are worried about the cost of probate, it might make sense for your sister to set up a trust, and put the title to the property into the name of the trust. She should then name you as the successor beneficiary of the trust. When she dies, the house will pass to you automatically, along with anything else that is titled in the name of the trust, such as checking or savings accounts, or other assets.

Another option is to create a transfer on death (TOD) instrument, which allows your sister to designate you as the beneficiary of the home after her death. You would file this TOD with the Recorder of Deeds office in the county where the property being transferred is located; in this case, DuPage County. This document would also allow you to avoid probate. Currently, 29 states plus the District of Columbia, allow you to create a TOD (or a beneficiary deed).

Your sister may have already chosen one of these methods to transfer her house to you after her death, but if she hasn’t, you might want to broach the subject. Talk about her estate plan and ask for the name of her estate attorney, tax preparer or accountant, financial planner and banker, if she has one. Make sure she has named you her power of attorney for health care and financial matters, so that you have the right to make decisions for her if, for some reason, she becomes unable.

At the end of the day, it sounds like your sister has invited you to have a conversation about your future after she is gone. We think you should take her up on it, sooner rather than later.

(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through their website, bestmoneymoves.com.)