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The Moneyist: ‘I have no guilt’: My stepfather will leave me his $1 million home. How do I protect my inheritance from his two biological children?

Dear Quentin,

My mother passed away four years ago and my stepfather is now in poor health. While he has two biological children, he has been estranged from them for decades. Most of his assets have been left by naming beneficiaries or right of survivorship. His will addresses leaving a mineral trust to his two blood children, and leaving his home, worth approximately $1 million, to me.

This man has been my father for almost 40 years. I have no guilt in accepting the home he and my mother built to keep it in the family. I believe he is firmly legally covered in how he is leaving his estate. Does it make sense to leave the home to me in his will, which will be probated, or if there is a better option that will avoid excessive taxes and government involvement?

He is a resident of Wyoming, and I am a resident of Texas.

Thank you.

The Stepdaughter

Dear Stepdaughter,

The best part about your letter is that you are all on the same page, and that doesn’t happen too often around these parts. Your No. 1 priority is to ensure your inheritance is secure, and not vulnerable to being contested by your stepsiblings. Avoiding probate does several things: It provides an easier, more timely and less expensive transfer of assets, and bypasses the probate court, which would involve valuing the house and myriad paperwork. Probate is a public process — something that your stepsiblings would, in theory, have access to.

Of most importance to you, given your family situation: “When a will is contested, it is possible the court will determine it’s not valid and thus won’t be probated,” according to Hoffman & Hoffman, a law firm with offices in South Florida and Michigan. “Although other means of transferring assets after death — such as trust administration — can sometimes lead to the deceased’s wishes being contested, the likelihood of a challenge prevailing is smaller due to the ongoing involvement most trust creators have with the trust during their lifetimes.”

In Wyoming, a transfer-on-death deed would be the most obvious solution. Simply put, upon the death of your stepfather the deed to the house would automatically transfer to you. A transfer-on-death deed would also be cheaper than setting up a trust, which can be expensive and complicated, and would supersede any previous lost-and-found will made by your parents. But it won’t help parents “spend down” their assets for Medicaid eligibility. Read more about the types of home ownership as they relate to a transfer-on-death deed here

There is no state inheritance tax in either Texas or Wyoming, and there are additional tax advantages to a transfer-on-death deed. It would afford you a “step-up in-basis” on capital gains taxes. That is, the profit on any sale would be calculated as the sale price minus the recent appraised/market price of the home — and not on the original purchase price. Obviously, consult a trusts and estates attorney before finalizing any decision. Finally, I’m glad you had 40 years with your stepfather, and I sincerely wish you many more.

Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

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