Jan 20, 2025
Estate planning is rarely straightforward, even when you have just one child set to inherit everything. Without siblings to share the responsibility or the inheritance, your only child may face heightened scrutiny, added pressure or even envy from extended family members.
The only child trope of being the center of attention can suddenly take on a new meaning when they’re thrust into the sole beneficiary role.
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If your child finds themselves as the sole beneficiary of your estate, there’s less of a chance someone will contest your will. However, you might assume that writing a will covers all of your bases. There are pitfalls to relying solely on a will to pass along an inheritance, though, and it might be worth considering another estate-planning tool instead.
The drawbacks of using a will
While creating a will can be quicker and less expensive than setting up a trust, there are some drawbacks to consider.
First, a will must go through probate once you pass, the legal process of validating the document in court after you die. Probate can be both a lengthy and expensive process. According to Trust & Will, probate fees consume 2% to 7% of an estate’s value, leaving only 93% to 98% for beneficiaries.
Furthermore, there’s always the risk of the will being contested, which can prolong the probate process. While LegalZoom says that probate should be wrapped up within a year, a contested will might take longer to resolve.
Another drawback is that a will becomes a public record during probate. If you’re passing along a large sum of money, that’s information you may want to keep quiet. To avoid these issues, you might consider using a living trust — even if you only have one beneficiary.
Living trust options
A revocable trust lets you maintain control over your assets as long as you're alive. You can make changes, such as which assets are placed into the trust or who gets to benefit from the trust.
An irrevocable trust, on the other hand, cannot be changed without a court order or the approval of the trust's beneficiaries. However, assets placed into an irrevocable trust are excluded from your taxable estate, potentially reducing estate taxes. This is especially advantageous for estates exceeding the federal estate tax exemption, which will be $13.99 million in 2025.
According to a 2024 LegalZoom report, about 75% of estate plans created in 2021 used wills, while only 19% used trusts. This disparity might stem from the misconception that trusts are only for the ultra-wealthy. In reality, trusts can be beneficial even for modest estates.
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What if your estate includes property?
A big part of your estate might include a home you're trying to pass down to an heir. Both a will and a trust can be used to pass down property, but each has unique advantages.
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If you use a living trust, you'll maintain control over your home until your passing. Alternatively, a transfer on death (TOD) deed allows the property to pass directly to your heir without going through probate. This option keeps you in full control of the property while you’re alive.
Benefits and limitations of TOD deeds
A TOD deed avoids probate and is often simpler to establish than a living trust. However, not every state allows property owners to use a TOD deed — only 29 states plus Washington, D.C. allow for TOD deeds. An estate planning attorney can help you determine if it’s an option in your state.
Another option is to add your child's name to your home’s deed, effectively transfering ownership while you're alive. But this has potential drawbacks.
When your child is added to the deed, they inherit its original cost basis. If they inherit the property after your death, however, their cost basis becomes its fair market value at the time of your passing. This difference can impact their capital gains tax liability if they sell the home.
For example, if you bought your home for $100,000 and it’s worth $900,000 at the time of your death, your child’s cost basis would be $900,000. If they sell the home for $950,000, their $50,000 gain would fall within the $250,000 capital gains exemption for single filers (or $500,000 for joint filers).
But, if you add your child to the deed before your death, their cost basis remains $100,000. Selling the property for $950,000 would result in an $850,000 gain, only $250,000 of which would be tax-exempt.
Additionally, adding another person to the deed gives them a say in what happens to the property, including whether it’s sold. Even if you trust your child completely, you may prefer to maintain full control over your home during your lifetime.
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Maurie Backman has been writing professionally for well over a decade. Since becoming a full-time writer, she's produced thousands of articles on topics ranging from Social Security to investing to real estate.
