Irrevocable Grantor Trust can reduce Tax exposure

March 16, 2023

Forbes’ recent article entitled “How To Pass On Business Assets While Paying As Little In Taxes As Possible” says that one of the first steps you’ll likely undertake in an estate plan is gifting assets so they’re not part of your estate. By gifting assets expected to appreciate over time—like company stock and real estate—into an irrevocable grantor trust and having those assets appreciate outside of your estate, you can reduce your estate tax exposure. Remember: the amount you can gift is restricted to you and your spouse’s combined lifetime federal estate and gift tax exemption ($25,840,000 in 2023).

As the grantor of the irrevocable grantor trust, you’ll be taxed on all income in the trust despite not receiving any of it. However, the payment of taxes from your estate reduces the value of your estate proportionately. Therefore, the assets in the trust can grow unburdened by taxation.

A drawback of gifting appreciating assets into a grantor trust is that the assets will retain the tax basis you, as the grantor, had when you gifted the assets. As the assets are no longer a part of your estate when you die, the assets you transferred to the grantor trust won’t get a step-up in basis to what their value is at that time. Capital gains taxation occurs when the trustee or beneficiary sells the appreciated assets.

Assuming that one of your goals for establishing the trust is to pay as little tax as possible, there are a few ways to avoid capital gains taxes inside a grantor trust.

As the grantor, you have the power to take trust assets back by buying them with cash or replacing them with other assets—low-appreciation ones are ideal. Therefore, if you get a large amount of your employer’s publicly traded stock, you might swap these shares for other publicly traded securities of equal value that have appreciated.

Since the assets traded must be equal in value, there shouldn’t be a change to your estate’s value used for calculating estate taxes. After the trade, you’ll own the highly appreciated stock. However, there won’t be a taxable gain when you pass away because you’ll get a step-up on the basis.

Likewise, for grantor trusts with appreciated real estate, an IRC §1031 exchange allows for capital gains taxes to be deferred when swapping one real estate investment property for another. Discuss with your estate planning attorney how an irrevocable grantor trust can reduce your estate tax exposure. If you would like to learn more about trusts and tax planning, please visit our previous posts.

Reference: Forbes (Dec. 22, 2022) “How To Pass On Business Assets While Paying As Little In Taxes As Possible”

Tips to Reduce Size of your Taxable Estate

January 23, 2023

The current lifetime estate and gift tax exemption is set to be cut by half after 2025, unless Congress acts to extend it, which doesn’t seem likely in the current financial environment. There are tips to help reduce the size of your taxable estate, reported in a recent article “Smarter Ways To Make Estate Planning Gifts” from Forbes.

It’s generally better to give property than to give cash, especially investment property. Recipients are less likely to sell these gifts and spend the proceeds. It’s more likely that cash will be spent rather than invested for the long term. Investment property is almost always a better gift for the long term.

However, property gifts come with potential taxes. To help reduce the size of your taxable estate, make gifts of the correct properties. There are a few principals to follow.

Don’t give investment property with paper losses. The recipient of a gift of property gets the same tax basis in the property as the person making the gift. The appreciation occurring during the holding period is taxed when the gift recipient sells the property.

If the property didn’t appreciate when the owner had it, the beneficiary’s tax basis will be the lower of the owner’s basis and the current market value. When the investment lost value, the beneficiary reduces the basis to the current fair market value. The loss incurred for the owner won’t be deductible by anyone. There is no winner here. It is best for the owner to hold the loss property or sell it, so at least they can deduct the loss and gift the after-tax proceeds.

Give appreciated investment property after a price decline. This makes maximum use of the annual gift tax exclusion and minimizes the use of the giver’s lifetime estate and gift tax exemption. You can give more shares of a stock or mutual fund by making the gift when prices are lower.

Let’s say shares of a mutual fund were at $60—you could give 266.67 shares tax free under the annual gift tax exclusion ($17,000 in 2023). If the price dropped to $50, you could give 320 shares without exceeding the exclusion limit.

When the recipient holds the shares and the price recovers, they will have received more long-term wealth. The giver would not have incurred estate and gift taxes or used part of their lifetime exemption.

This is also an example of why families should consider gift giving throughout the year and not just at year’s end. An even better way: determine early in the year how much you intend to give, and then look for a good time during the year to maximize the tax-free value of the gift.

It’s good to give property most likely to appreciate in value. If the goal is to remove future appreciation from the estate, gift property you expect to appreciate. This also serves to maximize the wealth of loved ones, especially appreciated when the beneficiary is in a lower tax bracket. When the property is eventually sold, the beneficiary likely will pay capital gains taxes on the appreciation at a lower rate than the giver would. You pass on more after-tax wealth and reduce the family’s overall taxes.

Retain property if it has appreciated significantly. When it’s time to sell the property and the loved one is in the 0% capital gains tax bracket, it’s best to make a gift of the property and let them sell it. Even if the loved one is in the 10% capital gains tax bracket, this still make sense if you’re in the higher capital gains tax bracket. But there are some things to consider. If the gain pushes the recipient into a higher tax bracket and triggers higher taxes on all their income, it won’t be a welcome gift. If there’s no urgent need to sell the property, you can ensure a 0% capital gain by simply holding onto the investment.

Give income-generating assets. If you hold income-generating investments and you don’t need the income, consider giving those to family members in a lower tax bracket. This reduces taxes on the income and the recipient is also less likely to sell the asset to raise cash when it’s generating income.

Remember the Kiddie Tax. Heirs who are age 19 or under (or under 24 if they are full-time college students) are hit with their parents’ highest tax rate on investment income they earn above a certain amount, which was $2,300 in 2022. At this point, gifts of income-producing property create tax liabilities, not benefits.

These are just a few tips to help you reduce to size of your taxable estate. Work with your estate planning attorney to identify any additional tax reductions available. If you would like to learn more about tax planning, please visit our previous posts.

Reference: Forbes (Dec. 27, 2022) “Smarter Ways To Make Estate Planning Gifts”

How are Capital Gains in Irrevocable Trust Taxed?

August 4, 2022

Putting a home in an irrevocable trust may be done to protect the house from estate taxes, explains a recent article from Yahoo! Life titled “Do Irrevocable Trusts Pay the Capital Gains Tax?” How are capital gains in a irrevocable trust taxed?

An irrevocable trust is used to protect assets. Unlike a revocable trust, once an asset is placed within the trust, it’s difficult to have the asset returned to the original owner. The trust is a separate legal entity and has its own taxpayer identification number.

Assets moved into a trust are permanently owned by the trust, until the trustee distributes assets to named beneficiaries or their heirs. Irrevocable trusts are often used to protect assets from litigation.

Capital gains taxes are the tax liabilities created when assets are sold. Typical assets subject to capital gains taxes include stocks, homes, businesses and collectibles. Capital gains taxes are usually lower than earned income taxes. For example, the top federal income tax rate is 37%, and the top capital gains tax rate is 20%. A single investor might pay no capital gains taxes if their taxable income is $41,675 or less (in 2022). Married copies filing joining also pay 0% capital gains if their taxable income is $83,350 or less.

Irrevocable trusts are the owners of assets in the trust until those assets are distributed, including any earned income. While it would seem that the irrevocable trust should pay taxes on earned income, this is not necessarily the case. If irrevocable trusts are required to distribute income to beneficiaries every year, then that makes the trust a pass-through entity. Beneficiaries pay taxes on the income they receive from the trust.

Capital gains are not considered income to such an irrevocable trust. Instead, any capital gains are treated as contributions to principal. Therefore, when a trust sells an asset and realizes a gain, and the gain is not distributed to beneficiaries, the trust pays capital gains taxes.

One of the tax benefits of home ownership is the ability to avoid the first $250,000 in capital gains profits on the sale of the home. For married couples filing jointly, the exemption is $500,000. The home must be a primary residence for two of the last five years.

What happens if you transfer your home to an irrevocable trust as part of your estate planning? Who pays the capital gains tax on the sale of a home in an irrevocable trust? Remember, the trust is a legal entity and not a person. The trust does not receive the $250,000 exemption.

Placing a home into an irrevocable trust can protect it from creditors and litigation, but when the home is sold, someone will have to pay the capital gains taxed on the sale. Although irrevocable trusts are great for distributing assets to beneficiaries, they are also responsible for paying capital gains taxes.

An experienced estate planning attorney will help you to determine which is more important for your unique situation: protecting the home through the use of an irrevocable trust or getting the tax exemption benefit if the home sells. If you would like to learn more about irrevocable trusts, please visit our previous posts.

Reference: Yahoo! Life (July 7, 2022) “Do Irrevocable Trusts Pay the Capital Gains Tax?”

Photo by Nataliya Vaitkevich

Is Your Home an Asset or Liability?

January 27, 2022

Is your home an asset or a liability? If you’re a homeowner who’s ready to retire, you’ve most likely worked to pay off the home, while dreaming of the day when you could relax and live a mortgage-free, life while enjoying the fruits of your labor. However, Real Simple’s recent article entitled “For Retirees, a Home Could Be Your Largest Asset—or Your Biggest Liability” provides important food for thought.

Signs Your Home Is Your Largest Asset. A home can be one of your biggest assets because of the equity that’s been built up. You’ll be able to pass it on to your heirs, and they get a step-up in cost basis to the current market value. This will significantly reduce capital gains taxes, if the home is later sold by your children. With that equity, you can take money out of the house in a home equity line of credit. If your 62 or older with a substantial amount of equity in your home, it can be used as collateral for a reverse mortgage.

Signs Your Home Is Your Biggest Liability. A home can be a liability when it’s worth considerably less than what you paid for it, especially if you have a mortgage. The last thing you want when you’re retiring is to be saddled with a debt that has no equity. Your home could be also considered a liability, if it falls under the category of an expense that you have to manage, such as a mortgage, homeowner’s insurance, municipal taxes, repair or renovation costs, or homeowner’s association fees.

Stay or Sell? Take a holistic approach to what you want in your retirement years and determine what importance you place on your living space. The answer to this is at the core of deciding if you need to downsize. If you decide to sell your home and downsize to something less expensive, be sure to save part of the proceeds from the home’s sale. You can use that money to fund traveling, hobbies, the cost of living, or any other project in retirement.

You should also try to be more objective in evaluating your home as an asset or a liability. Retirement-aged homeowners generally choose one of these options: (i) plan to pay off your mortgage before your target retirement date; (ii) get a reverse mortgage that pays out over a specified time period; (iii) rent out the home for cashflow or offset a monthly cash flow deficit, if you have a mortgage; or (iv) sell the home in the future.

If you decide to stay in your home, there are several ways to monetize home equity in retirement, such as needs-based government programs like property tax abatements or home improvement forgivable grant programs. As alternatives to a reverse mortgage, you could tap into loan products such as a home equity line of credit or a conventional mortgage loan. The bottom line is you can plan ahead to ensure your home is an asset to your estate and not a liability. If you would like to learn more about managing a home in estate planning, please visit our previous posts.

Reference: Real Simple (Nov. 1, 2021) “For Retirees, a Home Could Be Your Largest Asset—or Your Biggest Liability”

Photo by RODNAE Productions from Pexels

Charitable options to Reduce Estate Taxes

July 7, 2021

Increasing tax changes for the wealthy are coming, and motivation to find ways to protect the wealth is getting increased attention, according to a recent article from CNBC entitled “Here’s how to reduce exposure to tax increases with charitable contributions.” Charitable remainder trusts (CRTs) and Donor Advised Funds (DAFs) are options for people who are already charitably inclined to reduce estate taxes. The CRT is complicated, requiring estate planning attorneys to create them and accountants to maintain them. The DAF is simpler, less expensive and is growing in popularity.

Both enable income tax deductions, in the current year or carried forward for five years, on cash contributions of up to 60% of the donors’ AGI and up to 30% of AGI on contributed assets. These contributions also reduce the size of taxable estates.

CRTs funnel asset income into a tax-advantaged cash stream that goes to the donor or another designated non-charitable beneficiary. The income stream flows for a set term or, if desired, for the lifetime of the non-charitable beneficiary. The trusts must be designed, so that at the end of the term, at least 10% of the funds remain to be donated to a charity, which must be designated at the outset.

No tax is due on proceeds from the sale of trust assets, until the cash makes its way to the non-charitable beneficiary. When assets are held by individuals, their sale creates capital gains tax in the year they are sold.

CRT donors can fund the trusts with highly appreciated assets, then manage them for optimal returns while minimizing tax exposure by adjusting the income stream to spread the tax burden over an extended period of time. If capital gains tax rates are raised by Congress, this would be even better for high earners.

DAFs do not allow dispersals to non-charitable beneficiaries. All gains must ultimately be donated to charity. However, the DAF provides advantages. They are easy to create and can be set up with most large financial service companies. Their cost is lower than CRTs, which have recurring fees for handling required IRS filings and trust management. Charges from financial institutions typically range from 0.1% to 1% annually, depending upon the size, and a custodial fee for holding the account.

DAFs can be created and funded by individuals or a family and receive a deduction that very same year. There is no hurry to name the charitable beneficiaries or direct donations. With a CRT, donors must name a charitable beneficiary when the trust is created. These elections are difficult to change in the future, since the CRT is an irrevocable trust. The DAF allows ongoing review of giving goals.

Funding a DAF can be done with as little as $5,000. The DAF contribution can include shares of privately owned businesses, collectibles, even cryptocurrency, as long as the valuation methods used for the assets meet IRS rules. Donors can get tax deductions without having to use cash, since a wide range of assets may be used.

The DAF is a good way for less wealthy individuals and families to qualify for itemizing tax deductions, rather than taking the standard deduction. DAF donations are deductible the year they are made, so filers may consolidate what may be normally two years’ worth of donations into a single year for tax purposes. This is a way of meeting the IRS threshold to qualify for itemizing deductions.

Both charitable options are effective ways to reduce estate taxes. Which of these two works best depends upon your individual situation. With your estate planning attorney, you’ll want to determine how much of your wealth would benefit from this type of protection and how it would work with your overall estate plan.

If you would like to learn more about charitable contributions, please visit our previous posts.

Reference: CNBC (April 20, 201) “Here’s how to reduce exposure to tax increases with charitable contributions.”

Talk about Inheritance with your Children

April 26, 2021

How do you talk about inheritance with your children? One strategy to get your children prepared to handle the assets they’ll eventually inherit, is to have them meet with your professional advisors. They can explain what you’ve been doing.

FedWeek’s recent article entitled “Preparing Your Heirs for Their Inheritance” suggests that your children should meet with your accountant for an explanation of any tax planning tactics that you have been implementing. That way those tactics can be continued after your death. If you have a broker or a financial planner, your heirs should meet with this adviser for a review of your portfolio strategies.

Know that if you hold investment property, it might pose special problems.

While your investment portfolio can be split between your children, who can follow their individual inclinations, it’s tough to divide physical property. Your kids might disagree on how the property should be managed.

With any assets—but especially rental property—you have to be realistic. Ask yourself if your children can work together to manage the real estate.

If they cannot, you may be better off leaving your investment property to the one child who really can manage real estate and leave your other children non-real estate assets instead. You might also provide that some of your children can buy out the others at a price set by an independent appraisal.

Another way you can help is by proper handling of appreciated assets, such as stocks.

If you purchased $20,000 worth of XYZ Corp. shares many years ago, those shares are worth $50,000. If you sell those shares to raise $50,000 in cash for retirement spending, you’ll have a $30,000 long-term capital gain.

You might raise retirement cash, by selling other securities where there’s been little or no appreciation.

That will allow you to keep the shares and leave them to your children. At your death, your shares may be worth $50,000, and that value becomes the new basis (cost for tax purposes) in those shares. If your children sell them for $50,000, they won‘t owe capital gains tax.

All of the appreciation in those shares during your lifetime will not be taxed. So take the time to talk about inheritance with your children. It will avoid a great deal of head and heartache for everyone. If you are interested in learning more about discussing difficult estate planning topics with your children, please visit our previous posts.

Reference: FedWeek (March 31, 2021) “Preparing Your Heirs for Their Inheritance”

Potential Changes to the Estate Tax

April 6, 2021

Potential changes to the estate tax that are now being considered by President Biden may expand the number of Americans who will need to pay the federal estate tax in one of two ways: raising rates and lowering qualifying thresholds on estates and increasing the liability for inheriting and selling assets. It is likely that these changes will raise revenues from the truly wealthy, while also imposing estate taxes on Americans with more modest assets, according to a recent article “It May Be Time to Start Worrying About the Estate Tax” from The New York Times.

Inheritance taxes are paid by the estate of a person who died. Some states have estate taxes of their own, with lower asset thresholds. As of this writing, a married couple would need to have assets of more than $23.4 million before they had to plan for federal estate taxes. This historically high exemption may be ending sooner than originally anticipated.

One of the changes being considered is a common tax shelter. Known as the “step-up in basis at death,” this values the assets in an estate at the date of death and disregards any capital gains in a deceased person’s portfolio. Eliminating the step-up in basis would require inheritors to pay capital gains whenever they sold assets, including everything from the family home to stock portfolios.

If you’re lucky enough to inherit wealth, this little item has been an accounting gift for many years. A person who inherits stock doesn’t have to think twice about what their parents or grandparents paid decades ago. All of the capital gains in those shares or any other inherited investment are effectively erased, when the owner dies. There are no capital gains to calculate or taxes to pay.

However, those capital gains taxes are lost revenue to the federal government. Eliminating the step-up rules could potentially generate billions in taxes from the very wealthy but is likely to create financial pain for people who have lower levels of wealth. A family that inherited a home, for instance, would have a much bigger tax burden, even if the home was not a multi-million-dollar property but simply one that gained in value over time.

Reducing the estate tax exemption could lead to wealthy people having to revise their estate plans sooner rather than later. Twenty years ago, the exemption was $675,000 per person and the tax rate was 55%. Over the next two decades, the exemption grew and the rates fell. The exemption is now $11.7 million per person and the tax rate above that amount is 40%.

Lowering the exemption, possibly back to the 2009 level, would dramatically increase tax revenue.

What is likely to occur and when, remains unknown, but what is certain is that potential changes to the estate tax will require your attention. Stay up to date on proposed changes and be prepared to update your estate plan accordingly. If you are interested in learning more about the estate tax, please visit our previous posts.

Reference: The New York Times (March 12, 2021) “It May Be Time to Start Worrying About the Estate Tax”

Charitable Contribution Deductions from an Estate

March 31, 2021

The interest in charitable giving increased in 2020 for two reasons. One was a dramatic increase in need as a result of the COVID pandemic, reports The Tax Advisor’s article “Income tax deductions for trusts and estates.” The other was more pragmatic from a tax planning perspective. The CARES Act increased the amounts of charitable contributions that may be deducted from taxes by individuals and corporations. What if a person wishes to make a donation from the assets that are held in trust? Is that still an income tax deduction? It depends. The rules for charitable contribution deductions from an estate are substantially different than those for individuals and corporations.

The IRS code allows an estate or nongrantor trust to make a deduction which, if pursuant to the terms of the governing instrument, is paid for a purpose specified in Section 170(c). For trusts created on or before October 9, 1969, the IRS code expands the scope of the deduction to allow for a deduction of the gross income set aside permanently for charitable purposes.

If the trust or estate allows for payments to be made for charity, then donations from a trust are allowed and may be tax deductions. Otherwise, they cannot be deducted.

If the trust or estate allows distributions for charity, the type of asset contributed and how it was acquired by the trust or estate determines whether a tax deduction for a charitable donation is permitted. Here are some basic rules, but every situation is different and requires the guidance of an experienced estate planning attorney.

Cash donations. A trust or estate making cash donations may deduct to the extent of the lesser of the taxable income for the year or the amount of the contribution.

Noncash assets purchased by the trust/estate: If the trust or estate purchased marketable securities with income, the cost basis of the asset is considered the amount contributed from gross income. The trust or estate cannot avoid recognizing capital gain on a noncash asset that is donated, while also deducting the full value of the asset contributed. The trust or estate’s deduction is limited to the asset’s cost basis.

Noncash assets contributed to the trust/estate: If the trust or estate acquired an asset it wants to donate to charity as part of the funding of the fiduciary arrangement, no charity deduction is permitted. The asset that is part of the trust or estate’s corpus, the principal of the estate, is not gross income.

The order of charitable deductions, compared to distribution deductions, can cause a great deal of complexity in tax planning and reporting. Required distributions to noncharitable beneficiaries must be accounted for first, and the charitable deduction is not taken into account in calculating distributable net income. The recipients of the distributions do not get the benefit of the deduction. The trust or the estate does.

Charitable distributions are considered next, which may offset any remaining taxable income. Last are discretionary distributions to noncharitable beneficiaries, so these beneficiaries may receive the largest benefit from any charitable deduction.

If there are charitable contribution deductions from an estate, it must file form 1041A for the relevant tax year, unless it meets any of the exceptions noted in the instructions in the form.

These are complex estate and tax matters, requiring the guidance of an experienced estate planning attorney for optimal results. If you would like to learn more about charitable giving in your estate planning, please visit our previous posts.

Reference: The Tax Advisor (March 1, 2021) “Income tax deductions for trusts and estates”

Donor Advised Fund is a Win-Win for All Concerned

March 3, 2021

Many Americans are feeling charitable these days, and with good reasons. It’s a hard time for many, and if you are financially able, making donations may help you feel you are making a difference for others during uncertain times. There are many options when making donations, and the recent article “Choosing Charity: How Donor-Advised Funds Benefit Your Contributions” from Fort Worth Magazine explains your choices. A Donor Advised Fund is a win-win situation for all concerned.

Donor Advised Funds (DAFs) can be opened for varying amounts, that are set by the sponsoring organizations. Smaller community foundations would welcome a DAF for $5,000, for instance. DAFs can be funded with cash or other assets, but once the donation is made, the asset no longer belongs to you. However, you may be able to decide when donations are distributed, and which charities receive funding. There are no required distribution dates, so the funds could go unused for a long time, while you receive the tax write-off right away.

You may also determine the investments within the fund, level of risk and overall investment strategy.

Another good reason to use DAFs: the sponsoring organization becomes the donor of record. Therefore, DAFs are an excellent way to make anonymous contributions.

There are also DAFs that involve active involvement from an advisor, if that is of value to you.

Why is now a great time to use a Donor-Advised Fund?

Some investors have highly appreciated assets that could lead to a significant tax liability, if they were sold right now. DAF offers an alternative—rather than sell the assets and pay taxes, putting them into a DAF can achieve the following:

You receive a tax deduction,
There are no capital gains taxes, and
Your chosen the charity that fully benefits from the funds.

The pandemic has left many people facing uncertainty. Therefore, now isn’t the right time for everyone to open their wallets and a DAF. However, if you are charitably-minded and in a financial position to benefit, a Donor Advised Fund is a win-win for all concerned. If you would like to learn more about charitable giving, please visit our previous posts.

Reference: Fort Worth Magazine (Feb. 3, 2021) “Choosing Charity: How Donor-Advised Funds Benefit Your Contributions”

Probate can affect Real Estate Transactions

December 7, 2020

Probate can affect real estate transactions. For a family whose 91-year-old mother lives in her home, has a will and has appointed two sisters as Power of Attorney and executors of her estate, the question of handling the transfer of the home is explored in a recent article from the Herald Tribune, “Transfer title now or go through probate in the future?”

The family wasn’t sure if it made more sense to transfer the title to her two daughters and son while she was still living, or let the children handle the transfer as part of the estate. The brother may wish to purchase the home after the mother passes, as he lives with his mother.

If nothing is done, the house will be part of the probated estate. A case will have to be opened, a representative will be appointed by the court (usually the executor of the will) and then the executor can sell assets in the estate, close accounts and deal with the IRS and the Social Security Administration. The probate process can be time-consuming and expensive, depending on where the mother lives.

There are a number of steps that could be taken to simplify things. The mom’s assets can be held jointly, so they pass to the surviving owner, or a trust can be created, and her assets be titled to the trust, so they pass automatically to beneficiaries.

The issue of the house becomes a little more complicated because there are so many options. This is where probate can affect real estate transactions. If the house has appreciated significantly over the years, keeping it in the estate will minimize taxes that have to be paid if and when it is sold.

For example, let’s say the house has increased in value by $250,000. Under current tax law, the mother can exclude up to $250,000 in profits from the sale of the home. This is the exclusion before the sale of a primary residence where the owner has lived in the home for two out of the last five years.

If she signs a quitclaim deed now to give the home to her three children, the IRS will consider this a gift to the three children. Her cost basis in the property (what she paid for the home, plus the cost of any material or structural improvements) will be transferred to the children. However, when the children go to sell the property, they won’t have that same $250,000 exclusion. The three siblings will have to pay federal income or capital gains tax on the same of the home.

However, if the home remains in the mother’s estate when she passes, the siblings inherit the home at the stepped-up basis. In other words, the value of the house (for estate tax purposes) will rise to the current market value at the time of her death, and not the value when she paid for the house. If the children decide to sell the house immediately, there won’t be any profit and there won’t be any taxes.

Depending on the state’s probate laws, the children might be able to use a transfer on death deed that would let the property transfer automatically to heirs upon the mother’s death. The siblings then inherit the property at the stepped-up value.

Here’s another question to consider: how does the cost of setting up trusts and transfer on death deeds compare to the estimated cost of probating the estate?

This family, and others in the same situation, should speak with an estate planning attorney to evaluate their options. The siblings in this case need to clarify whether their brother wants to buy the house and if he is able to do so. The mom then needs to make a decision, while she is still able to do so, because after all, it’s still her home.

If you would like to learn more about how to protect the family home for future generations, please visit our previous posts.

Reference: Herald-Tribune (Nov. 7, 2020) “Transfer title now or go through probate in the future?”

Category: Capital Gains Tax

Irrevocable Grantor Trust can reduce Tax exposure

Tips to Reduce Size of your Taxable Estate

How are Capital Gains in Irrevocable Trust Taxed?

Is Your Home an Asset or Liability?

Charitable options to Reduce Estate Taxes

Talk about Inheritance with your Children

Potential Changes to the Estate Tax

Charitable Contribution Deductions from an Estate

Donor Advised Fund is a Win-Win for All Concerned

Probate can affect Real Estate Transactions

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