On the long list of things involved in estate planning, your family home is one of the most important aspects. As you try to figure out the best way to pass the property down to your children or family, you might face many options and become overwhelmed. Although there are numerous methods of transferring property ownership, certain approaches can minimize taxes and yield optimal results for your family in the long run.
Sell the House
One way to pass down the property is to sell it to your children or family. There are multiple ways to do this, depending on you and your children’s financial situation. You can decide to loan them the money to buy the home from you and structure the loan to have the least amount of interest possible declared by the IRS. Or, you can list the property below market value but be cautious about not going below fair market value, so you are not subject to gift taxes. On the other hand, you could sell the property as usual to your children.
Gift the House
One of the common ways people pass down their properties is by gifting them to family members. This can be extremely beneficial if the property is valued under the $12.92 million lifetime monetary gift amount limit. Once the property goes above this price, you are subject to incurring gift tax. Fortunately, if you have yet to use much of your lifetime gifting amount and your property is below the limit, taxes will not be involved. However, if your children choose to sell the home after you are gone, they are subject to capital gains tax consequences.
Put it in a Trust
Putting your property in a trust can ensure it gets easily handed down. This can also benefit those with properties in multiple states, as a trust can help avoid probate occurring in each of those areas.
As you put your property into an irrevocable trust, the property is no longer part of your estate and is claimed under your beneficiaries. Since it is no longer under your estate, you will not have to pay estate taxes on its transfer. However, with an irrevocable trust, once it is written out, you no longer have the ability to change or alter it.
A revocable trust is another option to write your property in. Through this trust, you allow the beneficiary to gain full control over the asset passed to them. Unlike an irrevocable trust, a revocable trust will enable you to change the document throughout your lifetime.
Put it in Your Will
One of the easiest ways to pass down your property is to simply name it in your will. As long as it is valued at less than the $12.92 million-lifetime gift amount, there will not be any estate taxes to pay. Additionally, when the property is passed down in a will, the recipient will have a reduced amount of capital gains taxes to pay in the event they choose to sell it.
Conduct a Deed Transfer Upon Death
Lastly, a quick and easy way to pass down a property to a loved one is to have a transfer on dead (TOD) deed signed. This will avoid probate altogether and help the beneficiary avoid raised capital gains taxes in the event they wish to sell the property once they obtain it. A TOD specifically allows for assets to be transferred to individuals and charities, so it is essential to be cautious if you are passing it down to a minor.
While many options exist, some might fit better into your lifestyles and goals than others. If you have questions or wish to determine which plan suits your needs, contact the team at Hartmann Law.