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April 26, 2007
Family Home in Estate Tax
When a brownstone purchased as a family home at low prices years ago rises astronomically in value, estate-tax problems mount as well. Does anyone have advice/experience in ways to protect for heirs a brownstone that is a family home?
EFMITCH@yahoo.com
Comments
First, there's no estate tax on anything given to spouse (provided they're US citizens). Second, yo can have a QTIP trust to make the most of your estat tax exemption. Third, you can give away X% annually gift-tax free of your home to a trust for benefit of your children.
Posted by: Anonymous at April 26, 2007 3:38 PM
above poster is right about the spouse, but i believe there would be no estate tax due from children as well...unless we're assuming that the reason a spouse wouldn't pay estate tax is because he/she would also be on the deed.
also, if there's a mortgage on this place, i think the bank would have a problem if the owner started giving pieces of its value away every year. (and i think it's not a percentage, but rather in the vicinity of $10-15K annually.)
but really, you shouldn't be asking this question of amateurs. you need to speak to an accountant or an estate lawyer.
Posted by: Anonymous at April 26, 2007 5:01 PM
I'm anon 3:38 - there is no estate tax due on anything left to a spouse, whether or not the spouse is on the deed. There is estate tax due (depending on the size of the estate) if the children or anyone else inherits.
Original poster - do you have a will? If not, you need one, pronto.
Posted by: Anonymous at April 26, 2007 5:19 PM
there is estate tax owed from the children of the person who dies. one way to protect them is to purchase life insurance in an irrevocable trust, with the children as the beneficiary, sufficient to pay the projected estate tax. the problem is that the estate tax owed, which could be up to 45% on the estate, has to be paid within nine months, possibly creating a forced sale of the property to pay the tax. the life insurance trust simply guarantees that your children won't have to sell the house just to pay the taxes.
the estate tax is slowly phasing out, however it comes back in full in 2011 unless congress passes a law extending the current phaseout.
Posted by: anon at April 26, 2007 6:34 PM
Anon 6:34 is right, you can set up an insurance trust - if you don't set up a trust, the insurance money is taxable. Even though the estate tax is phasing out, this means that they are changing the tax system so that instead of your heirs inheriting on a stepped-up basis, they get taxed on capital gains. Google this.
Posted by: Anonymous at April 26, 2007 7:58 PM
Every comment above has merit depending on the particular strategy that fits your situation.
That's why the best advice came from 5:19 get a lawyer -- they usually handle estate plans at reasonable cost.
Posted by: LB at April 26, 2007 8:03 PM
Exactly, it makes no sense to own a multi-million dollar asset and have no will or estate tax planning by a professional.
Posted by: Anonymous at April 26, 2007 8:07 PM
If the house is your only major asset, then the kids won't have to pay any estate taxes on their windfall. The first $2 million is tax free, and this will be rising to $3.5 million in 2009. If you have more assets than that, a QTIP will approximately double the tax free amount. Also if you don't have any kids, or don't want to give them more than a few million each, you can structure large donations to charity so that there is no tax at all, even the capital gains taxes you already owe will be avoided by the charity that gets your gift; basically you give it to them while you are alive, but retain use of the asset until you die (including getting any income.)
But you should still have a will drawn up by a lawyer even if all your assets fall under the excemption. You don't want your kids fighting over your stuff if you and your spouse both die at the same time. This is poisonous for family relations, and the transfer of any major asset will have to be decided in court if there is no will.
Posted by: anon at April 27, 2007 9:19 AM
Yeah vote Republican!
Posted by: Anonymous at April 27, 2007 9:45 PM
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