“I don’t believe I’m exaggerating when I say that this could prove to be one of the smartest estate planning moves one will ever make.”

The economy is starting to show some life in a number of sectors but, unfortunately for many, the housing market is not one of them. The good news for the crafty estate planner is that the poor housing market coupled with the tax laws that went into effect with last December’s compromise offer a rather unique opportunity, one that may very well rate amongst the smartest estate planning moves one will ever make, according to Forbes columnist Rob Clarfeld.

Now might be time to give away the house.

The poor housing market remains perhaps the largest unhealed wound of the Great Recession. If you are trying to sell a home right now you are likely a bit frustrated. Homes are not moving quickly, and many sellers are forced to take a relative loss just to move their property. But, if you were considering making a gift of your home, the situation is entirely more cheerful. Depressed prices mean that you won’t have to work to reduce your home’s taxable value, and the gift you make of it will take a much smaller chunk of your lifetime gift tax exemption. This is a serious boon to high net-worth individuals looking to give away property of considerable value.

But wait, there’s more. The tax compromise signed in with the budget deal last December also extends the lifetime gift allowance from $1 million up to a generous $5 million. So, right now, there is an 18-month window of opportunity for you to make a tax-advantaged gift.

Previously, when one wanted to give away real estate the strategy of choice might have been a Qualified Personal Residence Trust (QPRT) because it allowed for considerable discounts given certain risks through a gradual transfer, but with this perfect storm of depressed real estate prices and a generous gift tax exemption – an outright gift in trust may make more sense. Further, if you want to retain post-gift use of the real estate, you may want to consider transferring the home to an Intentionally Defective Grantor Trust (IDGT), with a structured plan that allows you to remove the asset (in this case your home) from your estate for estate and gift tax purposes, but not for income tax purposes. . Of course, carefully crafting the trust provisions, including dispositive and potential generation skipping provisions, is of utmost importance.

Again, this window of opportunity could close at any time, so if this is an estate planning strategy you might consider, you are well-advised to discuss your situation with professional counsel sooner rather than later.

Reference: Forbes (June 22, 2011) “Your Smartest Estate Planning Move Ever: Give Away Your House—Now!


Tags: , , , ,
Posted on: No Comments

Leave a Reply