One of the most significant tax advantages to owning a home comes at the back end of ownership, when you decide to sell it for a profit. A homeowner can exclude up to $250,000 of such profit from their federal capital gains tax. For married couples filing a joint tax return, the exclusion jumps to $500,000. This big tax break, however, does come with some basic requirements. It applies to the sale of only a “principal residence,” not a vacation home or investment property.
As part of a recent series, I wrote an article about various issues involved with making sure beneficiary designations on such matters as Individual Retirement Accounts (IRAs), 401(k) accounts, life insurance policies and other similar retirement benefit accounts.
Over the past 20 years, many individuals established Qualified Personal Residence Trusts (QPRT) whereby an individual transferred title of his/her real estate to a QPRT, which essentially leveraged the value of the gift made to the trust by deducting the value of the transferor retaining use and enjoyment of the property for the term of years of the QPRT.
Like most attorneys, I was taught Estate Planning either by direct tutoring from my partners or by the traditions of those attorneys teaching seminars and speaking in related educational-type programs. The answer to the question of who should serve as a successor trustee in a trust for the individuals forming the trust (trust makers) is almost always an afterthought – it defaults to the kids, of course.
The Importance of “Trust Funding”
One of the significant benefits of utilizing a living trust as part of one’s estate plan is to avoid the necessity of a surviving spouse or heirs from having to probate your assets with a probate court after your death. However, this benefit is not achieved by simply drafting and signing a living trust. The title to assets actually has to be transferred from an individual and/or their spouse to the trust during their lifetime in order to achieve the goal of avoiding probate.
In my practice, I oftentimes meet with clients who are “apologetic” for taking my time given their perception that they “… really don’t have that much [in assets]” but have come to see me based on the encouragement from friends or relatives.
All Adults 18 Years and Older Need Planning
Sometimes I’m asked if I’m concerned that changes to federal estate tax law will result in there being less work for me to do in my practice. I reply that I’m not concerned and that the changes to the federal estate tax law just mean that I’ll be dismantling all the planning during the second half of my career that I spent the first half of my career creating for clients.
This week’s article, “Are Your Beneficiary Designations Current?” is the first in a series of four articles discussing key information on estate planning matters. The following articles will also be included in this series:
Part 2: Updated Planning for Clients with Married Separate Trusts
Over the last several weeks I have written articles concerning various topics of cottage law – succession planning, charitable giving, tax planning and the effect of the new federal estate and gift tax law. As we approach the end of the year I will focus my thoughts and articles on estate planning and related topics that you may find helpful as you reflect on this past year and look forward to the future.
I recently read an article by an attorney who expressed his frustration with clients or potential clients asking him, “What will x or y cost me?” The attorney accurately pointed out that the simple question of what will a legal service cost is not always simple to answer. He compared that question to someone asking a doctor who knows nothing about the person’s medical history or has never examined the person a question like, “Doctor, I’m sick. I don’t know how sick, or what my options are, but how much will you charge to make me better?”