The federal estate tax carries a $5.25 million exclusion in 2013. It is important to understand that the value of your home or any other type of real property that you own will count toward this figure.
There are those who would be within the estate tax exclusion amount if the taxable value of their homes could be reduced. And even if your resources were such that a reduction to the taxable value of your home would still result in some estate tax liability reducing its value for tax purposes would save your heirs money.
It would be possible to shave down the taxable value of your home by placing it into a qualified personal residence trust.
Let’s say that you have every intention of leaving the home to your two children after you pass away. You could place it into the trust and make the children the beneficiaries.
You do not have to move from the home when you create one of these trusts. The beneficiaries do not take immediate ownership. You determine how long you would like to remain in the home and you state this term when you are drawing up the trust agreement.
The beneficiaries assume ownership of the home after the term expires. This transfer is a taxable gift, but the taxable value of the home is significantly reduced by the interest that you retained in it while you continued to live within its friendly confines.
Should you be interested in learning more about these trusts don’t hesitate to contact our firm to set up a free consultation.