Transferring a Residence for Estate Tax Planning

Published on October 27, 2010 by

fred-corbalisThere is an excellent article today in the NY Times about transferring one’s residence to loved ones in order to reduce applicable estate taxes.

Although there are no estate taxes this year (UNLESS Congress passes a law retroactively - a lower percentage possibility BUT still possible), next year the tax returns with a voracious bite with a top tax bracket of 55% and a lifetime exclusion of only one million dollars.

Congress may do something but then again they may not - it’s an easy revenue raiser and nobody even has to vote on it – next year’s law occurs automatically effective January 1st.

Planning for one’s residence will most likely receive greater focus because of the reduction of the lifetime exclusion, and will be particularly important for taxpayers with a net worth from one to ten million dollars as well as higher net worth clients who have a disproportionate amount of their wealth tied up in their house (or a second home).

There are a number of excellent techniques which the article outlines very well.

Suffice to say that qualified personal residence trusts, tenancies in common, and grantor trusts in general are useful in reducing tax and I foresee greater use of these techniques as part of a plan to reduce or eliminate estate taxes while providing inheritances to loved ones in manners that are not only tax efficient but can effect the donor’s intentions in an accurate fashion as well.

Whether it’s to preserve a house on the Strand for the family or a vacation chalet, planning up front can make these desires reality.

Look for more discussion in this blog, our newsletter, and at our inhouse seminars in the future on this subject.