Estate planning affords one an opportunity to manage their assets after their passing, or even after they become incapacitated.
For many people, a vital part of estate planning is deciding what to do with their homes – which is often their largest asset.
Gifting the house
Understandably, gifting a home to someone during life can sound like an enticing way to pass on this asset. However, while not an issue this year, exclusion amounts for lifetime gift tax exemptions will lower to about $5 million to $6.4 million by 2026 based on inflation estimates.
Accordingly, each dollar over your annual exclusion reduces your lifetime gift tax exemption, and may make gifting your home during life an unattractive option.
Gifting a home via a will or trust
Alternative to outright gift, you can protect and control its distribution to your loved ones after your passing through estate planning by making wills and establishing trusts.
Gifting a home via a will can ensure it goes to your intended recipient. However, wills are subject to probate, and the probate process can be time-consuming – meaning your beneficiary typically has to wait an undetermined period of time before becoming your home’s new owner.
Conversely, a trust can be a quicker option. Instead of a home going to a beneficiary via a will, establishing a trust that controls the distribution of the asset can both speed the process, as well as allow greater control over the use an occupancy of the home pursuant to the terms of the trust itself. Additionally, and unlike a will, using a trust to pass a home means the transfer won’t be on public record, and can also minimize capital gains taxes.
Selling the home
Instead of gifting your home, selling it to someone you choose can benefit you and this property’s future owner as well. This option enables you to remove your home from your taxable estate, and avoids the probate and/or trust process all together.
While it might not be a pressing issue now, having your estate and assets in order is crucial before it’s too late.
Resolving what to do with your property now helps save you and your beneficiaries future stress and confusion.