The Value Of Home
If nothing else, the past few months have given many of us a greater appreciation for the value of our homes. A home is typically the largest non-financial asset Americans own at the time of death. As such, the transfer of one’s home is often a major consideration during the estate planning process. Whether the goal is to avoid probate, minimize capital gains, or attempt to qualify for Medicaid, there are several ways a home can be transferred through an estate plan.
If you have been in your home for a number of years, the value of your home has likely appreciated markedly since the time of purchase. Therefore, simply gifting your home to a loved one during your lifetime could have significant capital gains tax implications. So, what are some effective ways to plan for a transfer of your home while minimizing capital gains? Below are a few options:
Living Trust: By transferring a home into a living trust, the home is immediately taken out of the original homeowner’s estate. This means that when the original homeowner passes away, the transfer of his or her home will not involve a probate court. Upon the death of the original homeowner, a home that has been placed in a trust can be sold and proceeds distributed to loved ones with the benefit of a stepped-up basis for capital gains considerations.
Life Estate: By reserving a life estate in a home, the original homeowner maintains the right to live in the home during his or her lifetime. Upon the original homeowner’s death, the home transfers (with a stepped-up basis) to the named beneficiary. It is important to keep in mind that the original homeowner gives up many ownership rights to the property, including the ability to mortgage or sell the home, during his or her lifetime.
Transfer on Death Deed: Also known as a Lady Bird deed, a transfer on death deed allows the original homeowner to maintain full control and possession of the property during his or her lifetime. Upon the death of the original homeowner, the home will transfer to the named individuals outside of the probate process.
When all factors and options are taken into consideration, an estate plan can be a very useful tool for arranging the transfer of a home. To learn more, check out this recent article published by Forbes.
A huge thank you to so many who shared and took advantage of the free health care power of attorney and living will promotion over the past 4 months! Wishing everyone a fun and safe 4th of July!