Tuesday, September 14 2010
An estate plan will help ensure your home becomes a legacy for your children—not a source of friction or a financial burden.
The time to solve estate planning problems is before they happen. Otherwise, what you think is a loving act—leaving your home to your heirs—can turn into a financial and familial disaster.
1. A good estate plan can keep your heirs from fighting
Say you intend to leave your house jointly to a son and daughter. But what if, as often happens, one child wants to live in the house and the other wants to sell it? A reasonable estate plan would not force one child to indefinitely forgo his or her share of the value of the house.
2. A good estate plan means no financial surprises
Consider these two scenarios:
Explain your situation to your heirs in advance as part of your estate plan, so they can be financially and emotionally prepared to accept an encumbered house as part of the estate.
3. A good estate plan means less of an estate tax hit
When it comes to estate planning, the biggest issue to consider is taxation. It’s a particularly thorny problem right now because the federal estate tax is in flux. If you die in 2010, there’s no estate tax, but it will almost certainly come back in 2011.
While that sounds like a good thing for 2010, there’s a catch: There’s only a limited “step up” for home value in 2010, according to Robert Demmett and Gerald Marsden, CPAs at Eisner & Lubin LLP in New York. When there is no step-up, your heirs could end up paying capital gains taxes on the difference between what you bought the house for 30 or more years ago and what they get for it when they sell. With a full step up, they would only have to pay tax on the difference between what the house was worth at your death and the sale price.
There are strategies for dealing with this, now and in the future. An estate planning attorney can set up a trust to help manage step-up issues.
4. A good estate plan can keep you from losing your house if you get sick
Of course, you may be thinking, “This is all academic. I’ll have to sell my home to pay for eldercare.” However, with a combination of long-term-care policies and trust-based solutions, you may be able to take care of yourself and leave your home to your heirs. Consult a lawyer experienced with estate planning or a qualified financial planner.
Read more: http://www.houselogic.com/articles/4-reasons-you-need-estate-plan-your-home/#ixzz0zQvgpDSw