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How to set up an estate plan to eliminate paying taxes on an inherited home

rapmarks

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There are a lot of reasons to not put your home in your child’s name, and this is one of them
 

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My memory may be bad but I thought in the USA when you inherited real estate the value for tax purposes on sale was the FMV at time of inheritance.
 

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My memory may be bad but I thought in the USA when you inherited real estate the value for tax purposes on sale was the FMV at time of inheritance.
The article talks about a parent putting the child on the deed,or in the child’s name, while still alive. Our friends did this. Their home is owned by their son. When they pass on, if he were to sell it, since he never lived there, value goes back to value when it was gifted to him. He will pay tax on all the appreciation
 

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Many years ago, my in-law's had the attorney change deed into the names of her two sons. Third son was in hospice and was given money while he was alive. From what I remember/know, the house was sold/given to them for $10. It was a life estate. She had the right to live there until she died.

She passed a little more than two years ago and I don't remember paying any additional/extra taxes when she passed.

Now with my mom, the house was in an irrevocable trust. Kids beneficiaries. We sold the house last April. We are paying taxes on the capital gains (dividing it with number of siblings) - we each pay on our own share.

I think I am a little confused - does the article imply the opposite? Varies by state? Our accountant did it all .......I know we will be paying quiet a few dollars this round. Not complaining.
 

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When you inherit a piece of property or stock, etc it reevaluates on date of death. You really should not be paying capital gains on the house sale unless it appreciated a lot between her death and the sale. An accountant knows that.
And if the house was gifted, there is tax due upon the sale for capital gains between the date of gift value and sale value unless the gifted lived in the house. Because of life estate, it may make a difference.
I was just at a presentation Friday, the lawyer said this very thing, and this is what I have heard since 1995 when my father in law died and we had to start being careful about estates.
By the way, the lawyer who spoke was trying to scare everyone about taxes, and he mentioned that there have been proposals to do away with the stepped up basis upon death.
 

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We sold my mom's house 4 years after she passed so yes, it increased in value. The amount the house was worth at the time of her death and the price it was worth when we sold is what we are paying the capital gains on. This net gain is split between us 5 siblings.
 

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We inherited our parents house and we’re glad they did not put it in our names or we would have owed a lot of taxes on it based on when they bought it like 60 years ago!

Instead, we paid no taxes as we sold it just a few months after my mom passed (dad predeceased her).
 

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How is the fair value for the house that is set at the time of death?

An appraisal. If you have to look back a realtor may be able to provide comps from previous sale records.


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One way not to incur taxes is to not have an estate...
I hope to have no assets and spend my last dime on the date of my death.
If that doesn't work, well, everything's joint with my spouse anyway.
If we both go together, then the kids get a bump up in values.

OTOH, a lack of planning can prove costly if you're subject to estate taxes.
Years ago, Joe Robbie owned the Miami Dolphins, but the family had to sell to pay the tax.
.
.
 

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We had to have the house appraised when it was put into the Trust (the Trust was created a few years prior to her passing). We also have appraisals/comps at the time of her death.

The capital gains is not from the time she bought the house with my dad. It's from the time of her passing. She passed in 2015 but we just sold it last April (2019).

But with my mother-in-law - different story. It was already under my husband and brother in law. They were on the deed (Life Estate). Not sure I would recommend this. My brother in law passed before my mother in law and it raised other issues. But, we did not pay any taxes. It can work in one's favor - maybe if there is only one child. Long personal story :censored:

This is what we wanted to do with my mom - changed the deed but our attorney advised against it since there were 5 children.
 

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How is the fair value for the house that is set at the time of death?

I believe it was the realtor and also the appraiser that the buyer used. In our case, the house went through probate- was not in a trust- and our attorney handled everything in terms of getting the right information for us. I also assume you can use the tax assessment to a certain extent- not sure.
 

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One way not to incur taxes is to not have an estate...
I hope to have no assets and spend my last dime on the date of my death.

Agree 100%. The only asset I have left is a 9 yo car and 3 Bank Accounts which are all JTWROS with my kids or ex-wife. If they want to they can take my name off the accounts. If they don't care, all they have to do is change the SSN on the accounts to one of theirs. No probate, no hassle and no taxes...

George
 

rapmarks

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One way not to incur taxes is to not have an estate...
I hope to have no assets and spend my last dime on the date of my death.
If that doesn't work, well, everything's joint with my spouse anyway.
If we both go together, then the kids get a bump up in values.

OTOH, a lack of planning can prove costly if you're subject to estate taxes.
Years ago, Joe Robbie owned the Miami Dolphins, but the family had to sell to pay the tax.
.
.
I am wondering how you plan on timing this so exactly. When all your accounts hit zero, you just will yourself to die?
 

Talent312

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I am wondering how you plan on timing this so exactly. When all your accounts hit zero, you just will yourself to die?

If I outlive my assets, my pension+SS keep will coming, so I'll need a plan to deal with that...
I (or my caretaker) will hit a key as I expire converting the balance into pizza+beer for a party.
.
 
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Agree 100%. The only asset I have left is a 9 yo car and 3 Bank Accounts which are all JTWROS with my kids or ex-wife. If they want to they can take my name off the accounts. If they don't care, all they have to do is change the SSN on the accounts to one of theirs. No probate, no hassle and no taxes...

George


right, just have a monthly pension and social security and then spend it all each month.
Plenty of people do that. No estate problems with children, ex-spouses, creditors, etc
 
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