Estate planning attorneys are always going to remind clients about the fact that your planning efforts should be seen as important and ongoing. There is a great deal in the balance when you consider the potential ravages of the federal estate tax so you want to be optimally prepared at all times.
With the above in mind, 2012 is a very significant year. Throughout the rest of this year the estate tax exclusion is $5.12 million, but it is going down to just $1 million in 2013. The maximum rate rises from 35% to 55% at the end of the year to go along with this reduction in the exclusion amount.
Your residence counts toward your taxable estate. When you consider the average value of a home here in the greater San Francisco Bay Area, many homeowners are a long way toward this $1 million exclusion simply via the value of their homes.
A very positive step that can be taken to reduce the taxable value of your home would be to place it into a qualified personal residence trust. You name a beneficiary who would assume ownership of the property after the trust term expires. As the grantor of the trust, you continue to live in the home throughout this term as usual and rent-free.
You have removed the home from your estate for tax purposes by funding it into the the trust. But, you are giving a taxable gift to the beneficiary.
The savings are derived from the fact that the taxable value of the home will be far less than its true market value after the IRS deducts the interest that you retained in the home while you continued to live in it after placing it into the trust.
To learn more about steps you can take to respond to the coming changes in 2013, simply take a moment to arrange for a consultation with a licensed and experienced Campbell CA estate planning lawyer.